Meta Is Down Nearly 20% Since August. Here's What Its Chart Says

"Magnificent Seven" stock $Meta Platforms, Inc.(META)$   has fallen nearly 20% since hitting an all-time high in August, and has also trailed the $S&P 500(.SPX)$   in various timeframes from three months to one year. Let's see what its chart and fundamental analysis can show us.

Meta's Fundamental Analysis

Meta has been struggling of late, with some on Wall Street wondering if the company – which owns Facebook and Instagram – got ahead of itself as far as capex spending on artificial intelligence is concerned.

For instance, word emerged last week META is paying more than $2 billion to acquire Manus, a Singapore-headquartered AI start-up.

Manus specializes in autonomous AI systems that reason, make decisions and execute multi-step tasks with minimal oversight for small- to medium-sized businesses.

The Wall Street Journal reported that the start-up was headed into a fundraising round hoping to value the company at roughly $2 billion when Meta made contact.

The purchase came about a month ahead of META's Q4 earnings, which Wall Street expects the tech giant to report in late January.

Analysts' consensus estimates call at last check for the tech giant to report $8.17 of GAAP earnings per share on $58.3 billion of revenue.

That would represent a 1.9% gain from the year-ago period's $8.02 in EPS, as well as a 20.5% y/y improvement on Q4 2024's $48.4 billion of revenue.

Meanwhile, 27 of the 40 sell-side analysts that I can find that cover META have increased their Q4 earnings estimates since the period began, while just 10 have cut their numbers. (Three have made no changes.)

Meta's Technical Analysis

Now let's check out META's chart going back some six months and running through last Tuesday afternoon (Dec. 30):

We will see that since early August, META has been developing a very large pennant formation, marked with the two diagonal black lines above. Closing pennants often produce a significant move, although they don't indicate in advance whether the move will be up or down.

Meanwhile, there seems to be some negativity in this chart ... or does there? 

On one hand, Meta's 50-day Simple Moving Average (or "SMA," denoted by a blue line above) crossed below the stock's 200-day SMA (the red line) in mid-December. That's a so-called "death cross," which is traditionally a bearish technical sign.

However, that signal's bearishness is greatly diminished if the 200-day SMA is rising at the time of the cross, as is the case here.

Similarly, Meta's 21-day Exponential Moving Average (or "EMA," marked with a green line) has caught up to the stock's 50-day SMA. That's traditionally a short-term bullish signal used by swing traders. 

Additionally, Meta's Relative Strength Index (the gray line at the chart's top) is better than neutral and has been rising.

At the same time, the stock's daily Moving Average Convergence divergence indicator (or "MACD," marked with black and gold lines and blue bars at the chart's bottom) looks well positioned.

For example, the histogram of the 9-day EMA (the blue bars) has been in positive territory since Thanksgiving. That's a short-term bullish signal.

On top of that, Meta's 12-day EMA (the black line) and 26-day EMA (the gold line) are both above zero, with the 12-day EMA above the 26-day EMA. All of that makes for a medium-term bullish signal. 

There's also more positivity if we look at Meta's chart going back to mid-September:

Here, we see a cup-with-handle pattern with a $676 apparent pivot vs. the $650.41 that META ended at on Friday. That's a bullish set-up.

True, the stock has had trouble taking that pivot, as it's running close to that all-important 200-day SMA (again, marked with a red line above).

However, notice the unfilled gap that Meta created in late October (marked with the orange oval at the chart's center).

Now, technical analysts know that unfilled gaps don't always have to fill, but they typically do so eventually. META needs to trade at $751.67 or better to fill that gap – again, compared to the $658.79 the stock closed at on Monday. So, this is another bullish signal.

An Options Option

A bullish options trader might use a "buy-write" strategy in this scenario. That's where the trader buys the stock, but also sells an out-of-the-money covered call to drive down his or her net basis to something well below a key level such as the 50-day SMA.

Here's an example:

-- Long 100 shares of META at or close to Friday's $650.40 finish

-- Short one META $675 call with a Jan. 30 expiration (i.e., after the next expected earnings report) for a credit of about $17.10. 

Net Basis: $633.30.

This trader wants to be long META, but is willing to risk having their shares called away in order to lower the person's net basis to well below META's current market.

If META trades below $675 at expiration, the person will still own 100 shares of stock at a $633.10 net basis.

And if META trades at or above $675 at expiration, the trader will have sold his or her equity stake through assignment on the short call at $675, for a $41.90-per-share net profit.

Disclaimer: The information provided is NOT financial advice. I am not a financial adviser, accountant or the like. This information is purely from my own due diligence and an expression of my thoughts, my opinions based on my personal experiences, and the way I transact.

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