Social media and technology giant Meta Platforms (NASDAQ:META) just flashed a bullish sentiment reversal — yet no one is talking about it. No, it’s not about META stock gaining 11.45% last week, as impressive as that performance was. Rather, I’m referring to the shift in sentiment regime that is impossible to detect under standard investment market methodologies.
As one navigates the business and financial media ecosystem, an uncomfortable realization begins surfacing to the top: both technical and fundamental analyses largely fail to provide an empirical basis for forward predictability. Instead, these studies merely result in vague intuitions about what may happen in the future.
This isn’t the fault of the practitioner but rather the structure of the technical and fundamental approach. Both methodologies attempt to project future price or valuation based on continuous scalar signals. Because neither price nor financial metrics such as revenue and earnings are bounded, defined states, there is technically no connecting relationship across regimes. For example, META stock priced at $200 has no bearing regarding META priced at $500.
What is transferable across regimes is demand. At some point, irrespective of the price of a security, an investor made the decision to buy (rising demand) or not to buy (rising supply). There is no half-bought security in the conceptual sense. Demand is either happening or it’s not.
This binary off/on paradigm is exactly what facilitates analyses based on Markovian principles; that is, the study of how one state of being or existence transitions to another state and the probabilities of this transition materializing.
Such discrete frameworks — as opposed to the futile attempt in finding meaning in scalar continuums — open the door radically to deciphering META stock and other publicly traded securities.
As stated earlier, META stock gained double-digit-percentage points last week, which for many may imply a gradual fading of demand. However, an empirical analysis of demand as discrete objects suggest otherwise.
In the last 10 weeks, META printed a “2-8” sequence: two weeks of upside interspersed with eight weeks of downside, with an overall negative trajectory across the time period. Significantly, about 60% of the time, in the subsequent week following the 2-8 sequence, META has a tendency to rise.
Further, over the last three years, META stock’s dominant sentiment profile is bullish, with more weeks featuring upside than down. Therefore, the last 10 weeks have been an oddity in that the bears have been dominant. However, a reversion to the mean could materialize — and the higher upside probabilities of the 2-8 sequence appears to confirm this hypothesis.
Another point to consider is that although there are clear positive and negative pathways projected for META stock in the near-term weeks, both pathways appear to favorably intersect for the bulls in the third subsequent week following the 2-8 sequence.
While it’s no guarantee, META stock should be on your radar this week if you’re looking for a quick trade. Those who have some knowledge about options may consider the 550/555 bull call spread expiring May 16. This transaction would involve buying the $550 call and simultaneously selling the $555 call, for a net debit paid of $275.
Should META stock rise through the short strike price of $555, the maximum reward clocks in at $225, or a payout of nearly 82%.
