Facebook shares literally have more to lose if looming probes hit home
With the Nasdaq 100 set for its first weekly gain in five, leading U.S. tech shares are benefiting from the broadly improved mood across global stocks. That points to a more sanguine view than was shown by a knee-jerk retreat across tech stocks earlier in the week which had perceptibly more aversion than in the broader market.
Investors were reacting to reports of Federal Trade Commission and Justice Department probes into possible anti-competitive behaviour by dominant techs. The reports homed in on Alphabet-owned Google and Facebook. It’s one reason why shares in the search leader were still slightly negative on the week half way through Thursday’s session. Facebook stock was also sold hard in recent days before attracting enough buyers to stand 2.6% higher compared to the Nasdaq’s almost 4% weekly gain so far.
As well as a less pessimistic take on near-term tariff risks, it looks like investors are reassessing the ability of Washington prosecutors to land materially damaging blows to the dominant consumer web groups anytime soon. The quiet message from Facebook, Alphabet, Amazon and others is that they’ve been prepared for such a reckoning for months, if not years, and have plans to step up existing huge lobbying efforts together with formidable legal firepower.
Even so, the tacit division of work shown by the unusual move towards a joint FTC-DoJ investigation shows a toughening line by regulators that underscores a lack of visibility about the outcome of any probes. And with Facebook’s price return for the year still double that of technology-focused Nasdaq 100, the group’s stock looks more exposed in the short term.
Normalised chart: Facebook Inc.; Alphabet Inc.; Nasdaq 100 – year to date
Source: Bloomberg/City Index
Facebook admits it will have to pay a fine of between $5bn-$3bn for failing to uphold privacy rules. As well, the European Union, Facebook’s biggest bugbear region, could soon order it to remove offensive posts in the EU and even hunt for similar posts anywhere in the world, according to an EU court opinion, published on Tuesday. Facebook is set to challenge the preliminary ruling. The full opinion will be published in a few month.
One interpretation of Facebook's technical price chart is seeing sellers and buyers as having battled for the upper hand for over a year. Buyers are currently, just, keeping the bias positive. But sellers are making strong in roads. The tussle is demonstrated by whippy gyrations across FB's preeminent trend barometer, the 200-day moving average (200-DMA), since at least early 2018. For now, the stock holds above that key threshold, as shown in the chart below. Yet a shorter-term and more contemporaneous trend gauge, the 21-day exponential moving average (21-DEMA) which is just as widely used as the 200-DMA, may carry greater predictive weight. The stock has lost support implied by trading above the 21-DEMA and the average itself tilts lower, showing objectively harder selling than buying over a three-week window.
What’s beautiful (and simple) about Facebook’s chart right now though is approximate respect of Fibonacci intervals. The recovery rally following last winter’s fierce correction faltered somewhat above 61.8% ($182) of the down move. And so far, the 38.2% marker ($160) has supported the stock in confluence with its 200-DMA. It’s clear the loss of these supports would represent Facebook shares crossing a threshold into a more bearish phase; one which could eye 21st December’s $123 low. Conversely, only a surefooted attack on $182 followed by a clean break above it would demonstrate the stock has put current challenges behind it.
Price chart: Facebook Inc CFD – daily [06/06/2019 20:05:35]
Source: City Index