In my last discussion about Facebook‘s (FB) charts, I said that through both the longer- and shorter-term points of view, the stock at the time didn’t offer great risk/reward for trades in either direction. Roughly a week-and-a-half later, the stock still doesn’t look any better to the bulls … but the bears are watching closely for the very last line of support to snap.
On May 17, I wrote:
“The key lateral level to watch lies around the $24.50 mark (red dotted line), which acted as resistance until the Nov. 28 breakout, and ever since turned into support. In late March, FB tested the $24.50 area, from which it proceeded to bounce.”
The stock’s selloff from the early May reaction high has now dropped the stock below this support line and moved another 40 cents lower to the very last support at $24.10, which acted as near-term resistance in late October 2012. The same level also exactly coincides with a 61.80% Fibonacci retracement of the sharp rally from the lows on Nov. 12, 2012, up to the highs on Jan. 28. Should the stock fall below $24.10, it will enter a free-fall zone with no real meaningful support until roughly the $19 area, which would equal a roughly 20% drop.
Traders looking to lean against Facebook on the short side may find increased downward acceleration in price on a break below $24.10, but keep two things in mind:
- Just because support gets broken does not mean a stock immediately falls into the abyss. More often than not the going gets choppy for a few days before ultimately resolving lower.
- While Facebook would enter this free-fall zone below $24.10, it also doesn’t mean the stock must fall all the way to $19 to find support. A proactive trader will monitor the situation closely and go for an initial 5%-10% slide before taking some or all profits.
All in all, Facebook is now wobbling on its last technical legs, and unless buyers come to the rescue immediately, the stock risks continuing (and potentially accelerating) the recent slide.