Tesla Motors Inc (NASDAQ:TSLA) shares are down more than 3% today. Facebook Inc (NASDAQ:FB) has declined more than 10% since March 28. And Netflix, Inc. (NASDAQ:NFLX) has plunged more than 12% since last week. Looking at such declines, investors are unsure if it’s a temporary pullback or if the stocks are in the early stages of a declining trend. Michael Kahn of Barrons says that you can identify the trend by looking at whether the primary rising trend is broken.
You can identify the trend using two methods. One, a traditional trendline drawn from a major low. It acts as a support when natural pullbacks occur. And when prices fall below that line, it’s a sell signal. The second way is the moving average, which provides long-term, intermediate, and short-term trends. The 200-day moving average is good to spot a long-term trend, while a 50-day average is useful for the intermediate trend.
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Let’s have a look at three hot stocks: Tesla Motors Inc (NASDAQ:TSLA), Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX) to figure out whether their declines in March were mere corrections or changes in a trend.
Shares of Tesla Motors Inc (NASDAQ:TSLA) traded at around $40 in April last year. The stock surged above $253 in February, but plunged to $206 last week. Many would have labelled the 21% decline as a bear market. But the stock is still up more than five times over the past 12 months. The 50-day moving average suggests that the intermediate-term trend has changed multiple times in recent months.
That average has become important as the stock has been trading close to its since last week. Yesterday’s rally in Tesla Motors Inc (NASDAQ:TSLA) indicates that the average is unlikely to break. Other technical indicators like chart support from September 2013 high show that the odds favor the bulls.
Facebook Inc (NASDAQ:FB) shares have skidded about 17% from their March high of $72.56. But the chart below shows that the price landed on an increasing trendline drawn from July 2013. However, Facebook shares have fallen below their 50-day moving average, and are still trading below that. So, which indicator is right? Michael Kahn says the right indicator is the one that has all the confirming lines. In this case, it’s the trendline.
As the chart shows, support for December and January trading tops also offers support at the same price point as the trendline. The on-balance volume remained steady during the slide in stock price, indicating that selling and investor buying were almost equal. So, little money flowed out. The net investor demand is positive, positioning Facebook Inc (NASDAQ:FB) for a bull run.
Netflix, Inc. (NASDAQ:NFLX) has plummeted about 20% from its February 25 high of $253. But shares of the Internet streaming company are up more than 700% since 2012. In that context, the recent pullback looks small. Netflix is currently trading between its 50-day and 200-day moving averages, and doesn’t seem like it’s set to bounce back with the market. The stock has fallen far below its 50-day moving average, and technical indicators don’t suggest any strong evidence that bears have exhausted.
Michael Kahn says there is 8% room to decline to its 200-day moving average.
Tesla Motors Inc (NASDAQ:TSLA) shares were down 2.38% to $224.80 at 1:59 PM EDT.