FACEBOOK INC

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%.

Trend

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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