Facebook Inc stock has had a steady year to date. Shares are up close to 8 percent, compared to a mere 1 percent rise in the S&P 500 Index.
But this week’s break below a key support zone has reinforced fears that all’s not well with the stock.
Facebook Inc Stock Rally Under Threat?
A look at the daily price chart of FB shows the stock bounced smartly off the lows of January to plot an all-time high of $121 last month. The pullback that followed found support around the $116-mark, completing the classic uptrend formation of a higher pivot low.
Bulls were charged, and a new life-time high seemed just a matter of time. But the script changed dramatically when the Stochastic indicator signaled a bearish “divergence” between price and the oscillator. Shares reversed from the area around $120, and the ensuing sell-off took the stock below the key support at $116.
If the principles of the classic Dow Theory were to be followed, Facebook is already in a down trend. But considering that the social network had such a big bull run, traders would be advised to seek further confirmation before going short on the stock.
On the downside, $108 has seen multiple price reversals in the past, and should act as a strong price floor in the event of shares drifting lower. If bulls fail to hold on to that level, the down trend will be confirmed.
Citron Agrees – Facebook Inc is a “Short”
Corroborating the weak technical outlook is Citron Research’s Andrew Left, who reckons that “this is a great time to sell” FB. Talking to CNBC’s “Fast Money: Halftime Report,” the analyst, who gained notoriety for successfully predicting the downfall of Valeant Pharma, said “Facebook is losing an extensive amount of relevancy…I am short Facebook.”
Left goes on to add that Facebook is fast ceding market share to Snapchat, and “overstaying its welcome in other niches…It just will not be a $330 billion company in a year.”
However, Peter Garnry at Saxo Bank believes the tech giant is undervalued and has further room on the upside.
Investors are “miscalculating the compound of growth…the profit margins are phenomenal and could easily expand if they cut back a little bit on capex or R&D,” he said on CNBC.
Shares of Facebook Inc closed Thursday at $114.39.