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Facebook’s Chart Shows A Classic Bullish Reversal – Should You Buy?

Facebook’s Chart Shows A Classic Bullish Reversal – Should You Buy?

Facebook is still down nearly 19% since its disappointing earnings report on July 25, but its chart indicates its price may be about to head higher.

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Facebook (NASDAQ: FB) has had a rough year.

In March, the New York Times reported that the social media giant had exposed the data of more than 50 million of its users to voter-profiling firm Cambridge Analytica without users’ permission, and that the data was used for political gain during the 2016 presidential election.

As the news broke, FB shares dropped 20 points, erasing tens of billions of dollars of the company’s market cap.

After the dust settled, the stock began to climb again, eventually rising by 40% since its March lows to $215 per share on July 25.

But then it all came crashing down.

Facebook plunged nearly 19% on July 26 alone on the first trading day after the company reported its Q2 report that seemed to indicate that Facebook’s scandals had finally caught up with it.

While revenue had climbed 42% year-over-year to $13.2 billion, and earnings per share rose 32% to $1.74, analysts had expected higher revenue of $13.4 billion.

Facebook’s daily and monthly active users grew by 11% year-over-year to 1.47 billion and 2.23 billion, respectively. However, monthly users on a quarter-over-quarter basis had dropped for European users and were flat in North America, igniting fears that Facebook’s user growth had  finally hit a wall.

This was backed up by the fact that the company is no longer growing in terms of adding new users in the U.S. and Canada, Facebook’s most valuable geographic region. It also added just 22 million new daily active users worldwide, the lowest quarter-over-quarter jump the company has reported since early 2011 when the metric was first made available.

But since the dramatic drop on July 26, the stock has rallied and that has chartists excited.

On Tuesday, shares broke back above the 100-day and 200-day moving averages, and Evercore ISI’s Head of Technical Analysis, Rich Ross, says theres another indicator that has made him bullish on the stock.

“Facebook experienced the worst day in history yet still held both trend and momentum, which in conjunction with the textbook bullish reversal off the 100 week (which has never been broken), makes the stock a buy,” Ross wrote in a note to clients.

Source: TradingView.

After the Q2 report was released, Facebook’s stock dropped to $166 at its lowest – it is up 10% in the week since which marks a robust rally.

Considering the fundamentals in Facebook’s digital advertising business remain strong and that the company is growing beyond digital advertising adding much needed revenue diversity—and the fact that it still owns two of the largest social media apps in the world, Facebook and Instagram—it seems likely that the long-term uptrend in the stock will remain intact.

Should the rebound continue, prices could easily rise above $200 per share by the end of this year, and we could see the price above $300 within the next five years.

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