Facebook Investors Might Not Bail Despite New Highs

by Serge Berger | August 26, 2013 11:00 am

Social media website Facebook (FB[1]) staged a beauty of a breakout last Friday, popping more than 5% to push the stock not only to a fresh 52-week high, but a brand-new all-time closing high at $40.55. Today the strength continued, with Facebook stock nearing its first-day open around $42.

When I last discussed Facebook on July 31[2], the stock had just reported its latest earnings a few days prior and still was in the earnings-surprise honeymoon phase. As I voiced at the time:

“Such powerful moves often have a few more days of upside momentum before they need to take a near-term breather, and that’s what I see in store for Facebook stock. The post-earnings rally now amounts to a 40%-plus move, and from where I stand, that’s not something I want to chase.”

Sure enough, soon after I wrote the above words, Facebook stock settled into a three-week consolidation phase that, from a technical point of view, took the shape of a bull flag formation.

Before getting into that, though, let’s revisit the longer-standing chart of FB below:

FBsinceIPO 1024x585 Facebook Investors Might Not Bail Despite New Highs[3]

The major reference point over the past few weeks remains the significant post-earnings up-gap, which likely caught the bears by surprise, forcing them to cover short positions as bulls plowed onto the scene in full force. A major trend change had occurred.

The aforementioned consolidation form in the shape of a bull flag formation that built during the past few weeks all took place around Facebook’s initial public offering price of $38. After last Friday’s significant rally, which resolved the bull flag to the upside, investors who bought the stock at the IPO price or lower are now comfortably in the profit zone.

FBdaily Facebook Investors Might Not Bail Despite New Highs
Click to Enlarge

Through a psychological lens, I therefore now see two things:

Serge Berger is the head trader and investment strategist for The Steady Trader[4]. Sign up for his free Weekly Market Outlook Video here[5]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  2. last discussed Facebook on July 31: http://investorplace.com/2013/07/facebook-stock-back-at-its-ipo-price/
  3. [Image]: http://investorplace.com/wp-content/uploads/2013/08/FBsinceIPO.png
  4. The Steady Trader: http://thesteadytrader.com/
  5. free Weekly Market Outlook Video here: http://www2.marketfy.com/l/15492/2013-05-06/4sf47

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