I’ve liked Facebook Inc (NASDAQ:FB) at times, and I’ve disliked it for other periods. It’s just the nature of trading. So now, as we move into 2017, how does FB stock look?
Today, we’ll look at Facebook both on and off the charts, and present a trading strategy to match our point of view.
Since Donald Trump’s presidential victory, there have been worries about how his plans to “Make America Great Again” will play out for Facebook and other tech giants in Silicon Valley. Simply put: It’s difficult to know what’s coming next.
The fact is the president-elect has shown a knack for changing his mind like no other. That said, at least month’s tech summit, Trump did make an abrupt and positive change in attitude toward Facebook and its compadres.
Much to our surprise — and probably CEO Mark Zuckerberg’s — Trump went so far as to say the administration was ready to do anything it could for the tech industry, saying “this is truly an amazing group of people.”
FB Stock Chart
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The fact is technical corrections in even the most liked stocks are all too common and typically blindside bulls with little warning. Facebook seemed to fit the bill. FB stock already was showing some loose testing of its 200-day simple moving average. Given Trump’s less gentle message toward tech stocks at the time, the question of when we’d see a correction appeared to be on the doorstep.
Lo and behold, a correction did emerge, but its technical conclusion definitely surprised this strategist. Facebook stock held the existing 15% correction, and half of the 30% decline accepted as par for the course among growth traders. The corrective activity in FB went on to establish a symmetrical triangle centered around the 200-day moving average before scoring a surprising breakout to the upside.
Currently, FB shares are consolidating just below resistance defined by a bearish earnings gap from Nov. 3. The 62% retracement level is another barrier that lines up with the FB gap.
So, where will Facebook stock head next?
While I’m impressed at the rally of the past couple weeks, it’s hard to like FB stock given the modest correction to date and current overhead resistance. At the same time, it’s difficult to wield a heavy-handed bearish grudge when Facebook has displayed some technical strength.
How to Trade FB Stock Right Now
The good news: A bearish butterfly will help anyone who anticipates more downside to position themselves in Facebook stock with less capital commitment and the potential for outsized profits.
I like the weekly 24 Feb $120/$113/$106 long butterfly. Shares closed Wednesday at $125.60, and the trade is priced at 90 cents. Risk is less than 1% of Facebook stock risk no matter where shares end up on Feb. 24.
Facebook is set to announce earnings on Feb. 1, and the last event resulted in a bearish closing price of $120. This trade is somewhat positioned for history to repeat itself.
The spread will have three weeks of life following the event. Ideally, the sweet spot down at $113 could stand to gain as much as $6.10, or more than 600%, in a picture-perfect scenario at expiration.
I’m not holding my breath for that, but I do like the approach, and I do like the idea of a small undercut of the November low of $113.55 in FB stock during the holding period.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
