The coronavirus has put social media stocks in a tricky predicament. As Facebook (FB) - Get Report, Twitter (TWTR) - Get Report, Pinterest (PINS) - Get Report and others come under pressure, they’re also seeing engagement increase.
On the surface, many investors likely attribute the surge in market volatility and subsequent decline in U.S. equities as the reason behind stocks like Facebook falling so much. Shares fell 38.9% from the 2020 peak to the recent low.
However, below the surface there are more complicated matters driving social media stocks.
Companies like Twitter and Facebook already have warned investors about uncertainty in their financial results. At the same time though, Twitter, Facebook and Pinterest have all said that active user growth is strong as social media use rises amid lockdowns and stay-at-home orders across the globe.
In other words, it’s a mixed bag. Engagement and user growth is up, which is a longer-term positive. But in the shorter term, ad spending is down, and thus revenues will suffer as the world fights the ongoing COVID-19 battle.
Facebook had dropped to a recent low of $137.10, before ricocheting higher. Now investors and traders alike are trying to figure out what’s next for the stock.
On the upside, reclaiming $160 and the 200-week moving average would have been a great development for bulls. While Facebook temporarily moved north of $160, it was rejected by the 200-week moving average. This very zone acted as support just a couple of weeks ago.
If it turns to resistance, bulls could face more headwinds in the coming days and weeks. Should the stock fail to reclaim the $160 to $165 area, it puts the $140 to $145 zone back on the table. This was a key breakout level in 2017 that has so far acted as support.
If Facebook tests down into this level, it will put the recent low near $137 back on the table. Should it break, it could trigger a flush down to the $125 area, which was support during the fourth quarter selloff of 2018.
So what’s the bottom line? Currently near $155 Facebook is closer to potential resistance than recent support. So let’s see if the stock can reclaim the 200-week moving average, triggering a possible rally up toward $180. Otherwise, look for a potential retest of the $140 to $145 area.