Facebook, Inc. (NASDAQ:FB) financials suggest that investors have overreacted
After a whopping one-day 22% loss amid a downward revised Q3 revenue guidance in Q2 earnings release (ER), shares of Facebook (FB) proceeded to lose another 15% in the subsequent three months (Figure 1). At the first approximation, the immediate 22% loss seemed excessive given the magnitude of the downward revision. The second 15% loss is also bothersome since there has been no financial information released after Q2 ER.
It would have defied the “semi-strong” form of market efficiency that the market needs that much time to incorporate Q2 financials into stock prices. (Semi-strong market efficiency refers to the notion that stock prices reflect all public information immediately.)
One logical inference is that the market may have been reacting to some additional risk concern beyond regular ER financial metrics, or the market simply overreacts. Either way, if the apparent Facebook undervaluation can be explained by the risk dimension, it is highly likely that the mispricing can be reversed when the risk premium is removed.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
The projected upper bound is: 158.50.
The projected lower bound is: 140.28.
The projected closing price is: 149.39.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 52.9405. This is not an overbought or oversold reading. The last signal was a buy 6 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 44.34. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 41 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -16. This is not a topping or bottoming area. The last signal was a buy 4 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 3 period(s) ago.
Rex Takasugi – TD Profile
FACEBOOK INC A closed up 1.260 at 149.940. Volume was 38% below average (neutral) and Bollinger Bands were 37% narrower than normal.
Open High Low Close Volume___
149.310 150.970 148.000 149.940 16,610,311
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 148.32 159.51 176.55
Volatility: 56 37 46
Volume: 30,604,956 25,654,310 28,020,390
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FACEBOOK INC A is currently 15.1% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of FB.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on FB.O and have had this outlook for the last 32 periods.
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