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Chart of the Day / Facebook (FB): Avoid this Falling Knife

Facebook (FB): Avoid this Falling Knife

July 26, 2018

After an explosive run from $150 to $220 in recent weeks, Facebook [NYSE:FB] flopped, wiping out billions of market value.

At last glance, the stock is down $40 a share.

Granted, the social media giant had adjusted earnings of $1.72 a share, which was two cents ahead of estimates.  However, revenue of $13.23 billion missed the $13.36 billion mark that analyst were looking for.

What really hurt the stock was the fact it failed to meet expectations for user growth, and the fact the company expects for revenue growth to slow this quarter and next. Making matters worse, profit margins are expected to fall apart over the next several years.   Not really the news that bulls were looking for.

In short, investors were caught off guard, which is why the stock tanked.

In fact, the market isn’t used to seeing Facebook disappoint.

While the stock may seem like a bargain on the gap lower, we have to consider there’s still an incredible amount of fear that’s created a falling knife.  Until that fear begins to fade, traders are likely to stay far away from the name.

In fact, if the stock fails to hold support around $170, it could potentially test its next line of support around $160.