Shares of Meta Platforms (NASDAQ:FB) dropped on Wednesday, closing -0.95%, after reversing out of an initial 1.00% gain.
The rapid downturn followed the publication of a Wall Street Journal report that described how Facebook executives sought to meddle in politics in an effort to drive additional discord between Democrats and Republicans, following Congressional revelations about the company's practices by whistleblower Frances Haugen.
Her testimony revealed in extreme detail the negative influence of the social media platform across a variety of spheres. Facebook's interference was an attempt to forestall stricter regulations in the space, then being discussed by US lawmakers.
This isn't the first time negative publicity has pressured the social media behemoth's stock. But in this case, it's noteworthy that a similar reversal occurred during Tuesday's session, when the shares closed flat after gaining 1.89% intraday, with no apparent reason for the reversal. On Monday, FB shares soared, closing higher by 3.26%.
Was the rapid slump on Tuesday motivated by informed money, acting on a rumor, before the actual news was published?
Maybe, but perhaps not. The technical chart helps pinpoint the more likely reasons for Tuesday's moves.
From the chart, it's apparent that Tuesday's sharp reversal occurred as the price touched the resistance of a trendline since Sept. 27. Notice too that the same trendline—from where the stock sold off on Wednesday—is the neckline of an H&S.
The 200 DMA's arrival for the first time since March underscores the sensitivity of this price-pressure point on the chart, as market forces battle over the direction of the trend.
Note how the price found resistance this week precisely below its previous rising channel, underscoring the struggle for control between bulls and bears. If the resistance endures, bears will have usurped leadership after the bulls drove up prices from the March 2020 low along the green channel. Should that occur, the price will resume its downward trajectory along the falling channel.
The 50 DMA just crossed below the 200 DMA this month, for the first time since the 2020 bottom. On the other hand, the 50 DMA has rebounded; if it gains on the 200 DMA, it will demonstrate a bearish failure.
The MACD, which is heading higher, is a lagging indicator. That's why yesterday's selloff didn't yet affect it, as it did the momentum-based, leading indicator, the RSI. However, we see the same pattern with the RSI. Therefore, if the price provides an upside breakout, so will momentum.
Trading Strategies
Conservative traders should wait for the resolution of this battle—either an upside breakout or a new low, below $299.50, registered on Dec. 3. An upside breakout would occur if the price were to close above $363, followed by a return move that retests the neckline's support.
Moderate traders would buy an upside breakout, with a close above $360 and a buying dip that would follow.
Aggressive traders could short if the price nears the neckline, or go long upon a return to the short-term uptrend line since the Dec 3 low. A trading plan will determine success or failure. Here are a couple of examples:
Trade Sample #1 – Aggressive Short Position
- Entry: $352
- Stop-Loss: $353
- Risk: $1
- Target: $342
- Reward: $10
- Risk-Reward Ratio: 1:10
Trade Sample #2 – Aggressive Long Setup
- Entry: $335
- Stop-Loss: $334
- Risk: $1
- Target: $345
- Reward: $10
- Risk-Reward Ratio: 1:10