Meta shares seem cheap, but the charts are showing an ominous sign, says Jay Woods
Today we examine a chart that is anything but magnificent – Meta Platforms . The stock never lacks headlines. Meta has a CEO who constantly makes news, a company that is used by billions and a product embedded in our daily lives. Fundamental analysts love it. According to the latest Bloomberg data, the stock has the equivalent of 70 buy ratings, eight holds and no sells. The average price target is about 37% above current levels at $745. This is a screaming buy based on these metrics and the fact that it trades at a cheap price-earnings ratio, but the technician in me sees something a bit more ominous. Let’s break it down and look at the charts. The short-term view On the one-year daily chart we see extremely volatile price action. This has been a great playground for the swing traders. Very simply put, fade the rips and buy the dips has led to much near-term success. However, one thing is very consistent. The trend is down and the stock is broadening out, forming a topping formation that has this technician very concerned. We are now coming back to a key support area at the $525 level. This level has proven to be a solid base and looks to be holding again. This should provide a quick near-term bounce back to the $590 level and its declining 50-day moving average. That’s where things get tricky. The major trend remains lower and that price ceiling above keeps shrinking. We have seen both moving averages in the 50- and 200-day act as good near-term shorting opportunities and the stock remains guilty until proven innocent. The longer-term view This is where things look much more challenging and I struggle to get on board with many of the fundamental analysts. When backing the chart out to a five-year weekly, we see that broadening topping formation. The chart is arguably – and we technicians like to argue – forming a bearish diamond top. A diamond top is a bearish reversal formation characterized by a broadening price pattern followed by a contracting pattern, creating a diamond shape near the end of an uptrend. Confirmation occurs when price breaks below the lower support boundary. This is what has me concerned over the long term. A break below $525 could confirm that the trend is about to change and head lower – possibly much lower. Targets of $465 are quite likely, and if momentum continues look for shares to retrace back towards the low $400’s. A different perspective As CNBC Pro readers know, I tend to look for the best turnaround plays. I look for patterns of stocks that are reversing, strong bases, broken trends and a stock with something to reverse. It’s that practice that has helped me call many bottoms. So why do I mention this? Generally, we all tend to have bullish biases. So, when I get concerned that we may be seeing a top, I like to turn the chart upside-down. Here we have inverted the five-year weekly chart of META that puts my bullish bias to work. With minimal annotations, we observe a stock making higher lows, recapturing its 50-week moving average and looks destined to test that declining 200-week moving average. It has something to reverse and if it can break above this level it may run higher. By inverting the chart it gives more credence to my hesitation of jumping in for the long term. The risk of a breakdown is too great at this time to buy now. The trade Quite simply, trade it – don’t own it. Mike Khouw did a great option action piece here Wednesday. I echo his sentiments as far as the short-term trade goes. Long term it may be tempting to get into a Magnificent Seven name that seems cheap, but the risk is far too great at current levels. For Meta, it’s complicated. I’d rather be late to the party than early to the pain. Jay Woods, CMT with Chase Games. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
