Samsung unboxes its Galaxy S8 with April 21 release date >>> READ MORE

How to Trade Facebook Inc Stock After the Inevitable Selloff

IPO fatigue could portend a short-term correction for FB stock

    View All  

Facebook Inc (NASDAQ:FB) has a long and bright future ahead. It’s a fact you can easily see from the social media giant’s fundamentals and FB stock’s outperformance of the market as a whole.

How to Trade Facebook Inc Stock After the Inevitable Selloff
Source: Shutterstock

The market’s current bull run is getting a bit long in the tooth, however, and many analysts are beginning to worry that stocks are over inflated. The Federal Reserve’s current course of interest rate hikes backs this concern.

Furthermore, the lackluster Snap Inc (NASDAQ:SNAP) IPO has put a strain on social media investors, creating additional discontent in the sector. As such, I believe it’s time for traders to prepare for short-term risk when it comes to Facebook shares.

FB Stock
Click to Enlarge 
Technically speaking, the risk factors are readily apparent. FB is currently trading in overbought territory, having outstripped support at its 50-day moving average by a wide margin. Furthermore, short-term resistance at $140 is mounting, and a rejection here could be the catalyst for a wave of short-term profit-taking.

While a full-blown retreat may not be in the cards — barring a significant correction in the broader market, that is — it’s reasonable to assume that a pullback to support at the 20-day moving average is not out of the question at this point.

A breach of Facebook’s 10-day would certainly be a signal that such a short-term pullback is in the cards.

Turning to the sentiment backdrop for FB stock, there is plenty of room for adjustments that could spark such a short-term retreat. For instance, Thomson/First Call reports that none of the 49 analysts following Facebook rate the shares a “sell,” with only about five doling out “hold” or “underperform” ratings.

FB options traders are also a bit overly short-term bullish. Currently, the April put/call open interest ratio comes in at 0.32, with calls more than tripling puts among options set to expire within the next month. This bullish outlook isn’t necessarily a negative for FB stock, but it does show that short-term traders are largely unprepared for a potential pullback, which could exacerbate any downside move.

Overall, April implieds are pricing in a potential move of about a 4.2% for Facebook shares. This places the upper bound at about $145.90, while the lower bound lies at $134.10.

Next Page


Article printed from InvestorPlace Media, http://investorplace.com/2017/03/how-to-trade-fb-stock-after-the-selloff/.

©2017 InvestorPlace Media, LLC