This is the final post in my three-part series on top-down analysis which aims to fine-tune the search for the best, or in this case, the worst asset.
I do not claim that this is the worst ever stock, but one of the worst I researched. I considered Netflix (NASDAQ:NFLX) but the streaming company's trading pattern was messy and didn't allow me to gauge a price objective.
Shares in Meta Platforms (NASDAQ:META) found support by the trendline since the June 23 low. If the trendline fails—as the falling channel, reinforced by the 100 daily moving average (DMA), within which it develops suggests—they will have completed a possible Head & Shoulder continuation pattern. Notice how the current range found resistance by the previous support since March.
The RSI fell below its uptrend line, corresponding to the stock's sideways pattern, suggesting the price will fall below its uptrend line. The MACD's long moving average (MA) crossed below its short MA, also providing a bearish signal. However, note the RSI's longer uptrend line since February, which provides a positive divergence to the falling stock price, sparking the potential for a bottom.
Moreover, the RSI never hit 60, suggesting the price may have room for the upside. The converging RSI trendlines create an ascending triangle, showing that momentum has been gaining in the long run, which is bullish. Therefore, be sure to wait for the pattern's completion.
Examining the big picture on the weekly chart, we see how much more bearish the stock looks. The price fell below its uptrend line since 2013 for the third, which seems to be the final time, having found resistance twice by the broken uptrend line in July and August.
Moreover, the price fell below a flatter (red) uptrend line since the December 2018 selloff. Note that this is the second congestion and that each develops on these uptrend lines.
The 50-week MA (WMA) already crossed below the 100 WMA and is bearing down on the 200 DMA.
However, the weekly RSI and MACD have been bouncing from a highly oversold condition, raising the odds that the 50 WMA will bounce off the 200 WMA and the price will rebound off its range's bottom. Again, wait for the pattern's completion.
Trading Strategies
Conservative traders should wait for the price to fall at least 3% and three days, then verify its integrity with a return move.
Moderate traders would also wait for the corrective rally, after a two-day, 2% filter, for a better entry.
Aggressive traders could short upon a 1% closing breakout, provided they accept whipsaws.
Trade Sample
- Entry: $155
- Stop-Loss: $160
- Risk: $5
- Target: $130
- Reward: $25
- Risk-Reward ratio: 1:5
Disclaimer: The author currently does not own any of the securities mentioned in this article.