Meta shares fell sharply, after the outages on Facebook and Instagram this morning (see post here). The price has bounced back with the current price now down -$5.00 or 1.00%. At the session lows, the price was down as much as -$10.09 (at session lows).
Technically speaking, Meta moved and closed above its previous all-time high going back to September 2021 on January 23 at $383.79. After earnings on February 1, the price gapped away from that level to a high on February 2 at $485.96. Since then, the price is been steadily moving higher. On Friday, a new all-time high was made at $504.25. The new all-time high close was on that day at $502.30.
Looking at the daily chart above, as the price has been moving higher, the relative strength index has showed lower levels. That is called diverging RSIs.
Diverging RSIs occur when new highs are made in the stock, while the relative strength index declines (see the chart above). A diverging RSI doesn’t necessarily mean that there will be a correction lower. The pattern of higher prices and lower RSI’s can continue. However, it is a warning that the stock is overbought and MAY be due for a correction.
To confirm a sell signal, I don’t like to rely solely on the diverging RSI, but like to look for another clue from another technical tool that shows – and gives – a “bullish above/bearish below” signal. One such technical tool would be a move below a moving average. If the price moves below a moving average (that is followed closely by traders), it is a signal, that traders are shifting their bias. Moreover, the MA acts as a risk-defining level. That is, if the price breaks lower but then moves back above the MA, get out. If the price stays below, look for the next downside target.
Looking at the hourly chart below, the black line represents the 50-hour moving average. The blue line represents the 100-hour moving average. On February 20, the price moved below the 50-hour moving bearish average, but found support buyers against the 100-hour moving average. Support held against that level and the price gapped higher on February 22. Note that the prior tests of the blue line back in January also found support buyers against the 100-hour MA before moving higher (follow the blue line on the chart below and note the support buying against the 100 hour MA line….
Since then, the price has been holding the 50-hour moving average.
Looking at today’s price action, the price dipped below that 50-hour moving average currently at $490.18. The low price for the day reached $488.10, but the price has since bounced back above that moving average level. The current price is at $492.18. There was a break but it was short-lived. The market was not ready….yet at least.
What next?
Going forward, I would expect that IF the 50-hour moving average is broken for a second time, we should see further downside momentum. If so, focus will turn to the 100-hour moving average at $482.50. If that level is broken, it would be the first break since January 5th. A move below that line would then target the 200-hour MA or green moving average line in the chart. The price of Meta has not traded below the 200 hour MA since December 11. That was a long time ago.
Note however, that the current 200-hour MA is still above the low posted AFTER the earnings from February 1. A move to that moving average is doable. Keep that in mind.
SUMMARY. In summary, sellers have taken the price of Meta lower on the fundamental news of the outrages today. However, technically, the bias is still holding onto a bullish bias above the 50-hour MA. However, if that MA is broken – and stays broken – the bias would shift to the downside at least in the short term with the 100-hour MA and 200 hour MAs in play.
I would not be surprised to see a correction. The daily chart shows an overbought condition. However, I would think that the 200 hour MA – if reached – would represent a buying dip for Meta traders need.
Conversely, if that MA broken maybe the outage is something more than a one-off problem for Meta. We don’t know, but the price action and technicals will help tell the story.