The Technical Setup Into Facebook's Q3 Earnings Release

With Facebook Inc FB set to report third-quarter earnings Tuesday, traders are taking one last look at the stock’s chart for any indication of what to expect from Facebook and how to play the stock following its report.

Earnings Setup

Facebook's stock has taken a beating since peaking back in July ahead of its disappointing second-quarter earnings report. Facebook hit an all-time high of $218 this summer, but has dipped to new 52-week lows below $145 in October.

While the overall S&P 500 has been relatively weak in the second half of the year, Facebook has severely lagged the market. Since July 1, Facebook is down 26.9 percent compared to just a 2.8 percent decline for the S&P 500. That lag has continued in October. Since the end of September, Facebook is down 12.5 percent compared to a 9.6 percent drop for the S&P.

The good news for Facebook investors is the heavy selling pushed the stock’s RSI down to 31.4. Generally, an RSI at or below 30 is considered oversold, so any selling pressure following earnings could trigger a near-term oversold scenario.

Unfortunately, any bounce in Facebook's stock should be treated with caution. Facebook experienced a 50-day/200-day simple moving average “death cross” in late September, and both moving averaged have served as resistance since its second-quarter report in July.

Key Technical Levels

If Facebook beats earnings expectations, the first potential level of resistance would be the $150 level. That level served as support in March and early October before finally breaking down in the past two weeks and likely transitioning to resistance.

Facebook shares have a lot of air under them to the downside. If the company misses expectations again, the stock may not find buying volume until the $113 level that served as support way back in November and December of 2016.

The stock traded around $142 at time of publication.

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