Facebook drops on earnings, and charts forecast an up to 40% pullback

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Facebook about to report earnings, and chart flags key level to watch

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Facebook shares have had a wild ride in the wake of the social media company's Wednesday evening earnings report, rising as much as 2.9% to a new 52-week high ahead of the release, buoyed by an upgrade from Raymond James, then falling 8% as the market opened Thursday as investors digested the results. The drop erased more than $50 billion from Facebook's market cap.

Facebook's earnings per share and revenue came in slightly above Wall Street's expectations, but the company's fourth straight quarter of sub-30% revenue growth wasn't enough for shareholders.

Now, as the stock falls, there's one key level in the charts that investors should be watching, said Matt Maley, chief market strategist at Miller Tabak.

"The stock is bumping up against its 2018 all-time highs. Actually, it's slightly above that high, but you always want to see a more meaningful break before you can confirm anything specific," Maley said Wednesday on CNBC's "Trading Nation." "Whenever you're going up against a key level like that, if it fails and rolls back over, it can be very negative for the stock."

That means that the stock could be headed for a bearish pattern known as a "double top," which tends to lead to meaningful declines, Maley warned.

"The last couple times that the stock's rolled over in the last two years, it's seen pretty big corrections of anywhere from 14 to 40%," the strategist said, adding that Facebook shares could "easily" fall 10% before reaching any kind of support.

"So, we need to be careful a little bit here," Maley said.

Conversely, "if it does break out in a more meaningful way, ... it's going to be very, very bullish," Maley said. "Remember: Facebook has actually underperformed most of the big-cap names over the last two years, so, if it could finally break out above its 2018 highs, it should see a very nice run."

Nancy Tengler, chief investment officer at Laffer Tengler Investments, said that with 22.5% annualized revenue growth and a price-to-earnings multiple that's nearing a three-year low, "I'd much rather be in this stock than many of the more defensive names."

Speaking in the same "Trading Nation" interview, Tengler said she wanted Facebook to update investors on its dealings with regulators and its Instagram subsidiary's e-commerce push.

"I think they've learned a lot, and I think a lot of the bad news is priced in," Tengler said. "Even though we've seen a rally in the stock, we're not back at historical high-multiple levels. So, I'm not too concerned about [regulation] anymore, though … they've never ceased to disappoint, so, we'll see."

As for Instagram, its increasingly sales-friendly platform could even have "some implications for Amazon," Tengler said.

"I think they're doing a good job at pulling all the levers that they can and diversifying away [from] the dependence on Facebook core and just advertising in general," she said.

Facebook shares closed at $223.23 on Wednesday before falling below $205 in early Thursday trading.

Disclosure: Laffer Tengler Investments owns shares of Facebook.

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