Facebook, Inc. (FB) is trading deep into bear market territory, but the stock has posted solid gains since trading as low as $123.02 on Dec. 24. Facebook stock closed Monday, Jan. 28, at $147.47, up a solid 12.5% so far in 2019 and up 19.9% since its Dec. 24 low of $123.02. However, this near-term strength does not offset the bear market decline of 32.6% from the all-time high of $218.62 set on July 25, 2018.
The company suffered privacy scandals during 2018 that were forgiven until the high of $218.62 was set on July 25. This was the day when Facebook reported disappointing quarterly earnings and was followed by a huge price gap lower on July 26, which eventually resulted in a "death cross" formation confirmed on Sept. 20.
Despite the turmoil, Facebook remains the leading social media platform on the planet. Facebook has other platforms that will continue to show growth: Instagram, WhatsApp and Messenger. The key to earnings is continuing to grow Facebook's share of digital advertising dollars. Another area of growth could be the sales of products advertised on Facebook. Sales for the 2018 holiday season could be reflected in the guidance related to the upcoming earnings report.
Facebook is set to release its quarterly report after the close on Jan. 30, and analysts expect the social media giant to post earnings per share between $2.17 and $2.26. A metric to keep an eye on is monthly active users. Facebook indicates that more than 2.6 billion people around the world use Facebook, WhatsApp, Instagram and Messenger every month. Guidance on these statistics could be the key to volatility following earnings.
The daily chart for Facebook
The daily chart for Facebook shows the stock below a "death cross" that formed on Sept. 20, when the 50-day simple moving average declined below the 200-day simple moving average, indicating that lower prices would follow. This bearish indicator was in play when the stock traded to its Dec. 24 low of $123.02. The close of $131.09 on Dec. 31 was input to my proprietary analytics. This resulted in five horizontal lines on the daily chart. My weekly value level is $141.49, with my monthly pivot at $150.99 and my annual, semiannual and quarterly risky levels at $181.70, $189.47 and $200.75, respectively.
The weekly chart for Facebook
The weekly chart for Facebook is positive, with the stock above its five-week modified moving average at $144.16 and above its 200-week simple moving average, or "reversion to the mean," at $137.28. The stock has been above its "reversion to the mean" since the close on Jan. 4. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 62.32, up from 51.69 on Jan. 25.
Note that, when the stock set its all-time high on July 25, the stochastic reading was above 90.00 at 93.47, which I describe as an "inflating parabolic bubble." This was the first technical warning to reducing holdings.
Trading Strategy: Buy Facebook shares on weakness to my weekly value level at $141.49 and its 200-week simple moving average at $137.28, and reduce holdings on strength to the 200-day simple moving average at $167.08.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.