Meta Platforms (META) has enjoyed a massive turnaround this year.
After hitting a trillion-dollar valuation in 2021, the social media/metaverse conglomerate seemingly couldn’t do anything right in 2022.
It had a bloated workforce, runaway costs, and disappointing earnings. And the market slashed three-quarters off the value of META shares.
However, that has all changed this year.
Successive earnings beats and the AI boom have seen META rip 275% higher from its November 2022 lows.
But after such a strong runup, let’s see if META is in danger of a pullback…
Exhausted Sellers
META’s 14-month downtrend finished in November last year.
That end came just weeks after its Q3 2022 earnings reported that its VR/AR (virtual reality/augmented reality) platform, Reality Labs, had nearly $4 billion in losses for the quarter.
Meta Platforms (META)
Source: eSignal
But sellers were finally exhausted, and META was oversold. So it slowly started to recover.
META’s first move higher in November came off the back of the Relative Strength Index (RSI) rallying from oversold territory (lower grey dashed line).
META then traded sideways through the end of 2022.
The Relative Strength Index (RSI) stayed closely on top of support/resistance (the orange circle). This action enabled META to form a base.
META’s rally got going along with two common bullish technical signals:
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The RSI broke clearly into its upper range. It has remained there throughout META’s rally.
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The 10-day MA (red line) began to accelerate above the 50-day Moving Average (MA, blue line). Both MAs trended higher.
And a series of earnings beats (red arrows) saw META gap higher.
After its Q2 earnings in late July, though, META struggled to trade higher.
Instead, it has drifted lower as buying momentum waned.
Take another look:
Meta Platforms (META)
Source: eSignal
As the chart shows, buying momentum (lower orange line) has been in steady decline since peaking in early June.
META has made higher highs up until its post-Q2 peak (upper orange line). But this declining momentum ultimately dragged META lower these past two weeks.
Now the RSI is testing support. So what am I expecting from here?
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Still Unfolding
When the RSI tested support in April (‘A’) and July (‘B’), it bounced, sending META higher too.
We’ll need to see a similar bounce in the RSI now if META’s rally is to continue.
The next test for META would then be to take out its July 28 high.
A break below support, though, will likely mean that META’s current pullback has further to go.
We’ll also closely watch our two MAs. As the chart shows, this pullback is drawing them closer together.
The 10-day MA sinking below the 50-day MA would add further weight to any emerging down move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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