How to Profit from Facebook’s Massive Mistake

Stocks took a hit yesterday, with the tech-heavy Nasdaq Composite leading the market deep into the red.

The culprit?

It’s evil King Zuck and the Facebook (NASDAQ:FB) empire, if we’re to believe the financial media. Facebook shares crashed nearly 7% to start the week after revelations surfaced about a consulting firm obtaining data on more than 50 million Facebook users without their permission. Facebook shares have now plunged back into the red for the year as it now tests its February correction lows.

This is usually the part of the episode where I tell you that we shouldn’t be so quick to assume a deluge of negative Facebook news tanked the market. After all, red-hot tech shares were begging for some profit taking before the Facebook news broke this week…

But this Facebook story is just too important to ignore. It even has major implications for one of our most promising longer-term trades (I’ll show you why in just a minute).

First, it’s time to face facts: Facebook has a public relations problem. A series of management missteps over the past few months have turned America’s favorite social media platform into Public Enemy No. 1. Instead of the financial press tripping over itself to revel in Facebook’s rocketing share price, we’re now seeing how-to articles describing steps you need to take to delete your account to make sure Zuckerberg can’t get his paws on your precious personal data.

We’ve spilled plenty of virtual ink discussing Facebook’s failures to adequately vet false and misleading news stories on its platform during the 2016 election. Between these newfound reputational problems and recent stock performance that’s lagging some of its other mega-cap tech peers, we decided to take a step back and book profits on our Facebook position at the very beginning of 2018.

It wasn’t always this way. Facebook was stomping the competition when we first took a swing at the stock for a longer-term trade back in 2016. No other company in the social network space could touch it.

By the spring of 2017, I honestly thought Facebook was going to take over the world. Facebook was consistently beating expectations and gobbling up new active users. The platform was becoming more than just a place to browse cat videos and baby pictures. Even younger people who claimed to hate Facebook maintained active accounts. Facebook had already become the de-facto online identity for most Americans — and its influence was spreading overseas. I believed Facebook could easily become the first trillion-dollar company, leaving Amazon in the dust.

I even had faith in Facebook’s long-term potential when we cashed out our trade earlier this year. Now I’m not so sure. The stock is damaged and the company’s status as a tech sweetheart has completely unraveled. All signs are beginning to point to an extended slide from the once unstoppable “F” in FANG.

If Facebook continues to tank from here, management’s inability to contain its data disaster will serve as a cautionary tale for the rest of the tech world. After all, if unscrupulous online forces can take down the mighty Facebook, no one is safe.

That brings us to how we can twist Facebook’s troubles into trading gains. The cybersecurity sector is in the perfect position to benefit from this massive Facebook sentiment shift. In fact, we’re already seeing signs that investors are ready to begin taking this sector seriously.

The PureFunds ISE Cyber Security ETF (NYSE:HACK) was dragged down alongside tech stocks yesterday. But it’s still outperforming the Nasdaq Composite year-to-date.

cybersecurity

HACK is up more than 10% in 2018, compared to a gain of just about 6.4% for the Nasdaq Compsite. Your trading portfolio is perfectly positioned for this trend to continue.

As the cybersecurity sector continues its comeback run, you can use this position as a jumping off point for short-term momentum trades featuring more speculative stocks in the industry that are breaking out…

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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