Can Facebook Stock Hit New Highs?

Facebook, Inc. (FB) shook off privacy scandals and government headwinds in 2019, reporting just minor impacts to user growth and advertising revenues. The stable metrics underpinned a solid recovery effort after 2018's 40% plunge to a two-year low, lifting the social media giant within 10 points of the all-time high posted in July 2018. The stock is now trying to clear the July 2019 high at $210 and close the distance into that peak, setting up a key test at resistance.

The Cambridge Analytica incident generated a 42-point gap on July 26, 2018, while the majority of 2019 price action attempted to fill the big hole. The stock has now absorbed a big portion of that bearish supply, lifting accumulation readings back to levels more consistent with a healthy uptrend. However, recent Mideast events could make it harder to find the buyers needed to complete the round trip, so a cautious approach makes sense, at least in the short term.

FB Long-Term Chart (2012 – 2020)

A widely anticipated May 2012 initial public offering (IPO) fell flat, opening at $42.05 and dropping like a rock into September's all-time low at $17.55. That marked a historic buying opportunity, ahead of a recovery wave that reached the IPO opening print in September 2013. A breakout attracted healthy buying interest, carving a steady uptrend that stalled above $70 in March 2014.

A sell-off into May 2014 attracted committed buying interest, setting off a recovery wave that eased into a broad rising channel a few months later. The uptrend got locked within that pattern for more than four years, indicating substantial institutional sponsorship, finally breaking channel support after July 2018's bearish breakaway gap. The decline settled just above the 2016 low near $115 in December, setting the stage for a strong 2019 recovery wave.

The weekly and monthly stochastics oscillators have now reached their overbought zones, but neither is showing signs of crossing over, so there are no long-term warning signals in place. However, 2019 and 2020 price action has failed three attempts to remount the broken rising channel, despite two short-term breakouts. In turn, this tells investors that hidden resistance remains in control, despite considerable upside in the past 12 months.

FB Short-Term Chart (2017 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator entered a sustained accumulation phase after the 2016 election, reaching an all-time high with price in July 2018. Subsequent selling pressure dropped OBV about two-thirds the distance back to the prior low in December, ahead of renewed buying pressure that faded through the middle of 2019. Buyers returned in force in the fourth quarter, lifting the indicator within a stone's throw of the 2018 peak.

A Fibonacci grid stretched across the 2018 decline highlights price action near the .786 sell-off retracement level, which has narrowly aligned with the psychological $200 level and broken rising channel on the long-term chart. The stock initially reversed at this considerable barrier in April 2019, ahead of July and December impulses that have triggered whipsaws. Despite this two-sided action, it looks close to escaping gravity and spiking into the all-time high near $219.

Even so, broad sentiment will need to improve this January to attract the firepower needed for the assault on 2018 resistance. A strong earnings report on Jan. 20 may do the trick, but a reduction in Mideast tensions is also needed, and that seems unlikely in coming weeks. In the meantime, any sign that market activity has returned to "business as usual" will be bullish for Facebook and its efforts to break out to new highs.  

The Bottom Line

Facebook has recovered from 2018 privacy scandals, and the stock is trading close to the bull market high, but macro headwinds could delay or deny a major breakout.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.