Capital.com Research TeamAn iconic company of the 21st century, Facebook (FB) never gets tired of impressing investors from all over the world. A company that started small and has grown at an impressive CAGR (Compound Annual Growth Rate), it now dominates the social media industry like no other.
The announcement of a new project, the launch of its own digital currency Libra, has made waves around the globe. From governments to central banks' heads, suddenly everyone became interested in what Libra can bring to the table. This comes as no surprise, as with billions of active users, this digital coin could easily replace a part of the traditional fiat money system and take leads in the booming crypto industry, guaranteeing Facebook an even more important role in the market.
So, it is fair to say that all Facebook stock news has been recently focused on Libra. With the cryptocurrency market gaining more and more followers, the adoption rate of the Libra could easily challenge Bitcoin, the famous cryptocurrency developed by Satoshi Nakamoto.
However, Facebook does not appear only in positive headlines. When the Cambridge Analytica scandal hit the wires a few years ago, the company's shares tumbled and many questioned its integrity. To this day, controversies remain regarding how Facebook's advertising engines, the pillars of its money-making machine, filter the information and deliver it to its users.
Today, anyone interested in the stock market and trading cannot ignore a sound business model that most likely continues to benefit Facebook's shareholders. Several years ago, when it acquired Instagram, paying a pile of cash for a relatively small company ($1bn), many believed Facebook had lost its way. The same happened when it purchased WhatsApp, the messaging giant.
This way, the company has bought potential competitors able to disrupt its business. And, because it had the cash to do so, it was the logical step to expand its operations.
Facebook stock news that might affect its share price
Facebook share price news has been focused lately on the staggering Instagram growth. Instagram Stories ad business looks poised to increase monetisation, an area where Facebook always excels. Stories are projected to grow more than 150 per cent this year alone, adding an additional $1.7bn to the company’s coffers. Instagram Explore and Instagram Commerce are the cash-cows for long-term growth, making Facebook an investor’s darling.
Facebook share price latest news reinforces a bullish case. Morgan Stanley recently raised its price forecast at a 22 per cent premium from the current price. The latest news on FB stock shows the importance of the upcoming Q4 2019 results to be released January 30, 2020, when the company is expected to report adjusted earnings up 5.9 per cent when compared year-on-year.
Facebook stock price analysis and 2020 forecast
Facebook stock performance could have been better, should it not suffer from the Cambridge Analytical scandal and the US Presidential Election turmoil. While a leader and part of the now-famous FANG group, which includes Facebook (FB), Apple (AAPL), Netflix (NFLX) and Google (GOOGL), it failed to outperform the way its peers did.
Fuelled by easy monetary policy around the world, a corporate rate cut in the United States and a dovish Fed buying Treasuries, Facebook share news prompted the company at all-time highs above $200 and in line with the rally seen on the US stock market.
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Bears may argue that Facebook has the potential to put in a double top around the $220 area. A reversal pattern, the double top implies that the price is rejected twice from the same area and turns bearish.
However, several aspects invalidate this scenario. One would be that a double top's measured move would project the future valuation for Facebook's shares well below $70. Which, considering the easy monetary policy stance and the ongoing stimulus, is difficult to imagine. Another is that the trip up the $220 area resembles a bullish trend closely – the price kept making a series of higher highs and higher lows. The recent higher high validates the bullish trend, reinforcing the pattern.
At best, the price might correct a bit and consolidate in a continuation pattern, like a triangle or something similar. But the path of least resistance is to the upside and not to the downside.
Trading a rising channel
A closer look at last year's bullish trend helps to identify proper places to enter a new trade. Currently, Facebook's share price sits at dynamic resistance found at 50 per cent of the rising channel's width. At this point, bulls have two approaches – an aggressive and a conservative one.
The aggressive approach implies going long at the market in the hope that the price forms a continuation pattern like a symmetrical triangle, a pennant or a bullish flag. The target for the trade should be the upper side of the channel, with the $200 acting like an invalidation. However, such a scenario suffers from a poor risk-reward ratio, and for this reason, many traders might ignore it.
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A conservative approach makes more sense from a money management point of view. The idea is that while at dynamic resistance, a pullback may be in the cards. The entry for a long trade should be at the lower edge of the rising channel or slightly below. Better, between the lower edge and the $200 level is a good place to go on the long side.
The invalidation for this scenario is the $175 area. A break below $175 invalidates the higher highs and higher lows series so common in rising trends. As for the target, this approach allows for a 1:2 risk-reward ratio if the price reaches the upper edge of the channel.
The bottom line
A flamboyant stock market in the United States, fuelled by a dovish Fed and strong buybacks, will most likely support the bullish scenario. With the price action bullish, all eyes are on the upcoming Q4 2019 earnings report at the end of this month.
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