Social Media Circles the Drain

Social media stocks are crashing.

Millennial favorite Snap Inc. (NYSE:SNAP) extended its waterfall drop to six-straight sessions Wednesday. The beleaguered social media newcomer dropped more than 4% to close at all-time lows. Shares are now quickly approaching single-digit territory.

I’m on the record saying I wouldn’t touch Snapchat stock with my worst enemy’s money. Hopefully, you understand why. When we last checked in on the social media dud last month, earnings loomed large. Even the slightest miss could send the damaged stock into a tailspin, I warned.

But SNAP delivered. The company beat analyst earnings and revenue estimates. Unfortunately, investors didn’t give a damn. SNAP’s daily active users fell, so everyone dumped the stock.

The farm team names like SNAP aren’t the only ones dragging down social media. Even big leaguers like Facebook (NASDAQ:FB) are feeling Wall Street’s wrath. Facebook’s three-day losing streak has tanked shares below $170 and their July earnings lows. The fresh breakdown pushes the stock back into the red for the year — and puts the March lows back into play

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It became clear there was something terribly wrong with Facebook back in July when the stock couldn’t find any enthusiastic buyers following weaker than expected guidance. The stock dropped 20% following its earnings call and finished the week trading near three-month lows.

Now that we’re seeing continuation on the downside, social media is quickly becoming a group we’re going to have to avoid as some volatility creeps back into the market.

Headline risk is also hitting Facebook and Twitter Inc. (NYSE:TWTR) shares this week. Facebook COO Sheryl Sandberg and Twitter CEO Jack Dorsey testified before the Senate Intelligence Committee on election meddling Wednesday morning. Apparently, investors particularly didn’t like what Jack had to say. Even as Dorsey denied allegations of political bias on his platform, Twitter shares tanked more than 6% by the closing bell.

The Twitter swoon is especially disappointing considering the stock was just starting to wake up from its Facebook-induced slump. Efforts to escape from the election meddling scandal aren’t working. These stocks are becoming unstable — and un-tradable on the long side for now.

When we grabbed shares of Twitter for a short-term comeback trade just two weeks ago, I noted how the stock had started to recover while Facebook shares continued to sink. Twitter never dropped below its rising 200-day moving average and the stock was popping to new August highs. It looked like it was about to put its disastrous 20% earnings drop in the rearview…

If Twitter follows Facebook’s lead and crashes below its July lows, shareholders will get kicked in the teeth with a nasty breakdown that could sink this stock back to $27 in no time. That’s why it pays to cut small losers quickly. We don’t want to wait around for the next leg lower…

Sincerely,

Greg Guenthner

[Ed. Note: Send your feedback here: askgreg@SevenFigurePublishing.com – and follow me on Twitter: @GregGuenthner]

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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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