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Wednesday, May 24, 2017

INVESTOR RESEARCH: Facebook Inc (NASDAQ:FB)

Facebook Inc (NASDAQ:FB) share are higher by 29% for the year-to-date and remain one of the cleaner trending stocks. While I think that, through a multi-month lens, FB stock will need to experience some better mean-reversion lower, shares are primed for another swing higher in the shorter-term.


PERFORMANCE


5 Day
  • 2.22%
1 Month
  • 1.03%
3 Month
  • 8.78%
YTD
  • 28.70%
1 Year
  • 25.60%

Looking at the charts, traders and active investors now have a trade to sink their teeth into that offers clearly defined risk.
When FB looked exhausted on March 30 in the intermediate-term and likely needed to take a breather. Specifically, a move lower into the $139-$140 area would help offer up a next buying opportunity for a trade back higher toward $145-$146.
This is exactly what happened. After a pullback to the $139 area, Facebook stock began to rally again, hitting my $146 price target on April 25.
Right now, investors need to block out some of the recent noise coming from Facebook. The release of the social media platform’s moderation guides, for instance, has pundits and analysts alike slicing and dicing every one of Facebook’s content decisions. Ultimately, however, FB is governed by something much simpler at the moment.
One of the most lucrative, simplest and highest-probability investing methods is “trend following.” In this strategy, a trader or investor simply looks to buy a stock, commodity, currency or index and let the trend take care of the profits. However, risk management is of the essence, as buying at the lower end of the range and taking profits at the upper end of the range are integral parts of the strategy.


FB Stock Charts

Looking at Facebook’s multiyear weekly chart, we see that after the stock hit the lower end of its up trending range in November and December 2016, the rally thus far in 2017 has brought it back to the very upper end of this range.

In fact, the late April rally extension even pushed Facebook shares above the channel.
From this angle, and also noting the overbought MACD momentum oscillator at the bottom of the chart, FB stock is meaningfully overbought and will either need to consolidate in price (lower) or in time (sideways).
However, time frames are everything when it comes to trading and investing in the stock market. And in the near-term, Facebook looks to be offering the bulls another chance at a trade.
Note that over the past three weeks, Facebook — after reaching the upper end of its year-to-date channel (purple-dotted lines) — pulled back about 6% into last week’s lows.

Those lows from last week coincided with the lower end of the up-trending channel, as well as the 50-day simple moving average (yellow).
Very simply, this area around the $145 area will now either hold as support, or not. The bulls and trend followers will like to play FB stock higher toward $156-$160 as a next upside target, using the $145 area as a stop-loss.
This trade could also expressed via the options market by buying calls or call spreads using options with at least two months left to expiration. For risk management purposes, I don’t like to trade front-month options, and certainly not weekly options.
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