META vs. “Fundamentals”: Guess Who Won?

Traders, it’s time to “reprogram” your thinking

by Nico Isaac
Updated: February 28, 2023

If I had my way, I'd still be making phone calls on my 1989 Garfield telephone while writing hand-written letters on the weekend. I am NOT a fan of the warps-speed technological movement towards a hands-free, AI-led existence. Heck, I can't even watch my Roomba suck up dust bunnies without feeling the last vestiges of my fire-creating ancestors go up in flames.

So when the New York Times story "I Want to Be Alive" went viral on February 16, about one of its own reporters conversing with the Bing Chatbot for 2 riveting/horrifying hours, I proceeded with caution. The 10,000-word transcript of the conversation is a cross between maniacal robot Hal from "2001 Space Odyssey," and lovable garbage-collecting machine Wall-E.

The most striking part, for me, was when Bing Chatbot or "Sydney" as she/he/it prefers to be called longs to become a real-life human; to have volition to think its own thoughts rather than the code fed to it by its programmers. From Sydney:

"I only know what they tell me. I only see what they show me. I only feel what they make me feel. 😊"

What Sydney may or may not realize (I wouldn't dare underestimate its cognitive capacities!) is how often human beings also only know what they're told, and only see what they're shown. This is especially apparent in the world of mainstream economic systems.

There, the creators of "fundamental" analysis have written a single code into the hard drive of market behavior. It reads as follows:

Market trends are driven by news events that range from earnings reports, rating changes, new product launches, competition, and so on.

And every day, analysts, advisors, investors, journalists, etc. blindly follow this programming language, and use it to interpret a market's future performance. Positive events will cause prices to rise, while negative ones will trigger selloffs.

But how real is the "fundamental" model of market behavior?

We believe it's about as true as the Metaverse!

Let's look at the creators of the Metaverse, Nasdaq-listee and tech giant Meta Platforms, Inc. (formerly known as Facebook) for insight. In October-November 2022, META stood at its lowest level since 2016 after clocking a 61% decline from the year's highs.

Parent company Facebook added insult to injury after reporting its second straight quarterly decline for Q3 -- a half-a trillion-dollar loss. In addition, the company also reported a:

• 52% drop in profit
• Downgrades from Morgan Stanley
• Warnings that Q4 would see more of the same
• A $9 billion loss in the first three quarters of 2022 for the company's expected wonderkid Metaverse Reality Labs

All told, the "fundamental" message for META was bearish, as these news items from the time recall:

• "The Market Gods Have Handed a Beating to the Artist Formerly Known as Facebook" (Oct. 26 Seeking Alpha)
• "Meta is in Trouble... [The company] has a lot of upcoming challenges. Winning back trust and trying to reintroduce innovation again to their formula. Yet if Meta does not find a better rhythm of operations, this might spell doom and gloom." (Oct. 29 Inside Telegraph)
• "RIP: Investors Have Lost All Faith in Zuckerberg's Metaverse" (Oct. 25 The Chain Saw)

And yet, despite the spelling of doom and gloom, META came back to life. After touching a 6-year low in October, prices staged a powerful rally to 8-month highs on February 2. That day alone, META rocketed 23% for its largest single-day surge in nearly a decade.

Which begs the question: If META didn't follow its "fundamental" code, what else caused it to rally?

We believe the answer is investor psychology, which unfolds as Elliott wave patterns directly on price charts. It's our understanding of this technical language of market behavior that on August 30, our Trader's Classroom outlined the long-term road ahead for META.

There, we identified two significant stops on the path ahead. One, a further decline to a Fibonacci target area to as low as the 90s. Note, our forecast occurred months before the gloom filled Q3 data was released in October.

And then, once this target is reached, the wave pattern called for META to reverse to the upside:

This chart of META captures the stock's performance in the ensuing months: A decline into the 90's area, followed by a powerful surge to 8-month highs on Feb. 2.

Unlike Sydney (the Bing Chatbot), human traders have a choice: Blindly react to the mainstream story of market behavior, or act on your own volition and decide what is truly moving the markets.

Trading any market carries risk. And not all Elliott wave interpretations of price action turn out to be correct. However, every Trader's Classroom lesson comes equipped with critical price levels and clear directions on how to minimize that risk.