Facebook Beats Expectations Despite Earnings Miss, Shares Surge
Despite missing EPS forecasts twice in the last four quarters due to advertising revenue concerns, Facebook's stock surged past key resistance levels, signaling strong upside momentum.
Facebook, Inc. (FB) reported earnings after market close on April 29, falling short of EPS expectations. Nevertheless, on April 30, the stock opened significantly higher, surpassing its monthly pivot point at $202.60 as May commenced. The next target on the upside is the semiannual risk level at $225.99, which would mark a record high if reached.
The social media titan has missed EPS estimates in two of the last four quarters, primarily due to cautionary notes about advertising revenue. Its valuation remains elevated with a price-to-earnings ratio of 28.94 and no dividend payout, according to Macrotrends.
Closing last week at $212.35, Facebook’s shares have gained just 3.5% year-to-date but remain in a robust bull market, trading nearly 55% above their March 18 low of $137.10. The stock currently sits about 5.3% below its all-time intraday peak of $224.20 set on January 29.
The daily chart reveals that Facebook has maintained a golden cross since April 3, when its 50-day moving average crossed above the 200-day moving average, a classic bullish indicator. The stock tested its 200-day moving average at $161.33 on June 3, 2019, and again at $175.30 on October 2, both presenting strategic buying opportunities.
On January 29, Facebook hit its record intraday high ahead of earnings, but despite positive results, the stock gapped down the following day, with the gap eventually closing by February 20. The shares then plunged below their 50-day and 200-day moving averages in late February and early March, culminating in the March 18 low of $137.10.
The subsequent V-shaped recovery pushed the stock back above its quarterly risk level at $188.32 and then to the May risk level at $202.60 by May 1. The next bullish target is the semiannual risk level at $225.49.
The weekly chart supports a positive outlook, with Facebook trading above its five-week modified moving average of $189.23 and well above its 200-week simple moving average of $166.25, which acted as a support zone from mid-March to early April.
The 12 x 3 x 3 weekly slow stochastic indicator climbed to 57.23 last week from 46.38 on May 1. Notably, at the January peak, this indicator exceeded 90, signaling an "inflating parabolic bubble" that typically precedes a significant pullback.
Trading Strategy: Consider accumulating Facebook shares on pullbacks to monthly and quarterly value levels at $202.60 and $188.31, respectively, while trimming positions near the semiannual risk level of $225.49.
Understanding Value and Risk Levels: These levels are derived from proprietary analytics using closing prices as of December 31, 2019. Semiannual and annual levels remain visible on charts, with calculations incorporating the last nine closes within their respective time frames. Quarterly and weekly levels update at the end of each period, while semiannual levels refresh mid-year.
The methodology assumes that nearly a decade of price volatility encompasses all potential bullish and bearish scenarios. Investors can harness this by buying near value levels and selling near risk levels. Pivots—value or risk levels breached within their time horizon—act as magnets, often retested before expiration.
Utilizing the 12 x 3 x 3 Weekly Slow Stochastic: This momentum indicator, refined through extensive backtesting since the 1987 market crash, analyzes highs, lows, and closes over 12 weeks. It filters out false signals effectively by focusing on the slow stochastic reading.
Values range from 0 to 100, with readings above 80 signaling overbought conditions and below 20 indicating oversold. Readings above 90 suggest an "inflating parabolic bubble," often followed by a 10% to 20% decline over the next 3-5 months. Conversely, readings below 10 imply the stock is "too cheap to ignore," typically preceding gains of 10% to 20% in the same timeframe.
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