Related Topics
Stocks , Investing , US Markets

Facebook: From "Skyrocket" to "Air Pocket"

Why did investors suddenly shift their focus from the social media giant's strengths to its flaws?

by Bob Stokes
Updated: August 16, 2018

The same psychology that governs the broad stock market also governs widely traded stocks like Facebook.

For example, when investors in the main indexes are bullish, they tend to minimize bad news. The same thing had been happening with Facebook for quite some time.

For instance, in April 2017, Facebook's stock continued to rally despite the company's admission that it was used by "malicious actors" during the U.S. presidential election.

Animal spirits prevailed as the stock kept marching higher.

Then, earlier this year, Facebook faced the data privacy scandal and Congressional hearings. Even so, the price of Facebook's shares climbed even higher. Here are headlines from around that time:

  • Analyst reveals why he's still bullish on Facebook (CNBC, March 29)
  • Why Investors Remain Bullish On Facebook In Day Two Of Zuckerberg's Congressional Hearings (Forbes, April 11)

In other words, market observers once again found reasons to ignore negative developments.

But, our monthly publication, the Elliott Wave Financial Forecast saw trouble ahead. The April issue made this prediction:

Social media, once seen strictly as a bull market instrument of inclusion, transparency and sharing, will open the door to still-unfathomed avenues of exclusion, obfuscation and assault.

Even so, Facebook's upward climb had a little more to go. As recently as July 24, the technology-news website Recode declared:

... the social media giant looks invincible.

But, just two days later, the prediction made by the April Elliott Wave Financial Forecast started to unfold.

This chart and commentary are from the August Elliott Wave Financial Forecast:


What happened to Facebook's share price on July 26 demonstrates the potential for a rapid tech/social media reversal. After the market closed that day, the social media leader announced that it missed anticipated Wall Street revenue estimates by 1.5%. The company also announced a slight slowdown in user growth, from 13% a year ago to 11% in the second quarter of 2018: its share price plunged more than 20% in overnight trading. ... In the wake of Facebook's light-switch reversal, analysts labeled its second quarter earnings "disastrous."

Observers went from brushing aside bad news to calling a revenue miss "disastrous."

Only after Facebook's share price plunged did The New York Times say:

Facebook Starts Paying a Price for Scandals

As our August Financial Forecast notes:

Investor euphoria toward technology and the companies that develop it was so powerful that Facebook's flaws were brushed off. But investor euphoria has a limit, which was reached on July 26 when the scales of social mood shifted dramatically.

Social mood drives financial markets, not news or events.

Learn what EWI's analysts anticipate next.

When Investor Complacency Ignores Market Risk … Beware!

Complacency is a sure sign that financial optimism is near (or has reached) a dangerous EXTREME.

Financial history shows that extraordinary volatility usually follows such an extreme.

The Elliott wave model helps our analysts anticipate when that volatility will erupt.

See what they see.

Details about our generous risk-free offer are just below …

Here's How Your Financial Forecast Service Team Works to Prepare YOU For New Opportunities

Read This, And Then Let Us Show You FFS in Action, 100% Risk-Free

Your Financial Forecast Service team includes three of the best-known market analysts in the world – Robert Prechter, Steven Hochberg and Pete Kendall. If you are familiar with Elliott wave analysis, you know exactly who they are.

No other analysts in the world, anywhere, undertake the depth of research that goes into the Financial Forecast Service. Throughout the month, Bob, Steve and Pete sift through mountains of data, often studying 100 years of data or more. Why? Because a chart of the big, long term waves is the only way to know precisely where in the pattern we are today – and therefore, precisely where we are most likely to go next.

Here's what you get with the Financial Forecast Service, 100% Risk-Free for 30 days

Every Month

At the end of each month, your team of analysts gets together and lets the sparks fly. The result? The Elliott Wave Financial Forecast. It's just one of three essential parts of your Financial Forecast Service. When you get a new issue, you can be sure it contains the most critical information you must know about the markets this month.

Three Days Per Week

In addition, at the end of the U.S. trading session every Monday, Wednesday and Friday, your team updates its monthly analysis with the Short Term Update. In STU, they prepare you for the most likely price moves in the next 3-5 trading days.

Latest Research

Finally, once every month, Robert Prechter sends you his very latest research about Elliott waves in the markets and society. For 30+ years, The Elliott Wave Theorist has delivered more groundbreaking market research than any other publication on the planet. One month Bob might prepare you for a multi-year move in a market; the next he will deliver a jaw-dropping study that challenges everything you thought you knew about investing. Whatever he writes, it will help you hone your grasp of the psychology behind the markets – and give you an enormous advantage over other investors.

Prepare for Risks and Opportunities That Will Surprise Most Investors

See our eye-opening forecasts for stocks, bonds, gold, USD and more.

Risk-Free, Start Your Subscription Now


for 1 month of unparalleled market insights