Making news in social media

Facebook (FB) just can’t stay out of the news—or out of the news feed, anyway.

The social media colossus wasn’t necessarily making headlines early in 2018, despite charging out of the gate with its FAANG brethren by notching a nearly 7% gain in the first five days of the year. But the rally hit a snag on January 12 after the company announced it was changing its news feed algorithm to prioritize posts from friends and family—you know, social media—over those from publishers and businesses.1

On the Facebook site, CEO Mark Zuckerberg wrote the move was a change in focus from “helping you find relevant content to helping you have more meaningful social interactions.”

While many Facebook users may have cheered the decision, traders immediately clicked “Don’t Like,” sending the stock down more than 4% on the day and closing it lower the next two days. The business implication: The news feed change could curtail what has been a reliable revenue stream from publishers and advertisers eager to get their content in front of Facebook’s billions of eyeballs.2

Facebook (FB), 11/20/17 – 1/18/18

Source: OptionsHouse

Of course, immediate reactions in the market are often overdone, and it will likely take a while for the news feed change to make its impact—good or bad—felt on the company’s bottom line. For its part, Facebook pointed out that publisher posts aren’t being banned, it’s simply that the ones that are actively commented on and shared would receive priority over those that aren’t.3 And further, the ad algorithm isn’t part of the change.4

Back to the stock action: At its lowest point on Wednesday FB shares fell to the general vicinity of the December 26 swing low, but the stock is still well above the December 5 low of $169.01 that was highlighted as a key support level here last month. But then the stock put in a strong rally yesterday on what was a weak day for the overall market.

Facebook (FB), 5/4/17 – 1/18/18

Source: OptionsHouse

Now let’s look at what Facebook has done after other big down days in the past:

●FB has closed down 3% or more 78 previous times before January 11. (The most recent examples occurred on November 29, September 25, June 9, and May 17, 2017.) Overall, the stock was higher six days later 62% of the time, with an average gain of 1.7%.

●There are only 14 examples of a 3% or larger down day followed by two more lower closes, but four days after these events the stock was, on average, up 2.6% from the close of the initial sell-off day.

It can certainly be helpful to make historical comparisons, but every market situation is unique. With the stock still relatively close to its all-time high, a pullback or correction in the broader market (or tech, specifically) could dampen FB’s attempt to rebound. Keep an eye on those support levels.


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1 Facebook to show more content from friends, less from publishers and brands. 1/11/18.

2 Everything to Know About Facebook's Big News Feed Change. 1/12/18.

3 The exec who runs Facebook's NewsFeed says the changes don't spell doom for publishers. 1/16/18.

4 The Ad Community’s Reaction to Facebook’s News Feed Algorithm Change. 1/16/18.