Recently, a former Facebook, Inc. (FB) employee turned whistleblower released internal company memos showing the platform causes mental harm to children.
Many market participants have long known that social media platforms can affect their users negatively.
There have been plenty of studies on the topic showing that social media can exacerbate self-image and other mental issues in both children and adults.
But the most recent reports show that even company insiders know about these harmful effects and have done nothing about them.
The Wall Street Journal ran a series of stories on the leaked documents, called The Facebook Files.
That’s when FB stock began to crater.
And when that whistleblower then testified before Congress, the selling intensified.
On Monday, another employee, Sophie Zhang, told CNN she had “blood on her hands” after working at Facebook and was also willing to testify before Congress.
Investors reacted accordingly, as you can see in the chart below…
FB touched its 200-day moving average for the first time since March.
As regular readers know, the 200-day MA is one of my favorite long-term trend indicators.
A meaningful close below this level would signal the end of the stock’s uptrend.
Shares are now down 17.4% from their high a month earlier. This is just inches away from the crucial 20% decline that defines a bear market.
I don’t own Facebook stock. Hopefully you don’t either.
After trending nicely higher for most of 2021, FB is now showing severe technical violations on the downside.
Record volume on down days… closes below the 50- and 100-day moving averages… a rapid succession of lower highs and lower lows…
Any one of these sell triggers should have been cause for concern.
There’s no way to predict what a stock will do next with certainty.
But based on the technical evidence, FB could have further to go on the downside.
A break below the 200-day moving average could easily send shares back to the $255-$285 consolidation area from last year.
As a breakout trader, you learn to love big pullbacks like this.
You even learn to love bear markets. Because big drops are what set up the next wave of surge stocks.
For now, I’m not taking any trades in Facebook stock. This kind of selling likely means that institutions are dumping the shares.
If the consolidation range holds and the trade starts to set up again, I might take another look.
However, I would need to see a new accumulation phase get underway before I would ever consider getting long.
I’ll be sure to keep you posted, so stay tuned!
Embrace the Surge,