FB Stock – 3 Ways to Trade the Bullish Setup in Facebook

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As a general rule, we’re just not that into the highly buzzed and widely talked-about stocks like Twitter Inc (NYSE:TWTR) or GoPro Inc (NASDAQ:GPRO) … but lately, Facebook Inc (NASDAQ:FB) stock has been calling out to us.

Why do we avoid buzz-heavy companies? Well, we typically find that these stocks are often overcrowded with bullish investors, and therefore are more likely to disappoint than impress. The Street’s rose-colored glasses often cloud reality for these and other highly liked stocks, and in turn, they slip down the so-called “Slope of Hope.”

That said, we’ll always take a closer look at any stock flashing signs of a coming breakout — which is exactly what we’re seeing in FB stock right now.

What Facebook’s Stock Charts Are Saying

FB stock has performed more roughly three times better than the S&P 500 over the past 12 months, making it “best in breed” among social media stocks, and ensuring that chart watchers will take note of any buying opportunity.

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From a longer-term chart perspective, Facebook shares are moving into position to benefit from two technical features:

  • First, $77.25 represents the “lower rail” of the regression channel for the shares that dates back to the stock’s bottom in June 2013.
  • Second, the shares’ 200-day moving average currently resides at the $77.75 level. FB stock tested this longer-term double-barrel support a few weeks ago and successfully held, galvanizing the potential for support in this area.

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The daily chart identifies a potential bullish catalyst that could be the spark that sets FB stock moving towards the median of the regression channel. The consolidation at $81 has given Facebook shares an opportunity to rest as they trade around the stock’s 50-day moving average. This is key because this trendline has been a trigger for volatile moves.

Recent breaks above the stock’s 50-day trendline have resulted in short-term moves (less than two weeks) averaging more than 6%. The reason we see these sharp moves higher is that Facebook stock is “in play” for a large number of technical traders due to its responsiveness to key levels and trend on the charts. This means a clean break above the 50-day will attract a large amount of technical buying volume, driving prices higher.

From an upside perspective, we’re targeting a move to the $88 level after FB stock breaks through the 50-day moving average at $81. You can play this in several ways.

3 Ways to Trade FB Stock

#1: Wait for a confirmed break above $81 before buying. Facebook currently is trading just above $81 on an intraday basis, but hasn’t yet scored a first close above it. In general, we want to see two closes above a trendline like this to confirm that the technical buy is “on.” This would be the safer approach, though you do give up a little upside potential as you would be a buyer of FB at higher prices.

#2: Buy FB shares at current prices in anticipation of the technical buy being triggered. This is a little more aggressive and would yield slightly higher returns. The risk is that FB stock fails to break above its 50-day and you’ll have to wait longer for the bullish spike; of course, you could also add to your position at lower prices and potentially increase your net return on the impending rally.

#3: Wait for the stock to retest the double-barrel support at $77.50 before buying. The upside here is that you get to buy the shares at a lower price and see if this support zone gets confirmed, thus forming a very bullish double bottom. The downside happens if FB breaks $81 and doesn’t look back, leaving you in cash looking for another technical opportunity. Of course, there are quite a few out there, so don’t weep much if you miss out on Facebook.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/fb-stock-facebook-3-trades/.

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