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Facebook share price forecast for February

By David Becker

The unpleasant news on company’s expenses will increase volatility. What do the technical charts say?

Facebook share price news

Facebook released earnings after the closing bell on January 29, beating on the top and bottom line. But when investors looked under the hood they saw that the company reported a 51 per cent rise in expenses compared to its total in 2018. Despite the drop in prices, the weekly trend in the stock remains upward but negative momentum is accelerating, pointing to a temporary correction.

While Facebook beat on the top and the bottom line, the company said that costs were related to the company’s privacy and security improvements. An increase in expenses comes in conjunction with a drop in the company’s operating margin, which fell from 45 per cent in 2018 to 34 per cent in 2019.

While the company has only been public for 8 years, the seasonals show some interesting evidence. Facebook shares have been lower 57 per cent of the time in February with an average loss of 1 per cent. This compares to a seasonal pattern for January, which shows that Facebook has positive returns 86 per cent of the time, for an average gain of 11 per cent. January 2020 is not yet in the books, but at current levels, Facebook would show positive returns in January 2020.

Facebook share price technical analysis

The unpleasant forward-looking news of higher expenses is likely to generate volatility. Prices on a weekly chart appear to be forming a short-term topping pattern. The whipsaw price action experienced in the last week of January is generally a sign of increasing uncertainty and rising volatility.

Support is seen near a downward sloping trend line, which is the former breakout trend line that comes in near $204. Additional support on FB share price is seen near the 20-week moving average at $198.60. There is additional trend line support at $195 and the 50-week moving average at $189. There is a lot of upward trend support, which bodes well for those looking to buy at lower levels. A breakdown through the $189 level would be the beginning of a protracted correction in the share price.

Short term momentum on FB shares has turned negative as the weekly fast stochastic generated a crossover sell signal in oversold territory. The fast stochastic is printing a weekly reading of 84, which is above the overbought trigger level of 80 and could foreshadow a correction.

The weekly RSI is moving lower, coming from an overbought scenario at the beginning of January. This type of price action is a bearish signal. The last two times the RSI moved into overbought territory and then reversed, prices on FB shares declined 17 per cent and 15 per cent in June and July respectively. A 15 per cent drawdown on FB shares from the highs in January would put the share prices at $188, which is close to the 50-week moving average.

Medium-term positive momentum is decelerating, and negative momentum is accelerating. The weekly MACD (moving average convergence divergence) index is printing in the black with a declining trajectory. The MACD histogram is moving lower at a steady pace and is on track to move below the zero-index level, which would generate a crossover sell signal.

Facebook share price forecast: take away

With the technicals pointing to potentially lower prices and short-term sentiment damaged by a higher cost structure for the company, traders could look to purchase shares as they approach support near $195 and $189 looking for the trend to refresh.

FURTHER READING: Facebook agrees to pay $550m settlement in facial recognition case

FURTHER READING: Facebook share price forecast 2020 and beyond

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