So far, 2019 is starting the opposite manner of how 2018 ended. The major difference is that this year, sentiment on Wall Street flipped back to positive. Investors are buying every dip and leaving no room for the sellers to gain momentum. Without any new, nasty geopolitical headlines, the instinct to “sell the rip” died and gave resurgence to the buy-the-dip crowd. Investors are still not out of the woods, however, as there are a slew of headlines and deadlines looming over the next few weeks. The most major of which is the U.S. political showdown and the tariff headlines from China.
Facebook (NASDAQ:FB), unlike most other stocks, has the added risk of data breach headlines. Not that the other companies are not also vulnerable to hacking, but because Facebook has already suffered a major incident last year and used up its free pass. So, from now on, it’s on notice, and it cannot afford another one.
By “free pass,” I don’t mean that it didn’t suffer any consequences. FB stock fell 40% from the July of 2018 high to the Christmas lows. And its management had to embark on a public relations tour, which included testifying in front of the governing bodies to justify its existence.
FB also had to hire 20,000 people to sensor its streams and limit the possibility of errant or criminal content. This worries me a bit because more eyeballs sifting through data means higher probabilities of leaks.
The good news is that so far, the added expense hasn’t crippled the operational results. More importantly, neither the users of the Facebook platform nor the advertisers have left the company. I personally know friends who are heavy advertisers and they still prefer using Facebook over Alphabet (NASDAQ:GOOGL).
This is why, recently, Facebook stock has been strong. It rebounded 39% off the December lows. But investors are still on edge. They react negatively, selling any FB headline related to penalties or breaches. The key point to this is how sustainable are the dips.
So far those interruptions in the chart have been minor and short. However, the earnings spike reaction left a giant gap below from $151 per share. So those who enter the stock long here may have to contend with the magnetism from this gap. Not every one of those gaps will fill, but they do leave the stock more vulnerable than normal. Add to it the macro-headline threat and, this week, FB stock has the potential of having an even worse week than last.
Along the way, there is the zone near $156 per share that could lend support if the selling persists. It played a key role last October, so there may be more battles around it this time around, too. So the dip to fill the gap may not even happen now but I need to know that the scenario is there.
In the long run, I bet that the data issues will die down … if we intend on staying connected, we have to accept the vulnerability of our data and privacy. Especially since Facebook’s situation wasn’t actually a breach. Rather, one of its clients breached Facebook’s terms of service. Facebook’s mistake was not telling the world about it at the time it happened.
Bottom Line on FB Stock
Nevertheless, for now, I have to remain nimble when investing in Facebook stock. Which means that I have to become a short-term trader if I want to avoid big draw-downs from headlines. So I use the aforementioned levels to watch for support.
On the way up, the opportunity levels which are also resistance are at $164.50, $166.20 and $168.60. If the bulls can take FB stock above $172.60, they’d invite more momentum buyers for a much bigger rally. This will probably coincide with positive headlines from the tariff negotiations with China.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
