Trade of the Day: Facebook, Inc. Likely Has Further to Fall

fb stock - Trade of the Day: Facebook, Inc. Likely Has Further to Fall

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One of the most storied stocks of last week, if not the most storied one, was Facebook, Inc. (NASDAQ:FB). The stock continued sliding right into the close last Friday for a total weekly drop of about 13.7%. In my eye, the negative news flow from recent weeks will keep a lid on this stock and  longer-term investors might find better (lower) prices still to buy into the stock.

When I discussed FB stock last week on March 21 before the start of the trading day I offered two next downside targets; $160 followed by the low $150’s. Last week I also offered that any bounce toward $174ish could set up a new short-side trade. This new trade triggered the very same day on March 21st and the first downside target at $160 was reached by Friday.

So you know and very much in line with broader market positive correlation, the Nasdaq 100 as represented by the PowerShares QQQ Trust (ETF) (NASDAQ:QQQ) traded lower in kind last week and also looks to point lower toward $150 as a next better but not imminent downside target.

Facebook Stock Charts


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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

Looking at Facebook stock on its multiyear weekly chart, we see that last week’s sharp drop now has it mean-reverting back into the longer-standing up-trending channel, which I marked with the black parallels.

The lower end of this trading channel is also supported by the blue 100-week simple moving average, all currently around the $150 mark. I don’t foresee the stock falling toward these levels in a straight shot (although nothing can be ruled out), but given the news flow and the chart setup here FB stock does look to have good odds of gravitating lower within the context of a bigger picture mean-reversion move.


Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, note that last Friday’s drop came after FB stock consolidated for two days mid-week. The one-week total drop of about 13.7% does, however, feel somewhat excessive in the immediate term, which is why I once again reiterate to the active investor and trader that legging into short positions for trades in this stock is better to be done on oversold bounces.

Specifically, if and when we were to see a bounce back toward $164-$165 next short side trades either via short FB stock itself, long puts or put spreads or even by selling out of the money call spreads could be entered. The next downside target through a multiweek lens is in the low $150s.

Check out Serge’s Daily Market Outlook for March 26.

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