Why Carter Worth is (probably) Wrong about Facebook $FB $TWTR

A very long time ago I decided I wanted to write some fiction. Rather than just haphazardly spending a lot of time writing, I decided I wanted a bit of help. Unfortunately, this was before Google and the only web searches one could do was to use services that compiled and indexed websites. Anyone remember Dogpile? It was advanced for the time, being a compilation of compilations, a meta-search engine.  

So, I went to my local Barnes and Noble and looked for books and came across a book by Stephen King called ‘On Writing‘. It was really, really good. But one of the main takeaways I remember is you have very little hope of being a good writer if you don’t read and read a great deal.  

On this past Options Action (3-9-2018) Carter Worth recommended selling Facebook. It seems his favorite technical indicator is whether or not the equity is underperforming the S&P 500, or underperforming their sector, in this case the $XLK or technology sector.  

I discount this analysis on its face. A technical analyst can say a name is an underperformer and will continue to do so, like CBW does here, or there will be reversion to the mean and outperform.  

That aside, I disagree with this analysis on more fundamental grounds. On January 12th of this year FB announced it was changing its algorithm which would result in less engagement with its users. FB fell 4% that day, understandably because investors that know the product know this could result in less advertising revenue. I was a buyer on that day, and a seller of put credit spreads. 

Why? Because I am an old white guy that uses Facebook. I was unhappy with looking at FB and seeing radical political views from either side and then realizing sometime last year that these were being sent to me by bots. The fact that FB was changing its core business meant they were serious about changing it for the better, so they could continue to make money.  

Since that time FB regained highs up until Feb 1 when the market took its hiatus from advancing. It has consolidated since but over the last week has stayed with its technology brethren.  

Carter Worth makes no mention of this huge announcement about changing algorithms probably because he has no FB account or is even vaguely aware of how it works. I think this is the reason the name has underperformed and why it may actually out perform in the future. I may not be a committed bull on FB, but I am certainly not a bear. 

PS – Dogpile still exists, I assumed they disappeared with many of the early compilers. For a great fictionalized look at this time see the last season of ‘Halt and Catch Fire’ S4E9 here. It’s the one where Yahoo! ends being on the Netscape portal page.  

PSS – kudos to Guy Adami for admitting he was wrong on Friday’s show about the market retesting the low. Contrast that to Dan Nathan making no mention of the put spreads he admitted to buying earlier in the week in SPY, QQQ and IWM. Dan didn’t even come up with a final trade. Just said goodbye and good luck!