PreMarket Prep Stock Of The Day: Facebook

When a company falls out of favor in the public eye and it translates to a decline in its share price, it's difficult to turn things around. Especially when there is more negative news coming out on the company.

The scenario above describes the current predicament for Facebook Inc. FB, which is the PreMarket Prep Stock Of The Day.

Instagram Outrage: Facebook was already in the retreat mode from its all-time high made on Sept. 1 at $384.33 when the press began a siege on the company.

The abundance of negative press was instigated by a whistleblower that claimed the company put profits before privacy and the protection of children through its Instagram platform.

Frances Haugen, a former Facebook employee made several accusations against the company, with perhaps the most damaging was the one directed at its CEO. She claimed "no one" held Mark Zuckerberg accountable at the company besides himself.

Outage: There couldn't have been a worse time for the company to have a major outage on its platform than in midst of Haugen's testimony and that is exactly what happened. Just before noon on Oct. 4, all of the network's subsidiaries - Facebook, Facebook Messenger, Instagram, WhatsApp, Mapillary and Oculus - went off the grid for a period of six to seven hours.

Price Action On Oct. 4: There has been a lot of volatility over the last few weeks in Facebook. It's always hard to pinpoint one day to base your technical analysis on, but to the author of this article, it was Oct. 4. Not only was it the beginning of Haugen's testimony on Capitol Hill, but it was also the day of the prolonged outage.

Following a much lower open ($335.53 vs. $343.01), which was below a quad of lows at the lows at $340 area, the "buy the dip" crowd was jammed. In fact, in that session, it has its worst days in months ($343.01 to $326.63, or 4.8%) and established which was until Tuesday the low for the move.

Another Whistleblower And Price Action: Facebook shares are under selling pressure as a former data scientist for the company says she is willing to testify before Congress regarding its business practices. According to Sophie Zhang, documents have been submitted showing "potential criminal violations" to an unnamed U.S. law enforcement agency.

After a lower open, the stock attempted to reach the bottom of Monday's range ($325.31) but came up shy only reaching $324, and resumed its move lower. It breached the former low of the move ($322.70), but has now rebounded back into the lower $323 area as of 3:30 p.m.

Moving Forward: For investors attempting to pick a bottom and purchase shares of the issue, it may be prudent to use a breach of Tuesday's low ($317.37) as a potential exit point. If Tuesday's price was an overreaction to the news, buyers may emerge ahead of that level and set the stage for a rebound.

For those already short the issue or looking for a short entry, a rally above Monday's close ($325,45) may indicate investors are viewing the recent news as a non-event.