Facebook reported its first decline between Q4 and Q2 in its history of being a public company. The headlines did not catch that but it seems some investors did as the stock is down about 2.5%, as of time of writing. I was quoted in MarketWatch for calling Facebook an all-or-nothing stock – great financials in the middle of regulatory risk. My opinion is there is lower hanging fruit.
Nobody can predict earnings with 100% clarity, however, Facebook’s decent earnings report followed by a decline in stock price helps our case with the Google thesis. Despite what Google reports today, we believe the browser changes that Apple is implementing will cause revenue erosion into the second half of the year and early 2020. The technicals are also weak on Google.
Regarding Facebook’s technicals, as FB makes new highs, the RSI is making lower highs, which is the type of negative divergence we see just before a correction. While the RSI is still in a bullish trading range, if it breaks 50 and begins to trade below 50, it will indicate a bearish change in sentiment accompanied by lower price action in the stock.
Fundamentally, Facebook is harder to shake from Apple’s browser changes because the majority of its revenue comes from mobile native applications (as opposed to the mobile web). This is an important distinction. For instance, you do not access Google search through an app on your phone – you access Google through a browser. This is why I’m more focused on Google with the browser changes although both show weak technicals.
The scenarios from the PDF provided are below for your convenience.
Scenarios:
• If you are long on Google, put a disciplined trailing stop on the stock and re-enter when the technicals and fundamentals agree on a more bullish outlook.
• If you want to trade conservatively, wait for Google to miss on revenue a second time between Q2-Q4 2019 and enter a short position or long-dated put. Especially watch for the effects of Apple’s ITP 2.2 as if/when effects are reported in Q2 or Q3, they will worsen over the course of the year.
• Higher risk scenario would be to purchase OOM puts that end in March of 2020 prior to earnings.
• Any short positions should be closed if Google makes all new highs around the 1300 mark. Shorting stock is all about timing and discipline. We will update as we go along if support or resistance is broken.