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.
Click to Enlarge 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.
Click to Enlarge 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.
