After Meta Platforms (NASDAQ:) failed to live up to expectations for Wednesday's fourth quarter following the close of the US session, as well as disappointed with guidance, shares of the social media giant are being dumped during pre-market trading from Thursday. The stock closed at $323 before release yesterday, but at the time of writing, pre-market shares are at the $250 level, down more than 22%.
FB posted earnings per share of $3.67, which was below its estimated $3.85. Total revenues were up 20% to $33.67 billion, beating the forecast of $33.34. However, it was the Menlo Park, California-based company's expectation for first-quarter revenue that likely caused the slide. That metric is expected to be in the $27-$29 billion range, representing 3% to 11% growth, which falls short of analyst expectations of $30.2 billion.
The company clearly suffered from privacy changes to Apple's (NASDAQ:) iOS mobile software, which allowed users to opt out of tracking, reducing FB's ability to sell targeted ads and a large number of collect user analyses.
Is this pre-market collapse the start of additional declines for FB stocks, or will dip buyers now push up discounted stocks?
It doesn't look promising. Meta-shares will almost certainly enter bear market territory when pre-market prices make the shift as the NY session opens on Thursday. To add to the pressure, the recent cross of the 50 DMA below 200 DMA triggered a death cross followed by the 100 DMA which fell below 200 DMA for an additional bearish signal.
But after such a major collapse, we should at least see a 'dead cat bounce' expect, the market term for a stock that drops that hard, even if it were a dead cat, it would still bounce back…at least for a bit.
If the price opens where it is now during pre-market, it will occur near the September-January lows, which would act as a support. If that happens, the price could form the right shoulder of an H&S top, completed once the neckline (green line) is broken at $245. traders should wait for new highs that bring the stock back into bull market mode or at least extend the previous uptrend. Alternatively, to avoid a bear trap, they must wait for the H&S top to complete, with a close below $240 and a return move confirming resistance.
Moderate traders would buy stocks if prices show accumulation or sell if the price falls below $245.
Aggressive traders may take an opposing long position, counting on support from past lows and the possibility of a dead cat bounce. However, they must understand that there is no way of knowing whether an individual trade will be successful. They should strive to do well by consistently trading on their money management plan. Here's an example:
Trade sample
Admission: $250
Stop Loss: $244
Risk: $6
Goal: $286
Reward: $36
Risk Reward Ratio: 1:6
