Facebook Inc (FB) Is at a Crossroads

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Facebook Inc (NASDAQ:FB) stock has traded sideways with a slight downward bias since FB reported its latest batch of earnings on July 27. Facebook stock remains at the upper end of a well-defined bull trend, which makes this current juncture one worth respecting for both traders and active investors.

Beat the Bell: Facebook Inc (FB)A trading setup could spring from here sooner rather than later.

To be clear, let me state that I’m an ardent bull on both Facebook the company and Facebook stock in the longer-run. FB’s growth rate and the way in which it continues to monetize — particularly in the mobile space — is impressive and market-leading.

When I last opined about Facebook stock the morning after the company’s July 28 earnings report, I said that while this continues to be a great growth story, odds are that FB is near-term overbought and due for a pause. Since then, shares have traded flat to down by about 4%, and thus fulfilled my expectations.

Facebook Stock Charts

First, let’s look at the bigger picture. On the multiyear weekly chart, we see that for the most part since 2014, FB stock has traded higher in a well-defined range pattern. After the late July earnings report, Facebook once again bumped into the upper end of this range, and thus far has respected this as a source of resistance.

The question from here: Will Facebook stock further mean-revert lower into the middle/lower part of this range, or will a “range expansion” rally to the upside take hold?

On July 28 after the earnings report, I offered that instead of chasing FB stock higher in the near-term, active investors and traders could look to sell some out-of-the-money call spreads, buy some puts or even cautiously short the stock for a trade. From peak to trough, Facebook stock since then has fallen about 4% and thus my trade has worked very well.

Now, though, I’m looking to lock in full profits on this trade and wait out the next opportunity.

Facebook stock chart weekly FB
Click to Enlarge

On the daily chart we note that this multi-week consolidation phase in FB stock all the while has taken place above a previous area of resistance around the $120 mark, which I highlighted with the blue box.

Facebook stock chart daily FB
Click to Enlarge

Ultimately, this consolidation wedge — which all else being equal has a bullish tint to it — will resolve in either direction. Until such time, however, I’m taking profits in my short call spreads that I sold on July 28. I’ll now patiently await a next breakout to the upside (or downside) of this tightening trading range.

Patience is a virtue.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/facebook-stock-fb-crossroads/.

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