Warning: Stay Away From This Stock

December 14, 2016
By

Shares of Facebook Inc (NASDAQ:FB) have gained 15% with just a couple weeks to go in December. And while FB stock looks well-positioned on both the fundamental and technical sides, the recent relative underperformance versus the tech sector is worth recognizing and respecting.

As usual, before we discuss Facebook stock, let me make it clear: I am a believer in this company through a longer-term lens, and thus, I am a buyer of this stock on any meaningful retracements lower.

For perspective and transparency purposes, note that the last time I discussed shares of Facebook on Nov. 11 in this column, I said the stock looks like a better buy once more.

At the time, it had moved back to the lower end of multiyear support.

While FB stock has not dropped further since, it also hasn’t meaningfully rallied but rather has largely shuffled sideways.

Investors and traders who at the time sold out-of-the-money put spreads — the options trade I highlighted — are nevertheless profiting from the trade thus far.

FB Stock Charts
To best see the recent relative underperformance of Facebook shares, I crafted the following ratio chart where I divided the stock by the Technology SPDR (ETF) (NYSEARCA:XLK), of which it currently makes up about 6%.

We see that in relative terms versus the tech sector, Facebook snapped the multiyear support line a few weeks ago. That doesn’t mean FB stock is doomed from here. But it does show that shares must get back on their legs before they can offer better relative strength.

On the multiyear weekly chart, we see that Facebook spent much of the August-October period at the upper end of the uptrending channel (purple dotted parallels).

But following the early-November earnings report, FB has been hugging the lower end of the multiyear trend line, which currently also coincides with the yellow 50-week simple moving average.

As long as the stock doesn’t meaningfully violate this support line, the bulls are still in control in this time frame.

On the daily chart, we see that while Facebook stock still is holding onto its bigger-picture multiyear support line, it has in recent weeks marginally broken below its red 200-day moving average. Meanwhile, the yellow 50-day MA is slowly crossing below the blue 100-day MA.

From a trading perspective, this makes me more cautious to trade the stock from the long side until it can break and hold back above the $122.50 area.

Facebook bulls need to make up their mind — and soon! — if they want to rally the stock into year-end or just let it continue to snooze around current levels. A break above the aforementioned level may get the stock back on its legs for a move back toward $127.50.

Until then, however, I think it’s better to stay away from FB stock.

– Serge Berger

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Source: Investor Place



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