Chart Of The Day: Meta Platform Stock Sinks; Dead Cat Bounce Or Dip Buy Ahead?
Investing.com | Feb 04, 2022 00:17
After Meta Platforms (NASDAQ:FB) missed on expectations for its Q4 earnings Wednesday, following the US session close, and also disappointed on guidance, shares of the social media giant are being dumped during Thursday's pre-market trading. The stock closed at $323 yesterday ahead of the release, but at time of writing, pre-market shares are at the $250 level, down more than 22%.
FB posted an EPS of $3.67, falling short of the $3.85 estimated. Total revenues increased 20% to $33.67 billion, beating the $33.34 forecast. However, it was the Menlo Park, California-based firm's guidance for first-quarter revenue that likely sparked the slide. That metric is forecast to be in the $27-$29 billion range, representing growth of 3% to 11%, falling short of analysts' expectations of $30.2 billion.
The company clearly suffered from privacy changes to Apple's (NASDAQ:AAPL) iOS mobile software, which allowed users to opt out of tracking, reducing FB's ability to sell targeted advertising and garner a host of user analytics.
Is this pre-market collapse the beginning of additional declines for FB shares, or will dip buyers now drive up the discounted stock?
Things don't look promising. Meta stock will almost certainly enter bear market territory when pre-market prices make the shift as the NY session opens on Thursday. Adding to the pressure, the 50 DMA's recent cross below the 200 DMA triggered a death cross, followed by the 100 DMA falling below the 200 DMA for an additional bearish signal.
However, after such a hefty collapse, we'd at least expect a 'dead cat bounce,' the market term for a stock that falls so hard, even if it were a dead cat it would still bounce back...at least for a bit.
Also, if the price opens where it now stands during the pre-market, this will occur near the September–January lows, which would act as support. If that happens, the price could form the right shoulder of an H&S top, completed once the neckline (green line) at $245 is broken.
h2 Trading Strategies/h2Conservative traders should wait for either new highs that put the stock back in bull market mode or at least extend the previous uptrend. Alternatively, to avoid a bear trap, they should wait for the H&S top to complete, with a close below $240 and a return move that verifies resistance.
Moderate traders would buy shares if prices demonstrate accumulation or sell if the price falls below $245.
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Aggressive traders could enter a contrarian long-position, counting on the support of previous lows and the possibility of a dead cat bounce. However, they must understand that there is no way to know whether any individual trade will be successful. They should aim to do well by consistently trading according to their money management plan. Here is an example:
Trade Sample
- Entry: $250
- Stop-Loss: $244
- Risk: $6
- Target: $286
- Reward: $36
- Risk-Reward Ratio: 1:6
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