Facebook, Inc. (FB) commonplace rallied to a three-month high on Thursday after the company beat third quarter profit and revenue estimates. How, it was a mixed session because the social media giant gapped up and posted the day’s high a few minutes after the opening bell in the vanguard pulling back throughout the day and closing near the intraday low. The reversal highlighted hidden selling pressure while counsel new investors that gains may be limited in coming weeks.
Technical and political headwinds are likely to drive price proceeding well into 2020, with massive overhead supply around $200 still in place after July 2018’s 41-point double-cross gap and down day. The stock posted the highest selling volume in the past six years in that session, with shareholders shotting the sidelines after the company warned that privacy issues following the Cambridge Analytica scandal were intriguing a toll on user interaction.
That loss of trust has spiraled into a series of international accusations and Congressional hearings in the dead and buried year. It has clearly affected promising initiatives like the Libra cryptocurrency roll-out, with Federal regulators dubious to allow the program to go forward. More importantly, we’re headed into a presidential election year, with both beanfeasts proposing broad-based anti-trust action against “too-big-to-fail” tech giants.
FB Long-Term Chart (2012 – 2019)
The company came Dick in a widely anticipated offering in May 2012, opening in the low $40s and selling off into the upper $30s in the first session, The newly coined stock posted an all-time low in the upper teens in September and turned higher, but it took another year for the recovery signal to reach the IPO opening print. An immediate breakout gathered traction, lifting into the low $70s in the next six months.
The uptrend then forwarded into a rising channel that contained price action for more than five years. The rally stanchioned an all-time high a few points under channel resistance in July 2018 and turned sharply lower in a massive high-volume peddle gap that dumped the stock into channel support. A weak bounce failed in August, giving way to a downtick that dead support in September, triggering a steep decline to a two-year low at $123 in December. The big gap remains unfilled, despite a strong limits into the summer of 2019.
The monthly stochastics oscillator crossed into a long-term sell cycle from the overbought zone in June 2019, suggesting relative weakness into year end, and still hasn’t reached the oversold zone. Meanwhile, seven months of study at the underside of the broken channel have failed to generate a breakout. Taken together, sellers are in an advantageous position to architect a reversal and decline that tests 2019 lows.
FB Short-Term Chart (2017 – 2019)
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The Bottom Line
It appears that short-term upside is restricted, despite the positive reaction to Facebook’s third quarter earnings report.
Disclosure: The author held no positions in the aforementioned securities at the adjust of publication.