Are Facebook Shares overvalued?
Facebook shares have had a nice rebound after the strong fall from COVID 19 this could be attributed to reports of strong and stable ad revenue. Question is does that strong increase continue to run or is it due for a correction?. We’ll be looking at some technical details to try and better understand any underlying trends and what this might result in for the stocks future.
The Relative Strength Indicator (RSI) is a specific indicator that is used to detect if a stock is over sold or over bought. The RSI is calculated using average price gains and losses over a given period of time. The default time period is 14 periods with values bounded from 0 to 100. A reading of above 70 means the stock is overbought highlighting a bearish signal that the stock might fall in price. This is the case with Facebook indicating that it might be overbought, as it is right at the top of the RSI Indicator level at 68 indicating that it is likely to fall in the future.
The Bollinger bands are an additional indicator used in technical analysis to detect volatility if the bands are close together then there is considered to be low volatility however if the bands widen then there is considered to be high levels of volatility. Also it is very uncommon for a stock to move outside the Bollinger bands if it does, it will more often than not shift back inside the Bollinger band. In the graph above we can see that the Bollinger Bands have slightly narrowed and for now that suggests that the price is slightly more stable, indicating that the price is not likely to very deviate far from this price range. Also the stock is slightly above its Bollinger band this may lead to a decrease in price to fall back into the Bollinger band.
The is a clear clear decrease in Volume highlighted by the vertical bars underneath. Showing that a larger number of investors are selling the stock, with a lower than average trading activity the volatility of Facebook is likely to decrease as well as a likely decrease in the value of the underlying stock.