Investors unfriended Facebook (NASDAQ:FB) en masse on Tuesday. But is that an opportunity to buy? Let’s take a look at what’s driving FB stock off and on the price chart and determine if it’s actually a good time to purchase, sell or hold shares in today’s market.
Wall Street was less-than-chummy with FB stock in Tuesday’s session. By the close shares had shed 3.91%. The price action compares unfavorably to the S&P 500 which finished down just 0.33%, as well as FAANG and fellow under-investigation peers Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon (NASDAQ:AMZN), which fell 0.25% and 1.12%, respectively. So, what gives?
Facebook’s probe(s) by authorities took a turn for the worse as the state of New York’s lead prosecutor expanded the scope of the investigation to include 47 state attorney generals. That’s up from just eight states initially supporting the initiative in September to determine whether Facebook has mishandled consumer data and engaged in anti-competitive practices.
That’s not all FB stock is being challenged by either. There is of course the Federal Trade Commission’s separate antitrust investigation. Also, CEO Mark Zuckerberg is testifying before Congress regarding Facebook’s cryptocurrency project Libra. And it should be remembered Facebook has already been forced to pay out a $5 billion data privacy settlement this summer. In total, the case against owning FB stock has certainly grown over the past few months.
Still, should everyone simply get over it? To be certain there are times when taking that type of stand makes sense. And InvestorPlace’s Will Healy sees today’s headline indictments against Facebook as noise meant to distract investors from Facebook’s underlying fundamentals and superior market position. Respectfully though, the FB stock chart has reached a guilty verdict.
FB Stock Weekly Chart
Arguably, buying FB stock on the basis of its underlying business and growth potential and bucking Tuesday’s risk-off trade in shares makes sense. But the weekly chart isn’t simply noise or a distraction that should be dismissed. If you think Facebook is compelling now, much better opportunities await.
Technically, Tuesday’s sell-off in FB confirmed a weekly pivot high. In and of itself, that price action isn’t a sufficient reason to be alarmed. But the past few months of trading in Facebook stock have established a double top and channel breakdown tied to last December’s corrective low. As much, what could otherwise be considered a benign pattern has this strategist seeing a top within a well-positioned bearish flag set against resistance. And not to be overlooked, the entirety of this bearish unraveling of Facebook stock has been plagued by a weak-looking stochastics.
The Facebook Stock Trade
Many investors aren’t comfortable shorting stocks. That’s understandable given the theoretical unlimited exposure. But bearish positioning with limited and reduced risk is definitely approachable using FB stock’s options market. The December $165 / $150 put spread trades for roughly 1% of the risk associated with shorting Facebook and allows for big-time profits and returns is one such opportunity.
At a minimum, if investors have long exposure in Facebook stock, I wouldn’t be dismissive of the crowd or ignore FB’s bearish-looking chart. Reducing a long position until conditions firm up technically and a friendlier trend reasserts itself, or until there’s actual blood on the streets makes sense to this strategist.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
