Meta Platforms: Retest Of February Gap Near $400 Likely (Technical Analysis)

Summary:

• Meta Platforms, Inc.’s streaking price advance from $88 in October 2022 to $531 in April 2024 is completely overcooked, and appears to already discount years of future business growth.
• Technical analysis suggests a retest of the February price-gap move is next, leading to a potential -15% to -20% downdraft in shares.
• A reset and rebalance in share supply/demand could create a better entry point for new purchases with a stronger valuation proposition under $400.

I will admit, my 2023 Sell ratings on Meta Platforms, Inc. (NASDAQ:META) have been some of the worst performance ideas I have suggested on Seeking Alpha. I have completely underestimated the rebound in online ad sales at the company, alongside still decent growth in social media eyeballs and users overall. Of course, the metaverse spending remains outrageous and has little chance of being recovered by shareholders.

Today, I want to look purely at the Meta chart pattern. I hope you can give my technical analysis some consideration, before buying shares. To me, several indicators stand out as predicting a retest of its February price-gap move from $400. If my research proves out, we may be on the verge of experiencing a -15% to -20% downdraft for the quote in coming months (from $474 currently), perhaps all the way down to its 200-day moving average around $380.

At that point, a reset and rebalance in share supply/demand (bullish/bearish investor sentiment) could create a better entry level for new purchases. It would even provide a much stronger valuation proposition, with a P/E closer to 20x estimated 2024–25 results.

Let me explain the trading picture and my forecast for an immediate correction in Meta’s share quote.

April Selloff Was The Real Deal

I know bullish Meta investors don’t want to hear it. But, the selling in April on somewhat weaker guidance for the year was backed by an unusual pullback in buying volumes, overwhelmed by aggressive selling. This is actually the kind of action witnessed after numerous stock tops in the volatile technology sector over many decades. I talked about a similar dump in Advanced Micro Devices (AMD) during early April here. Ever since that article was published, AMD has struggled and sold off in price, despite plenty of positive fundamental news flow about rising demand for its AI-chip inventions.

Specifically for Meta, peaks in its relative strength vs. the S&P 500 (SPY) during early April (circled in green below) and the important On Balance Volume indicator back in February on the positive Q4 2023 earnings release price gap (circled in blue) are worthwhile sell signals by themselves to contemplate.

The reverse of the good news buying frenzy in early February was the missed guidance (on higher capital spending for 2024 AI and metaverse development), mass investor liquidation event a few weeks ago in late April. Ever since, Price has not been able to trade above its 50-day moving average (blue line).

The price slide in April actually outlined the greatest bearish reading (red arrow) in the 14-day Ease of Movement indicator over Meta’s history. The EMV calculation essentially considers how much volume is necessary to move price. The conclusion in April is a total vacuum of buyers existed, and/or sellers dramatically outnumbered buying liquidity over 14 trading days (roughly 3 weeks). This occurrence was rare and very unhealthy from a technical perspective if you are bullish on Meta over the short term.

In addition, something of a head-and-shoulders chart pattern has been outlined (assuming the 50-day moving average is not broken strongly to the upside during early June). I have drawn two S’s and the H in red below, to highlight this formation.

My trading conclusion is a price decline to an area around the 200-day moving average (red line), filling the gap in early February makes sense for an immediate forecast (green box). Such would generate a -15% to -20% slide from $474 at the close on May 29th, 2024.

In an example of déjà vu, it appears we are repeating roughly the same late 2021 topping pattern in Meta. Below, I have drawn a 25-month chart of the stock between December 2020 and January 2023. Notice the September 2021 reversal under its 50-day moving average, with intense selling pressure represented by ultra-week 14-day Ease of Movement calculations.

Final Thoughts

Combine the problematic individual Meta chart with a Big Tech AI-energized advance over the last year and a half getting more exhausted by the day, and it’s not difficult to envision a pullback in price may be next.

If you are looking to buy Meta shares, I would wait for lower quotes. I know Meta investors have achieved outstanding gains during 2023-24, but Seeking Alpha’s computer ranking formulas still put an “F” Quant Valuation Grade on the stock. What this means is tremendous downside, beyond my -20% forecast, is entirely possible under recession and/or stock market crash scenarios.

Due to my technical trading research and sky-high valuations, I will continue with my Sell rating for Meta Platforms, at least until the $400 price gap from February 1st, 2024 is filled.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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