Morning Comment: PFE breaking support.....FB getting quite oversold.

For the second day in a row, the stock market sold-off late in the day. On Friday, the market had rallied nicely before the drop, so it still closed nicely higher on the day. However, yesterday, the drop took the S&P 500 and the Nasdaq firmly into negative territory. No, it was not the same kind of significant reversal that we’ve seen on some other days in the last 5-6 weeks, but it still took some of the wind out of the sails for the bulls….The decline came on very low volume (the lowest since January 12th)…and the breadth for the S&P 500 was flat. Thus this is another reason to say that although the late-day action was disappointing, it was far from a disaster.

The yield on the U.S. 10-year note finished slightly higher yesterday…and has moved higher once again today. It now stands at 1.94%, so there is no question that last week’s announcement out of the ECB and Friday’s employment report have been enough to cause long-term interest rates to breakout to the upside. In other words, this move does not look like it’s just a one or two day “head fake”…and thus this “higher-high” (along with the break above the trend-line from 2018 several months ago)…tells us that the trend for long-term interest rates has indeed changed. THIS is going to create further headwinds for the stock market before long.

We want to highlight the charts of two stocks this morning…PFE and FB. PFE reported earnings this morning and their full year guidance was quite disappointing. This has the stock trading lower by about 4% in premarket trading. It also has it trading below the “neck-line” of a “head & shoulders” pattern, so this raises a red warning flag on the stock on a technical basis. We’d also note that it is very close the $50 level. That is more than just a round number. It was also the high back in August…and when it broke above that level in November, it skyrocketed higher. In other words, that $50 level is the “old resistance” level…which now makes it the “new support” level. Therefore, any meaningful break below $50 will take it below two important support levels…and it would be quite negative for the stock on a technical basis.

As for Meta (FB), it’s quite amazing that a stock like FB could fall 25% in one day. However, it might be even more amazing that it has fallen ANOTHER 4%-5% since that massive decline last Thursday! Don’t get us wrong, there are reasons to think the stock will not rally back in a significant way over the intermediate or long-term. However, the fact that it has not seen even a minor short-term bounce after such a massive decline…and instead, has fallen another quite surprising.

On the technical side of things, it’s probably not a surprise to anybody that the stock has become very oversold. (It’s not as oversold as NFLX was at its late-January lows, but it’s still very oversold.) Looking at its RSI charts, but the daily AND weekly RSI readings have fallen to into the low 20s. The 22.2 reading on its weekly RSI chart is equal to its most oversold reading EVER. The last time it reached this level was a decade ago…just a few months after it had gone public (and had fallen 60% from its post IPO highs). Also, it stands at a (much) more extreme level on its weekly Bollinger Bands chart than it was at the March 2020 pandemic lows. In other words, FB is now more oversold than it has ever been.

FB has also fallen below its 50-week MA. We do need to point out that it fell further below its 50-week MA before it bottomed in its last two big declines, but it’s still getting quite close to those levels…so there is little question that the stock is getting quite oversold on a short-term basis.

The problem is that in mid-January, we could have said that NFLX was the most oversold it had been since 2011…and yet it still fell a lot further. Therefore, it is impossible to pound the table calling for a short-term bounce in this name. (This is especially true given the fundamental picture they seem to be facing right now.) However, we just think those investors with negative bets on FB should take this into consideration as we move through the rest of the month of February. (2nd and 3rd charts below.)

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Feb 08, 2022 — 8:02 AM
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