Last Thursday, Facebook (NASDAQ: FB) stock shares collapsed over 20% after it reported earnings for a shocking tear drop price drop. However, this week the shares have bounced off of the lows of last week to even help push the Nasdaq up a bit as Facebook stock heavily weights the Nasdaq 100 index.
Today though Facebook is in the red in the afternoon and the Nasdaq is performing worse than the S&P 500 on this Tuesday too. One problem is that FB shares are now facing stiff price resistance on the technical analysis chart. In a market dominated by computer trading this is an important moment for the stock. This 60-minute chart shows what I mean.
Facebook shares are stalling out today at exactly the 1/3 retracement level of the July top and low of the stock. The next resistance point is the 50% retracement level at 192. It is going to be tough for Facebook to go through that level without first consolidating and forming a base for at least several weeks first.
On a daily chart though, a stall out here could lead to big problems if Facebook ends up going through its July lows as that would mean that it’s making lower lows and lower highs. That’s the definition of a downtrend and means that we would have to expect further losses in the stock until that trend is broken.
The reality is Facebook has been one of the top performing stocks in the entire market now for the past several years. This is causing people to try to play the drop as a bargain buy, but the chart suggests that there is no reason for anyone to feel like they need to buy in fear of missing out on a big gain anytime soon. At best it will take several weeks for the stock to stabilize before running to a new high, and at worse this is just a simple dead cat bounce that represents a pause before another big price drop.
Personally, I believe the latter, but I know that’s a minority opinion right now. People are bullish on the stock market and want buys and not warnings or sells.