Facebook, Inc. (FB) shares were fully in bull market zone on July 25 until after the closing bell, when the company missed earnings projections. This resulted in a 23.8% drop in three days from the all-time intraday high of $218.62 on July 25 to the low of $166.56 on July 30.
This tumultuous voyage started on March 19, when Facebook admitted that Cambridge Analytica, a data analysis firm, gained access to data on around 50 million Facebook users. Facebook was aware of the breach of the company’s terms of service for some time, but when it became public on March 19, the price dropped. (Facebook also suspends a Cambridge Analytica-like app.)
Because the news came just before the end of the first quarter, the negative impacts on profits did not harm the bottom line. On March 26, the stock reached its 2018 low of $149.02 before returning to its yearly pivot of $162.65 on March 27. This magnet remained a purchase opportunity until April 25, when first-quarter results exceeded expectations. The Facebook bulls argued that the data issue had not harmed the company and that Facebook shares were on a fresh momentum run-up. As second-quarter results were revealed on July 25, the stock reached an all-time intraday high.
When I profiled Facebook ahead of results, I cautioned that the stock had turned into a “inflating parabolic bubble,” which I always consider to be a technical warning. When the weekly slow stochastic value rises over 90.00 on a scale of 00.00 to 100.00, this signal is generated. Missing second-quarter results after the market closed on July 25 was the spark that completed the three-day cycle from parabolic bubble to bear market.
This week, Facebook shares started to fall further as a result of harsh testimony and questions about social media privacy and security before a Senate committee. The stock fell closer to my yearly value threshold of $162.65 this morning.
The daily chart for Facebook
Courtesy of MetaStock Xenith
At $187.43 and $181.46, respectively, Facebook is trading far below its 50-day and 200-day simple moving averages. My yearly value level of $162.65 is shown by the lowest horizontal line. My monthly danger level for September is $180.68, which is barely below the 200-day simple moving average. Take note of the decreased price discrepancies on March 19 and July 26.
The weekly chart for Facebook
Courtesy of MetaStock Xenith
Facebook’s weekly chart is bearish, with the stock trading below its five-week modified moving average of $178.65. At $130.13, the stock is far above its 200-week simple moving average, or the “reversion to the mean,” which has never been tested for Facebook shares. The weekly slow stochastic value of 12 x 3 x 3 is expected to fall to 22.58 this week, down from 27.90 on Aug. 31.
Given these charts, investors should purchase Facebook shares on dips to my yearly value level of $162.65 and sell them on rises to my monthly hazardous level of $180.68. (For more information, see: Facebook App Loses a Quarter of Americans.)
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