165.41 +2.52 (+1.52%) Sell

FB does a dead cat bounce, it's still too early to buy into it

13 min read

FACEBOOK INC outperformed today. It surged by +1.52% to close at 165.41. It's recent 5 day performance has been -1.86%, +1.82%, +1.72%, -0.17% and -1.07%.

FB showed a strong bearish trend over the last 3 months. During this period FB delivered -15.76% and saw a maximum drawdown of -26.3%. There was a short signal during this period which returned +6.16%.


FB has been underperforming the SP500 index in recent time. It showed significant outperformance (compared to the SP500 index) from 27 Jan, 2016 to 25 Jul, 2018. Over the last 2 years and 9 months, FB outperformed the SP500 index on 52% days.

FB returned losses on 52% days in the last three months. During this time, it delivered on average -0.23% per day. It delivered it's worst daily return of -18.96%, during this period, on Thursday, 26 Jul, 2018. The longest stort-term trends during this period were 4 profitable and losing days. The bullish trend (which returned +4.45%) started on 20 Jul, 2018 and went on till 25 Jul, 2018 while the bearish trend (which returned -4.83%) started on 15 Aug, 2018 and went on till 20 Aug, 2018.

The last 12 months saw FB's investors making profits in 6 months and incurring losses in 6 months. FB was less consistent in delivering monthly returs than SP500 index. FB was also a more risky investment than SP500 index as it's worst month in the last year, Jul 2018, returned -12.56% compared to -3.89% returned by SP500 index in Feb 2018. FB had a shorter streak of profitable months than SP500 index. It only went up in 3 straight months during the last year. It is interesting to note that both FB and SP500 index significantly outperform during months when quarterly/annual results are announced.

"Beware of little expenses. A small leak will sink a great ship.

FB is currently seeing overall increase in volatility. In comparison, the SP500 index is seeing decrease in volatility. During the last three months, there was a significant fall in FB's volatility from 25 Jun, 2018 to 23 Jul, 2018. While there was a significant fall in the SP500 index's volatility from 25 Jun, 2018 to 28 Aug, 2018.

Advanced/professional short-term investors should note that FB has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.

Investors trading in FB derivatives at this moment can consider 'Covered Call' options strategy to receive better risk-adjusted returns.

SP500 index has more chance of extreme outcomes than FB. Therefore, SP500 must receive a lower allocation than FB in your portfolio. SP500 index usually has shorter drawdown period than FB.

On a general note (since you are interested in FB), two instruments that deserve special mention are VRS and NIHD. They have significantly outperformed the overall market this year.

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