Warning: This Stock Has Further to Fall

Shares of Facebook Inc (NASDAQ:FB), which for the year-to-date (until yesterday) seemingly couldn’t do anything wrong, on Monday dropped a quick 4.5%. As a result the stock as per my proprietary stock market algorithms/scanner flipped from near-term neutral to near-term bearish. Traders, take note.

Regular readers of this here daily column know my strong focus on understanding and respecting what is happening on a sector level for any given stock first and foremost, before considering any single name stock for a trade.

To wit, since Sept. 1 the technology sector of the S&P 500 and for that matter the Nasdaq 100 as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) have notably under-performed the S&P 500 itself.

On a single-stock level this under-performance was clearly visible in large stocks such as Apple Inc. (NASDAQ:AAPL) and with Monday’s selling has now also spread over to FB stock.

It is furthermore crucial to understand that these large-cap tech stocks are trading as a theme and not very much independently at the moment.

In other words, as big investors start to take profits in these stocks they are causing a chain reaction from one stock to the next.

FB Stock Charts

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

With this in mind, let’s note the multiyear weekly chart above. Here we find that FB stock in this time-frame remains notably overbought both from a momentum as well as trend perspective.

The MACD momentum oscillator at the bottom part of the chart is historically overbought, and from a trend perspective, FB stock remains trading above its longer-standing up-trending channel.

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, we see that following the latest earnings report in late July FB stock rallied and overshot out of its year-to-date up-trend. The stock then however began to stall, and although it could have easily moved higher again after consolidation, the weight of the broader technology stocks selling ultimately broke the stock down yesterday. As a result on Monday, FB stock flipped to near-term bearish as per my proprietary stock market algorithms/scanner.

Given the down-gap nature of Monday’s selling FB stock in my eye does have further to fall through a multiweek lens and the $150 area is a probable downside target.

Active investors and traders could look to play the stock from the short side for a trade or consider the options market with put spread buying strategies or call spread selling strategies. Importantly however, any strong bullish reversal on a daily closing basis that gets the stock back above $168 should be a stop loss signal.

— Serge Berger

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Source: Investor Place