“Looking down” is the correct answer.

The subject of the main clause (after the comma) is “faces” (particularly “Stacy’s friends’ faces”), which cannot logically be the subject of the first clause. This disagreement creates a dangling clause. It must be the subject (of the whole sentence) who is “looking down,” but one can infer that it is Stacy who is at the summit, because her “friends’ faces” “smiled up at her.”