In June of this year, I issued a sell signal for Meta Platforms, Inc. around $160, after trying to decipher this complex bearish third wave of action resulting in two targets. The first was $81 and the next is Meta’s distant memory of $18. So far the region of $80 has been reached, which is the Fibonacci zone 161 described in the previous article.
Remarkably, just over a year ago, this stock was trading at $384. We’ve seen a shockingly steep drop in the last 14 months or so. In this article, we’ll take a look at what went so wrong for Meta and dive into the technical analysis that brought this stock to where it is today.
According to CNBC, Meta is facing a general slowdown in online ad spending, challenges from Apple’s iOS privacy update and increased competition from TikTok. Add it up, and Meta has seen consecutive quarters of revenue declines and is set to post its third consecutive decline in the fourth quarter.
The company said fourth-quarter revenue would be $30 billion to $32.5 billion. Analysts expected sales of $32.2 billion.
While revenue fell 4% in the third quarter, Meta’s costs and expenses rose 19% year-over-year to $22.1 billion. Operating profit fell 46% from a year earlier to $5.66 billion.
Meta’s operating margin, or profit remaining after taking into account the costs of running the business, fell to 20% from 36% a year earlier. Overall net income fell 52% to $4.4 billion in the third quarter.
At its after-hours level of around $108, Meta is trading at its lowest level since March 2016, eight months before Donald Trump was elected president.
Revenue from the Reality Labs unit, home to the company’s virtual reality headsets and its futuristic metaverse business, fell nearly half from a year earlier to $285 million. Its loss widened to $3.67 billion from $2.63 billion in the same quarter last year.
Meta’s report is the latest sign of trouble in the online advertising market, which is being hammered by factors including Apple’s 2021 iOS privacy update and fears of an impending recession. These concerns have caused companies to scale back their marketing and advertising campaigns.
We will now move to the monthly chart to examine how this key level in the $80 region was technically reached before looking for any signs of a bullish reversal.
If you read the June article, you know that the complexity of this bearish pattern is that this current wave is actually the second third bearish wave, technically.
We can see in the chart above the first wave from $353 to $185 with the second wave from $185 to $240. Delivering the sell signal by the breakout of the $185 support, it is initially at $81. It is the next technical stop, followed by $18, that would be the completion of this big third bearish wave. However, there is one caveat between all of this, and that is that the first of the third waves also show an additional target that falls between these two numbers.
If we look at the chart below, we can see that the completion of Fibonacci 423 stands at $58. This additional technical number could also see the price action come through if the $80 region is to be broken.
To sum up, I elected to hold this equity pending further indication as to whether Meta will drop again or attempt to gain bullish momentum beyond the $80 region. If Meta goes down again, there is a chance that the stock price will hit the $58 area in the next 60-90 days.
About the Three Wave Theory
The Three Wave Theory was designed to be able to identify the exact probable price action of a financial instrument. A financial market cannot go up or down significantly without making waves. Waves are essentially a mismatch between buyers and sellers and imprint a picture of a likely direction and target for a financial instrument. When waves one and two have formed, it is the high high/low low point that gives the technical indication of future direction. A wave one will continue from a low point to a high point before finding a large enough release to then form wave two. When a third wave breaks into an upper/lower trough, the only likely numerical target rollover available on a financial chart is the equivalent of wave one’s low to high point. It is highly likely that wave three will seek to digitally replicate wave one before making its future directional decision. It may continue beyond its third wave target, but it is only evidence from the first wave that a price was able to continue before rejection that can be considered a likely target for a third wave.
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