Social networking giant Facebook (FB) is showing signs of life once again after sliding more than 20% from its October top down to the late November lows. The recent action in FB stock was spurred by a combination of technical support as well as supportive news flow providing some wind at the stock’s back.
On Monday, JP Morgan reiterated its Overweight rating for FB stock, giving a positive nod to mobile advertising growth. Then the stock popped just about 4% on Wednesday, aided by a rumor that the company may soon be added to the S&P 500, replacing Molex (MOLX). This would give Facebook a natural lift as index managers would have to buy the stock by mandate.
On the twelve-month chart, the most important price action remains the big lateral breakout that took place after earnings in July. Through this lens, the price action off the October highs was purely one of consolidation. The action was constructive for a further move higher after FB stock found support at its rising 100-day moving average in late November.
On the daily chart, FB stock broke past a two-week resistance point on Wednesday at $47.60. FB broke out of the downtrend line in place since late October, but also bumped into the 50-day simple moving average (yellow line). From a technical point of view, FB stock now has a much better risk/reward on the long side — particularly if it can also manage to push past the 50-day moving average at the $49 mark.
Momentum looks to have found its way back into FB stock. But, as always, any quick bearish reversals must be taken seriously — particularly with stocks like FB, where the business model still has much to prove.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
