Facebook looks ‘radioactive’ after brutal sell-off, says market watcher

One market strategist has a message for investors looking to dip their toes back into the Facebook water in light of its 8 percent skid this week: Too unstable to touch.

"The stock right now is no doubt radioactive, and I think it probably faces a tremendous amount of headwinds as we go forward," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Tuesday on CNBC's "Trading Nation."

Facebook shares have plunged since a weekend expose found data analysis firm Cambridge Analytica harvested the data of millions of users to help President Donald Trump's 2016 presidential campaign. Profile information from 50 million Facebook users had been compromised, raising concerns over how the social media giant handles its customers' privacy.

Now, Facebook is facing more regulatory scrutiny from the U.S. and U.K. American and British lawmakers have called on CEO Mark Zuckerberg to explain how such a breach of privacy happened.

Schlossberg says Facebook's weakness stems from more than regulatory pressure. The bad headlines also threaten its core business.

"Its growth amongst millennials has really slowed, and millennials are going to find this whole story toxic to the brand," he said.

Facebook contrarians have raised the concern of shifting demographics for years. As the social platform aged, younger users have gravitated toward newer alternatives, such as Snapchat and Instagram, which is owned by Facebook. The company is expected to see a 5.6 percent to 9.3 percent decline in users under 25 in 2018, according to eMarketer.

"On the other hand, Facebook is much more than just Facebook — it's also Instagram and WhatsApp," said Schlossberg. "Eventually it's going to become a tremendously good value. But right now I would definitely stay away because the risks are still not fully known."

Beyond the fundamentals, the technicals story suggests Facebook might be due for a bounce, though a short-lived one, according to Matt Maley, equity strategist at MillerTabak. Its volume has spiked over the previous two days, suggesting to Maley it may have been oversold. Share prices were 1.3 percent higher on Wednesday.

Maley finds it difficult to overlook the barrage of bad news pummeling the company. Rather than buying on weakness, he says it might be better to sell on any bounce.

"It just seems to be a lot of headwinds out there and a lot of unknowns," said Maley. "You may not want to dump the stock here. Look for a little bit of a bounce. But it may not last too long."

Facebook shares are on track to end the week with losses of nearly 10 percent, its worst week in four years. Its shares are in a correction after falling 14 percent from its all-time intraday high set at the beginning of February.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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