The chart of Meta Platforms, Inc. (META) has accomplished a roundtrip from the February excessive round $740 to the April low at $480 – and all the way in which again once more. During the last couple weeks, META has pulled again from its retest of all-time highs, leaving traders to surprise what could come subsequent.
Is that this the start of a brand new downtrend section for META? Or is it only a transient pullback earlier than a brand new uptrend section propels META to new all-time highs? To research this, we’ll take a look at two potential eventualities, together with the double-top sample and the cup-and-handle sample, and share which technical indicators and approaches might assist us decide which path performs out into August.
The double-top state of affairs mainly implies that the late July retest of the earlier all-time excessive was the tip of the current uptrend section. The double-top sample is actually when a significant resistance stage is about after which retested. The implication is {that a} lack of keen consumers means the uptrend is exhausted, and there’s nowhere to go however down.
Whereas the 21-day exponential transferring common is presently in play for META, I’d say {that a} break beneath the 50-day transferring common might affirm this as the right state of affairs. If that smoothing mechanism doesn’t maintain, then the value motion would indicate much less of a pullback and extra of a starting of an actual distribution section.
However what if META pulls again however then resumes an uptrend section, main META to a different new all-time excessive? That may lead to a confirmed cup-and-handle sample, created by a big rounded bottoming sample adopted by a quick pullback. The important thing to this sample is the “rim” of the cup, which sits proper at $740 for META.
Given the pullback META has demonstrated thus far in July, I’d say {that a} break above the $740 stage would mainly affirm a bullish cup-and-handle sample. That may recommend far more upside potential for META, because the inventory would actually go into beforehand uncharted territory.
So how can we decide which state of affairs is extra prone to play out? That is the place we have to incorporate extra technical indicators into the dialogue, as a option to additional validate and make sure our funding thesis.
Simply to overview, I believe a break above $740 would affirm a bullish cup-and-handle sample. I’d additionally say {that a} break beneath the $680 stage, which might characterize a transfer beneath the 50-day transferring common in addition to the June swing lows, would mainly affirm a bearish double high sample.
We are able to additionally use the Relative Power Index (RSI) to assist decide whether or not META stays in a bullish pattern section. Throughout bull phases, the RSI hardly ever will get beneath 40, as a result of consumers normally step in to “purchase the dips” and preserve the momentum pretty constructive. So if the value had been to interrupt down, and the RSI not maintain that essential 40 stage, that would make a bearish outlook warranted.
Lastly, we are able to use volume-based indicators to evaluate whether or not strikes within the value are supported by stronger quantity readings. Right here, I’ve included the Accumulation/Distribution Line, which tracks the pattern in each day quantity readings over time. We are able to see that the excessive in July resulted in a divergence, because the A/D line was trending decrease. If the A/D line would break beneath its June and July lows, marked by a dashed purple line, that may characterize a bearish quantity studying for META.
Technical evaluation is much less about predicting the longer term and extra about figuring out essentially the most possible eventualities based mostly on our evaluation of pattern, momentum, and quantity. I hope this dialogue exhibits how the outlook for META could be simply decided and tracked utilizing the perfect practices of technical evaluation!
RR#6,
Dave
P.S. Able to improve your funding course of? Try my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Analysis LLC
marketmisbehavior.com
https://www.youtube.com/c/MarketMisbehavior
Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.
The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer and don’t in any approach characterize the views or opinions of another particular person or entity.
About The Writer:
David is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps energetic traders make higher choices utilizing behavioral finance and technical evaluation. He’s a former President of the CMT Affiliation.
