Is This the Best Time to Take an Advantage on Facebook?

Facebook stock is currently trading in a bearish trend, with both technical and fundamental analysis provide a weak sentiment for the company.
Peter Bukov

Facebook stock has dropped some 25% from the record highs scored in late July. It appears buyers are hard to find as the price is continuing to drop and we are witnessing lower lows and lower highs, which is a definition of a declining trend. Moreover, since the stock is now down more than 20% from its peak, the company is officially trading in a bearish trend.

Back in July, Facebook announced earnings and revenues which were below market estimates, and more importantly, Mark Zuckerberg lowered guidance for the upcoming quarters. Investors usually give the majority of their attention to guidance and, since the company notably lowered it, the quarterly results reflected negatively on the company and the stock plunged 20% in one day.

Let’s refrain from the fundamentals for now – although the company’s operating margin is at an all-time high at 49.70%, and both revenues and profits are rising at a fast pace. Investors think this solid growth might slow down in the next quarters.

The technical picture seems more interesting at the moment. The latest drop has brought the price to the 5-year long bullish trend line, which is currently being tested and the price appears to be bouncing off this line. The bullish trend line is currently around 160 USD and has been held constant in recent years. Every time the stock dropped to this trend line, bulls immediately re-emerged and pushed it higher.

Facebook Daily Chart

The same could occur nowadays – the price has been consolidating since the big drop and we might see a rally very soon. Moreover, the RSI indicator is very close to 30, which indicates oversold conditions. Each time the indicator was this close to 30 in the past, a rally occurred.

The combination of the strong technical picture and the possible solid earnings report on October 24th indicates that the bullish trend may be revived.

On the other hand, if the price declines below the mentioned trend line, we could see a quick drop compared to April’s low near 150 USD and the next target for bears could be in the 132 USD region.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

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