Friending potential trade opportunities
08/23/18

If actions speak louder than words (hint: they usually do, especially in trading), Facebook (FB) users are apparently indicating they’re not really concerned about Russian election meddling or the privacy breaches that the company has had to confront over the past several months.

The stock price had a few things to say along the way. As these saga(s) continued, the stock dropped to a nearly eight-month low of $149.02 in late March, only to catapult 47% to a record high of $218.62 in late July:

Facebook (FB), 2/27/18–8/22/18. Facebook (FB) price chart. A test for the bulls.

Source: OptionsHouse

Then came the nearly $51 (23.5%) thumping in the three days following the company’s July 25 earnings release, which showed a slowdown in user growth (which was still up, by the way, just not as much as estimated, and below the rate of previous quarters).1

In terms of assessing whether that sell-off was overdone, in the short term the proof was in the pudding: Bulls who were brave enough to buy on, say, the close of July 26, saw the stock rally nearly 5.5% over the next seven days, despite the stock initially dropping even more after they got in; those who stepped in on July 30 were up more than 8.5% five days later.

Since then, though, FB shares have seemed intent on testing the post-earning swing low (a pretty run-of-the-mill price-action development, all things considered), pulling back over the past couple of weeks to around $171–$172—the level of the July 30 closing price.

Has sentiment changed around Facebook? An interesting piece of news on that score may be the recent PiperJaffray study that indicated the majority of Facebook and Instagram users (the latter being a subsidiary of the former) weren’t really concerned about privacy issues or fake news,2 leading some (and some other analysts and investment firms) to maintain a bullish outlook on the stock, and a price target in the $200 range.

Also, maybe—just maybe—the fact that Instagram use has continued to expand (the platform topped one billion active users a couple of months ago)3 has been lost in the shuffle.

Although FB’s latest down swing appeared to be losing momentum the past few days, experienced traders wouldn’t be surprised for the stock to drop to or below the July 30 mini-spike low of $166.56—i.e., just enough to scare the pants off traders who may have bought on the initial rebound off that low.

Whether the trading day will bring rain or shine, it’s always darkest before the dawn.

Market Mover Update: Lost in the mini-hubbub surrounding Tuesday’s new record (intraday) high in the S&P 500 (SPX) was the Russell 2000’s (RUT) much stronger breakout move, which took the small-cap index to a new all-time high and close—and a nearly 12% gain on the year.

And speaking of breakouts…

As of yesterday, Total System Services (TSS) was up a cool 5.6% since pulling back to the breakout level noted in “Letting the market come to you.”

 

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1 Tech Crunch. Facebook stock tanks from mixed Q2 with slowest-ever growth. 7/26/18.

2 CNBC. Facebook users 'don't seem to care' about data scandal, fake news. Analyst says buy on the dip. 8/20/18.

3 Forbes. How Instagram Is Eating The World. 6/25/18.