Facebook, Inc. (FB) suffered its largest one-day decline (by percentage points) in five years and was the primary catalyst given for the steep drop in the markets yesterday. The stock closed 6.8% lower as it was reported that Cambridge Analytica (a political analysis firm) collected and stored data from 50 million users’ accounts without permission.
Now this has got the financial news networks driving investor fears about own tech stocks through the roof. And unfortunately, when these kinds of things happen, the question then becomes whether or not you should dump everything you own.
But my direction to you is the same as it always has been…
Don’t get caught up in the noise and forced commentary of the talking heads who sensationalize recent events to get their ratings – and their revenue – up.
Plus, when a stock is really headed to Wall Street purgatory, we’ll sound the alarm… You see, my colleague Shah Gilani is the only person who can identify which stocks have an almost 100% chance of working in your favor.
But with this special type of trade, you can bank profits as high as these stocks plummet. The odds are heavily stacked in your favor, even when the market is fierce, unstable, and completely unpredictable. Click here to see how.
And in terms of dumping your tech stocks – especially FB – is the worst thing you could do to your portfolio right now.
And here’s why…
Facebook Isn’t Done – Here’s Why It’s Not Going Anywhere Anytime Soon
I get it. When things of this magnitude happen, especially when they deal with private information, it’s easy to jump the gun. But the truth is, is that social media is a staple of our society – and despite a data breach, it’s not going anywhere.
But on the other hand, when things like this happen, you begin to wonder if there should be more government regulation-or something that could keep this from happening.
And that’s exactly what may happen…
The companies that advertise on Facebook, Inc. (FB) could come under more scrutiny with the government now watching how they use the data they try to get from using Facebook. And this could easily sway companies away from advertising on FB – which would decrease revenue majorly.
That may or may not happen, but the looming possibility has impacted the FB stock in a big way.
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Right now, you can read and hear talk of this misuse of data being a big deal and that FB will suffer at the hand of it, but at the same time others are stating the % eps and revenue growth is still strong and will remain strong for FB despite this occurrence.
The truth is, is that if people remain loyal to FB, so will advertisers. Companies want to put their ads where they will be seen, and with the millions of FB users, it’s an easy audience to reach.
And with FB hiring a digital forensics firm to investigate the actions of Cambridge Analytica and suspending the political analysis firm from Facebook’s platform, I believe they’re taking all the right steps to make the best of a bad situation.
Technically, FB is on its 200-day Simple Moving Average, (SMA). The SMA is a simple technical analysis tool that gives you the average price data of a stock or ETF over a specific time period (you can tailor it to whatever timeframe you like, making it a good tool for both short-term and long-term trades). Moving Averages can act as support and resistance levels for retail and institutional investors.
And there’s just two directions it can go from here that will tell you whether or not FB is worth your time and your money:
- If FB crosses over its 200-day SMA: this is a bullish indicator and signals higher share prices to come.
- If FB drops below its 200-day SMA: this is a bearish indicator and signals lower share prices to come.
And this will tell you all you need to know.
One tactic I use in my charting is what I like to call “target shooting,” which is assessing a price support area where buying could start up again causing the stock to bounce or go higher.
Looking at a basic bar chart one can see FB is currently at $172, ($172.28 as of Monday’s close) which is the price level it tested and bounced higher from February 8.
Other levels that one can target is an old resistance price area that a stock retraces to and tests as a new support. One can also assess which moving average(s), the stock can potentially test as support or has tested successfully in the past (discussed above). Many chart software programs or free chart sites on the internet can provide these technical indicators.
And another option is to look into buying long-term stock options with expirations (LEAPs)
LEAPs are options with expirations as far out as two and three years. LEAPs allow you to take part in a price increase without the high costs of buying the stock outright. And since LEAPs have much longer expirations, you’ve got much more time for the trade to move in your favor.
But no matter what you do, be sure to work with a financial professional to decide if expanding your portfolio size is for you.
At the end of the day, when it comes to FB’s current state, my advice would be to go long term. FB is a social media giant that regardless of the news surrounding it, will bounce back in regular fashion – and could make you major profits while you’re at it.
But regardless of the decision you make, never let the talking heads of the media sway what you do with your portfolio. The flashing headlines, outlandish predictions, and warnings of what to come are nothing but a ploy to scare you – and keep you glued to your screen.
That’s why I focus so much on education here at Power Profit Traders…
When you earn as you learn, you don’t have to rely on the media pundits to make your next move – or your next profit. You can trust yourself, your education, and your trading strategy and find success regardless – whether the markets are up, down, or sideways.
To your continued success,
Tom Gentile
America’s #1 Pattern Trader
