November 19, 2013 at 11:40 AM EST
Facebook Inc (FB): 6 Reasons It Will Drop 40%
NASDAQ:FB, NASDAQ:SOCL Related posts: Facebook Inc (FB): Why I Expect A 20% Drop In The Stock Facebook Inc (FB): Three Reasons To Buy The Stock Facebook Inc (FB): More Reasons To Be Bullish Facebook Inc (FB): Reasons To Stay Away From The Stock Facebook Inc(FB): Twitter IPO Won’t Be Like Facebook Fiasco

down plunging pricesBillionaires Portfolio: Facebook Inc (NASDAQ:FB) has been one of the most controversial and volatile stocks, as investors and shorts sellers have battled over the direction of this stock ever since it went public.

Those who have tried to short the stock in July were punished when Facebook reported better than expected earnings and the stock ended up doubling over the next 3 months.

Yet I am here to tell you the reason Facebook went from $26 to $54 was not because the “smart money” was buying the stock, it was all due to short covering.

Basically what fueled most of Facebook’s 100% plus run was short sellers covering their short positions and not from funds buying the stock.

On July 15th Facebook had almost 40 million shares short, today Facebook has 31 million shares short, that means over the last five months 9 million short sellers covered their position, and that is one of the reasons the stock had such a big run.

Now I believe things have changed not only has short interest decreased significantly, but the sentiment on the stock has turned negative. How do I know this, well one of the first lessons you learn as a trader is to pay attention to how the market reacts to news and when a stock reports strong earnings or even better than expected earnings and the stock doesn’t move or falls that means the stock ‘s sentiment has turned negative. [Related: Tesla Motors Inc (TSLA): Why The Stock Will Crash More Than 50%]

So here are the 5 reasons I believe Facebook will drop 40% or more!

1)     Sentiment Facebook’s sentiment has turned from positive to negative. As explained above investors shrugged off Facebook’s most recent positive earnings report selling the stock even as the company reported positive results.

2)     Bearish Head and Shoulders Pattern. Technically the stock looks vulnerable, it has formed a bearish Head and Shoulders Pattern, and if Facebook closes below $45, the stock will drop to $26. Again 90% of all gaps are eventually filled and Facebook has a huge gap on its stock chart at the $26 level.

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Related posts:

  1. Facebook Inc (FB): Why I Expect A 20% Drop In The Stock
  2. Facebook Inc (FB): Three Reasons To Buy The Stock
  3. Facebook Inc (FB): More Reasons To Be Bullish
  4. Facebook Inc (FB): Reasons To Stay Away From The Stock
  5. Facebook Inc(FB): Twitter IPO Won’t Be Like Facebook Fiasco

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