DecisionPoint

Is Facebook (FB) a Bottom Feeding Candidate?

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Dominating the news today is Facebook and its crash to earth in one day, finishing the day down almost 20%. This has been a strong stock in a strong sector, but a poor earnings report took down Facebook, and also took down the NDX about 1.45% as investors were spooked out of the tech sector.



In today's poll on the MarketWatchers LIVE show, we asked viewers whether they believed Facebook was a bottom feeding opportunity. Interestingly more than half believe it is, but not right now with almost 1/4 saying they have no plans on touching it. Those 22% who believe it is a bottom feeding opportunity right now would be taking quite a risk, but is it a future opportunity?

The gap down on the daily chart is amazing to behold. This is a stock that has been on a tear since the end of April with only a few hiccups along the way. Based on the breakdown below the rising bottoms trendline and the 200-EMA, I don't think it's a risk I'd want to take right now. However, there is very strong support lining up just above $162. I say that it is strong based on the many "touches" of the support line this past year. I wouldn't consider testing the water until it successfully tests that support line. I suppose if you wanted to get in now, you could use that support as a stop. That's a large gap to fill and has the earmarks of a breakaway gap, meaning there is likely more downside, a lot more downside.

A reveal on the weekly chart is that $162 is shorter-term in nature. I look at this weekly chart with the negative divergence on the Price Momentum Oscillator (PMO) as well as the close well below the 43-week EMA and I don't see "opportunity".

Conclusion: While I think this could be a candidate for bottom feeding, now isn't the time. Facebook needs to digest today's decline, as do investors. My co-host, Tom Bowley on MarketWatchers LIVE mentioned that when investors lose confidence in a company, it takes time, sometimes years for investors to cozy up again. Look at General Electric (GE), it still is struggling with image and I know attempts to bottom feed on it have failed over and over (I speak from experience) this past year. My advice is to leave it alone for awhile and see whether support can hold at that $162 level.


Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Erin


Helpful DecisionPoint Links:

Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


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Erin Swenlin
About the author: helped create and manage the DecisionPoint.com website alongside her father, Carl Swenlin. Together, Erin and Carl launched the DecisionPoint daily blog in 2009. She hosts the MarketWatchers LIVE web show at StockCharts.com, and is also a Member of the CMT Association. Learn More
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