Because I want what is best for my readers, I am going to share my thoughts at the risk of sounding repetitive. Facebook (NASDAQ:FB) stock is a better long than short.
Wall Street traders can be a fickle bunch. Just look at how they reacted to Facebook’s most recent earnings report. They sold it down hard in spite of the company delivering strong results. Amazon (NASDAQ:AMZN), on the other hand, spiked hard on similar growth results. At the time I shared a write-up suggesting that the reaction to sell FB stock was wrong. That marked the very bottom of the tizzy and a 8% rally ensued. This is not to say that I am a genius, because that is never my goal. However, logic prevailed where emotions failed investors.
It is human of us to fear missing out on the way up and to panic on the way down. That is why it is best for investors to use charts and identify the levels that matter. Knowing where support and resistances levels lie allows us to control our emotions. These levels are also important when it comes to timing investments and managing risk. Then, when a stock falls 7% purely on headlines, there is less chance of panic and emotion-driven action. Selling Facebook on its earnings dip was a mistake. Those who sold missed out on a healthy rally or incurred unnecessary losses.
The long-term thesis on FB stock remains bullish. Facebook is firing on all cylinders and has an incredible marketing reach. We can all see the potential of its main platform, which has almost 2.5 billion active users. Furthermore, the company recently announced that WhatsApp also has over 2 billion active users. Count me in as one of those — I am on the app all day, every day.
Clearly if markets are higher in the future, so is FB stock. Shorting it here is the same as betting that the stock market will correct. This one is headed higher with time.
Ignore the Experts
We do not need the experts to tell us what a stock is worth. Average investors are better off using simple logic to develop a thesis. As soon as Facebook’s privacy issues broke — on news of the Cambridge Analytica scandal — experts concluded that the stock was doomed. That turned out to be false, as investors and users didn’t seem to care. Then, experts spent months fear-mongering as new European privacy laws were enacted.
Facts are facts. And facts won’t change unless the situation changes. For now, Facebook has average revenue per user of $8.52. With almost 2.5 billion users that is undeniable momentum. It would take massive disruptions across all of its platforms to derail the company. Until then, FB is a cash-generating machine.
How to Trade FB Stock
The earnings failure candle marks the top to beat. When that happens, it would invite momentum buyers, which will cause a spike. Until then, the short-term supports are around $208 per share. This is the pivot from last July, and to an extent, the October 2018 top. These are short-term levels that matter for the more active traders.
A break below $201 per share could carry momentum in that direction. But as long as FB stock is above $175, the long-term buyers are in charge.
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. Join his live chat room for free here.
