Opinion: Two dreaded words — mean reversion — take hold of the U.S. stock market

Market Watch.com ^ | 3/22/2018 | SIMON MAIERHOFER

[Beave Meister]

Facebook’s mini-crash — the company’s stock is down over 13% in three days — is a reminder that even red-hot FAANG stocks can fall.

Facebook FB, -0.08% took the stairs up and the elevator down.

Did the Facebook shock just offer a glimpse into stock market future? Read on, and I’ll explain.

Mean reversion Let’s not forget that Facebook’s stock is still up 865% since its 2012 low. For most of the past five years, Facebook has been trending higher in a well-defined trend channel. Let’s call this the “mean.”

In July 2017, Facebook jumped above the trend channel and carved out a new short-term channel (called an upside extension). After a brief spike above the upper channel on Feb. 1, 2018 (throw-over), Facebook dropped 14% in early February, recovered, and fell another 12%.

[Beave Meister]

Ohhhhh this is an excellent time to buy...

[WayneS]

As opposed to a nice reversion?

[Big Red Badger]

Somebody’s Watching Me!

[Yo-Yo]

For most of the past five years, Facebook has been trending higher in a well-defined trend channel. Let’s call this the “mean.”

Amazing how all of these trend analysis tools only work in hindsight...

[stylin19a]

so Krugman was right?...just 1.5 years later

[Buckeye McFrog]

If new legislation stops Facebook from stealing your data and selling it to the highest bidder, then what is their revenue model?

[faithhopecharity]

several of the most-prominent companies have serious business practices issues and/or are susceptible to being broken up or restricted due to their monopolistic market status

and a couple of them have extremely controversial politically-active bosses...

meaning... at least... that they are quite risky investments

the stock market eventually catches on to risks like these...and discounts the shares accordingly

this does not mean that the rest of the stock market has these issues

[steve86]

It normally is called “reversion to the mean” — better grammar.

[WayneS]

Thanks. I do know that. I was merely trying to make a joke.

[DJ Taylor]

I wonder, can we compare this Facebook collapse to the Dutch tulip bulb market collapse?

[SunkenCiv]

Thanks Beave Meister. Apple has had five straight days of down, a few of them over a $1 a day drop. And this isn't the first time. And next week, maybe even starting tomoorrow, it'll march back up the same ground, stall, and do it again. Apple's doldrums have been stalling the Dow 30 as well. OTOH, Amazon overtook Alphabet (Google) in market cap, as Google's declined and Amazon has made some gains. There's a small rate hike coming from the Fed, and we're in the crunch period for tax returns, so there's bound to be some turmoil. Around here (and I spoke with a building contractor about this in the late morning) there's been a lot of movement in commercial real estate compared with recent years -- properties that have set unused and shuttered for five years suddenly sell, the old (some of them 10 years old, whoa) structures demolished to make way for some new, basically identical (and annualizable) structure and business. Homeowners around here have been ringing my contractor every minute to schedule for renovation, additions, etc, like crazy. It's the income tax cuts.