Zak Mir – Facebook’s Face-on and eating “crow”

For UK investors, when it comes to the large US NASDAQ , they can be far more difficult to read both on a technical or fundamental basis that most of the equivalent groups in the UK. In an uptrend they seem to go much farther than anyone can believe possible – witness the valuations of the likes of NFLX & LNKD where the PE’s run to the hundreds. For many people, including myself, this is difficult to square.

Of course, difference in the UK is that our “new” economy is nowhere near as vibrant or as large as the US – West Coast in particular. Indeed, there’s a question as to whether we actually have an old economy given the decimation of our manufacturing base over recent years…   Whatever the case, many of us are left scratching our heads over what the near-term direction of a company like social media giant Facebook actually is? From my perspective, I would have to say that there has been a fascinating interplay between fundamentals, sentiment and charting as far as this stock is concerned over the past couple of years.

The point was underlined this week when I read that the latest trading update from Facebook had caused analysts to “eat crow” due to the recovery in mobile advertising revenues. Apparently crow is the US equivalent of humble pie! Although as regular readers of this blog will be aware,  Spreadbet Magazine does not have the highest regard for traditional City analysts. The perspective here is that analysts grow fat not only on large city salaries and extended lunches, but also a  rich diet of crow/humble pie.!

That said, it is very rare that you hear anyone on the likes of Bloomberg or CNBC  ever admitting to have taken a wrong position. Presumably, in the aftermath of this week’s massive gap to the upside for Facebook shares you will have heard representatives of leading brokerage houses and investment banks boasting of how they bought in here during June and July below $25. Yawn…

In fact, I was looking at the chart of Facebook earlier this week, having seen the way that since the beginning of June the 200 day moving average on the daily chart has been a rising quite sharply. The latest unfilled gap to the upside above the 200 day moving average at $25.92 suggest a sea change in fundamental perspective of the stock, as well as hinting that over the course of August we shall see a golden cross buy signal between the 50 day and 200 day moving averages.

Traditionally, the sweet spot in terms of a rally in a stock or market is in the run-up to such a moving average cross, and this could very well be the case as far as Facebook is concerned-over and above what we have already seen. Indeed, only a weekly close back below former January intraday resistance at $32.50 would even begin to delay the prospect of further gains towards $40 for the much maligned stock.