Facebook (FB) - Get Facebook, Inc. Class A Report is one of four "FAANG" stocks reportedly under investigation by either the Federal Trade Commission or the Department of Justice. The stock is a buy on weakness to its monthly value level at $161.46, which lines up with its 200-day simple moving average at $161.32. These key levels held at the lows on both Monday and Tuesday.
Facebook has been the most volatile of the FAANG family. The stock is in bear market territory since setting its all-time intraday high of $218.62 on July 25, 2018. It's also in bull market territory since trading as low as $123.02 on Dec. 24.
When Facebook reported earnings on July 25, 2018, there was a huge gap lower on July 26 on missed expectations. This was the fallout from the social media's privacy scandals. In my opinion, this is when the U.S. government put Facebook on its watch list.
The stock opened Wednesday at $167.50, up 27.8% year to date and in bull market territory 36.2% above its Dec. 24 low of $123.02. Even so, the stock is also in bear market territory 23.4% below its all-time intraday high of $218.62 on July 25, 2018.
It seems like the platforms offered by Facebook can be split into separate entities as it includes Instagram, WhatsApp and Messenger. This huge combination has been capturing an increasing portion of the digital advertising market.
The Daily Chart for Facebook
Courtesy of Refinitiv XENITH
The daily chart for Facebook shows how the stock held its value level for June at $161.46 and its 200-day simple moving average at $161.28 on Monday and Tuesday. Note the huge price gap lower at the upper left of the chart. This was caused by that huge earnings miss reported on July 25. The close of $131.09 on Dec. 31 was an important input to my proprietary analytics and its annual and semiannual levels are now risky levels at $181.70 and $189.47, respectively. The close of $166.69 on March 29 was an input to my analytics and its quarterly risky level at $189.47 failed to hold on May 10. The close of $177.47 on May 31 was the input to my analytics that resulted in the value level for June at $161.46 which has held on June 3 and June 4.
The Weekly Chart for Facebook
Courtesy of Refinitiv XENITH
The weekly chart for Facebook is negative with the stock below its five-week modified moving average at $177.50 and above its 200-week simple moving average or "reversion to the mean" at $145.41. The stock has been above its "reversion to the mean" since the close on Jan. 4. The 12x3x3 weekly slow stochastic reading is projected decline to 59.97 this week down from 70.59 on May 31.
Trading Strategy: Buy weakness to its monthly value level of $161.46 and 200-day SMA at $161.32 and reduce holdings on strength to annual, quarterly and semiannual risky levels at $181.70, $187.14 and $189.47, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March, April and May. The close on May 31 established the monthly level for June. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.