PreMarket Prep Stock Of The Day: Facebook Starts To Recover

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

When a controversial company gets caught up in a negative news cycle, it can persist for quite some time. Depending on the company and the market environment, it can have a devastating impact on its share price.

Obviously, the company being referred to is Facebook Inc. FB, which is the PreMarket Prep Stock Of The Day. The point of this article is not to debate the allegations of the whistleblower or the impact the company is having on society. The point is to try and determine if investors may want to consider buying the dip.

Short-Term Technicals: While the S&P 500 index made its all-time high on Sept. 2, Facebook posted its all-time closing high on Sept. 7 ($382.18).

On a closing basis, both settled at their lowest level since making their respective highs. While the index has retreated 5%, Facebook has pulled back nearly 15%.

See Also: Mark Zuckerberg Loses $7B In Wealth From '60 Minutes' Whistleblower Interview, App Outage

Has Facebook Found A Bottom? In Monday’s session, Facebook bottomed at $322.70 and rebounded to end the session at $326.23. For some technicians, it could be a double bottom based on a monthly time frame. The reason being, the issue bottomed in June at $323.48, which set the foundation for its rapid rise to its all-time high in September.

Another bullish may be that the issue only traded $0.07 below Monday’s closing price when it bottomed at $326.13. Therefore, shorts or investors wanting to buy on weakness in the issue now have to accumulate shares in a rising market, which is much more difficult.

What Do The Experts Have To Say: Last week, Loup Ventures' Gene Munster and Quantum Trading Strategies CIO Sean Udall joined PreMarket Prep for a new segment called “Gene Munster Vs. Mystery Guest.” They discussed several mega-cap tech stocks that have uncharacteristically underperformed as of late.

The full discussion with the two tech stock strategists that covered many issues can be found here:

Financial Headwinds: Keep in mind this commentary was before the recent collapse in its share price.

Munster said he’s not a fan of Facebook because of social media’s negative impact on mental health, but he believes the stock will likely continue to be a good long-term investment.

Udall agreed that there are plenty of things to dislike about Facebook as a company, but that doesn’t make it a bad investment.

“It’s just such a juggernaut of an earnings and revenue producer,” he said.

He prefers other social media stocks instead, such as Pinterest Inc PINS and Twitter Inc TWTR.

Moving Forward: Not including Tuesday’s rally, Facebook had been lower in four of its last five sessions, which had the issue closing at its lowest level since May 24 ($324.63). As of 12:30 p.m. ET, it's moving toward Monday’s high ($335.94), trading around $334.10 at publication time.

If Monday’s high is breached, bulls will have another hurdle to clear at Monday’s high ($335.94).

For now, investors may want to lean on Monday’s low ($322.70) as a short-term bottom. If that low is breached, there is limited daily support until the $317 area. The reason being, the issue had a pair of lows from May 21 ($315.81) and May 22 ($318.03) that flanked that area.

On a monthly time frame, there is no support until its May low ($298.19).