It’s another important week for earnings this week as big names such as Apple (AAPL) and social media giant Facebook (FB) will be at bat. Facebook earnings are scheduled to come out Wednesday after the bell, and through a technical lens, FB stock currently trades at an interesting juncture that could lend itself to a good trade — depending on which direction the stock breaks after the news, of course.
Last week, news broke that Facebook was testing a “Buy” button that would allow Facebook users to make purchases through the social media platform. And that’s something investors could cheer about.
After observing for nearly 15 years how stocks can jump, fall or do nothing at all upon earnings announcements, I make it a general rule to not hold trading positions in stocks through earnings announcements or make bets on a specific outcome. Over the years, I have found that on average, higher-probability trades tend to set up once earnings are out and the stock has had a chance to make an initial reaction to the news.
Since FB stock began to trade in May 2012, it has seen some meaningful moves after its earnings reports, which makes it an interesting stock to focus on around earnings.
FB Stock Charts
On the weekly chart below stretching back to summer 2013, note that FB stock continues to hold the support line and in fact two weeks ago jumped off this line once again. The intraweek selloff two weeks ago quickly ended as Facebook stock found support and led to a sharp bullish reversal that marked the weekly chart with a bullish doji candle, which last week was followed by buying.
On the daily chart, this support level around the $62-$62.20 area is more clearly visible and dates back to early June; two weeks ago, it also coincided with the 50-day simple moving average (yellow line).
It’s important that this support range holds after earnings, because if it breaks with conviction, Facebook’s downside could quickly open up into the high $50s or below.
Still with last week’s rally, FB stock by Friday managed to marginally break past a multiweek resistance line around $68. If this strength can hold up after earnings, then the stock shouldn’t have too much trouble working its way into the mid- to high $70s in coming weeks on renewed post-earnings upside momentum.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.