Updated 4/12/18
Facebook has had a rough going lately. What began as a pre-emptive and hopefully serpentine news release from Facebook on March 16; a suspension of Strategic Communication Laboratories, which included their data analytics firm, Cambridge Analytica, from Facebook; exploded with the Guardian's March, 17 article on whistleblower Christopher Wylie. It all started four years ago when Aleksandr Kogan, a researcher at Cambridge University, used a personality quiz app to collect data on tens of millions of Facebook users. The privacy environment at the time was laxer and this fell within the confines of permissible. The problem was Kogan passed on the data to Cambrige Analytica, a voter-profiling firm, which used it to post targeted political ads for President Trump's election. Now both Facebook and Cambridge Analytica are being sued and the tech giant had lost 22% from the March 16 intraday high by Tuesday, March 27's close. It had been as much as 23.7% down the day before and may well continue below that mark in the future, although the stock has improved since.
Nevertheless, buy and hold shareholders who bought it close to the first trading day's close, 38.23, have almost quadrupled their money. Still, those folks had to endure through a long downward slog for over a year and would not see a profit for 17 months. I know the pain having purchased Facebook that first trading day and held it during that time span.[1] Now the same buy and hold investors may have to endure the worst reversal since those heady days.
Could the same investors have done better by trading the stock during this time span? More apropos today, could they have foreseen the stock's fall and gotten out beforehand? The answer to both questions is an emphatic yes.
Most great stocks like Facebook, are businesses with outstanding fundamentals. As a result, they tend to exhibit a general upward trend. Nevertheless, there are times when these trends are reversed. What is needed is a way to ascertain when a trend inflection point is either taking place, or better yet, about to take place. I have used Crest[2] and Dive[3,4] charts to provide insight into these occasions and estimate potential tops and bottoms. The parameters used for these are such that the math only works for moves of magnitude. Therefore, they are not designed for day traders looking to take…
