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Wednesday, November 25, 2020

Facebook price analysis: A correction or end of the rally?

  • The price of the Facebook stock has weakened from $276 below $245 in less than five trading
  • FTC is prepping possible antitrust suit against Facebook
  • Facebook’s method of transferring data from the EU to the U.S. cannot be used in practice
  • Even with the COVID-19 pandemic, the business of Facebook is going extremely well

The technology sector is now in a correction from its recent highs but most analysts are not worried about the recent action in technology stocks. Shares of Facebook (NASDAQ: FB) extended its correction from the record highs above $305, registered in the last week of August.

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Despite this, there is no reason to panic and as long the price of the Facebook stock is above $240 this stock is in the “buy” zone.

Fundamental analysis: The company will have a rise in revenue this year

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The price of the stock is pressured by the fact that FTC is prepping possible antitrust suit against Facebook. FTC has been searching into whether Facebook is abusing its market position to stifle competition, and while no final decision to sue has been made, sources say the agency is preparing to do so.

According to the latest news, the Irish Data Protection Commission said that Facebook’s method of transferring data from the EU to the U.S. cannot be used in practice. Facebook can’t operate in the EU without the transfer method and the company says that the EU business is at risk from regulatory action.

This news had a negative influence on FB stock and the price has been moving in a downtrend last several weeks. In my opinion, this is a still correction and as long the price of Facebook is above $240 this stock is in the “buy” zone.

Even with the COVID-19 pandemic, the business of Facebook is going extremely well and the company will have a rise in revenue this year. The company increased its revenue in 2019 to $70.69B from $55.83B in 2018 and the growth projects will ensure that the numbers will be moving up in the future.

At its current share price, Facebook could be a very good short-term investment with solid growth prospects. I said short- term investment because with a $767 billion market capitalization this stock is overvalued in my opinion and represents opportunity only for short-term traders. Profitability ratios also confirm this, P/E is above 30 which confirms that this stock is expensive.

It is also important to mention that Barclays analysts see the valuation of Facebook at bubble levels and they also think that this company is overvalued. Traders and investors should focus on the next set of product launches coming in the upcoming months.

Technical analysis: Bears are focused on breaking the support level at $240


facebook
Data source: tradingview.com

Many traders were looking for a pullback to accumulate more of the Facebook stock, and that opportunity is here. When we take a look at the chart above ( one year period), we can see that the price of this stock has advanced from $140 to $304 and after that started to fall.

On this chart, I marked important resistance and support levels. The important support levels are $240 and $220, $260 and $300 represent the resistance levels. As long the price is above $240 support this stock is in the “buy” zone and there is no indication of the trend reversal.

If the price falls on this support again and if we get a “bullish” confirmation candle it would be a very good entry point for short-term traders who are trading with “stop-loss” and “take profit” orders. If the price jumps above $260 (short term resistance level) that would be a confirmation of the “bullish” trend and open way to $280 or even $300.

Summary

Investors in Facebook should have in mind that the price could weaken even more but now could be a good time to trade FB. The technology sector is now in a correction from its recent highs but most analysts are not worried about the recent action in technology stocks. The price of the stock is also pressured by the fact that FTC is prepping possible antitrust suit against Facebook. In my opinion, this is a still correction and as long the price of Facebook is above $240 this stock is in the “buy” zone.

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