It's been a rough eight months for Meta Platforms (NASDAQ:FB) as the company's stock more than halved in value, losing over 54%, as of last Wednesday's close.
About half of the losses that have been weighing on shares of the Facebook parent company occurred on Feb. 3, when the stock fell 26.4% in a single day, wiping out more than $230 billion in market value. It was the single worst loss of value on record.
The FB selloff was triggered by a dismal quarterly earnings report, which included a number of misses including for profitability, along with news of declining users for the Facebook platform. It was the first time in its history the social media giant showed quarter-on-quarter declines in this crucial metric.
The company's most recent earnings report, on Apr. 27, was a different event entirely. Meta beat EPS expectations, though revenue disappointed. The stock skyrocketed nonetheless, gaining 17.6% in the following session.
User acceleration was especially heartening to investors, easing worries the platform was bleeding, as users defected to TikTok and other, more youth-focused sites.
But does the stock's rebound along with more positive fundamentals suggest a bottom is in?
Shares found support by an uptrend line in play since the December 2018 low. The Apr. 27 trough was 9.5% lower than the Mar. 14 low. Although that sounds like a significant drop, considering the 43.3% dive from the Feb. 2 peak to the Mar. 11 trough, it is a proportionately minor decline. So much so in fact that it could turn out to be an H&S bottom.
However, the broader view, via the weekly chart since 2018, tells a more nuanced story.
Via this view, it's easier to identify that the rising trendline to which the price returned is flat relative to the advances, setting up the potential for a much larger, upward sloping H&S top.
While the price dipped below the 200-week MA twice, in December 2018 and March 2020, forming two left shoulders, it is the first time trading formed a peak, turning the primary MA into resistance—the first time this has occurred since the company went public on May 18, 2012.
The 50-Week MA is bearing down hard on the 100-Week MA, which is also falling. So, how should a trader proceed amid these developing patterns and crossing trends? Should they take a long position or go short? That decision will depend on their skill level.
Trading Strategies
Conservative traders should wait until either the smaller H&S bottom or the more oversized H&S top complete before making a move.
Moderate traders could risk a buy if the price successfully retests $170 levels or if it bests the $240s.
Aggressive traders would short after the price retreats from Friday's highs, below the 50 DMA, before joining moderate traders. When patterns are still emerging, money management becomes the crucial decision. Here's an example:
Trade Sample – Aggressive Short
- Entry: $205
- Stop-Loss: $215
- Risk: $10
- Target: $175
- Reward: $30
- Risk-Reward Ratio: 1:3
Follow-Up Trade Sample – Aggressive Long
- Entry: $175
- Stop-Loss: $165
- Risk: $10
- Target: $205
- Reward: $30
- Risk-Reward Ratio: 1:3