The social media stock has just reversed from its upper 4 standard deviation band, which contains more than 99% of normality. In fact, yesterday, it closed back below the upper 3 standard deviation band, hinting that the failed test of the 100 level last week may be all the stock had. While we can't rule out a final thrust, the crossing down of the stochastics, reversal at the extraordinarily rare 4 standard deviation band, and ominous formations in the stock indexes all combine to suggest that those hoping for an earnings party this week should use any strength to exit longs above 94, and certainly above sell stops at 90.
This daily bar chart shows the extremes that the Decision Support Engine is warning about and begins to show the risk to remaining long, especially leveraged, with our arrows pointing to upcoming tests of 86, then 74. But, this chart tells a better story of the peak/reversal in formation. The real story is shown in the monthly bar chart below.
Here, the enormous bearish divergence between higher highs in price and lower highs in stochastics is shown. Also, the pattern's size allows DSE to forecast an even larger decline; initially toward the 70 (+/- 3) zone, but then into the lower 50's. Like the Nasdaq's forecast, this Facebook pattern should take weeks to months to reach the yellow box in the third chart, and likely quarters to years to reach the green box. However the key to this objective decision support analysis is that this is not the time for buying actions, but selling actions.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.