Facebook Inc (NASDAQ:FB) shares are higher by more than 35% year-to-date, which is good news for the bulls.
Better news for the bulls? The Powers That Be seem to want to push FB stock even higher into year’s end.
Facebook stock has been a specimen for trend followers and perma-bulls alike as dips got bought in an almost religious fashion, followed by increased momentum upon breakouts to new highs. As the saying goes, the trend is your friend until it ends … and with that in mind, we’re looking to play FB stock higher still in coming weeks.
It’s a theme that I have reiterated all year: In an environment where the few believable single-stock growth stories are known to the larger investing public, money (and thus momentum) has flocked to large-cap Internet stocks. Household names such as Amazon.com, Inc. (NASDAQ:AMZN) and Facebook have been chased higher and despite showing near vertical slopes in terms of price action continue to work higher for now.
It’s all very much a tale of two time-frames. While I believe these momentum names will face stiffer headwinds in parts of 2016, the performance chasing animal spirits into year-end will likely keep them afloat, all else being equal.
To be clear, the year-to-date percentage rate return on a stock like Facebook at this stage in the game is not important. What counts from here on in is the trend following status that FB stock has, and that as a result, particularly underperforming investors have to chase it higher into year-end.
So now, let’s move on to the charts and some advice.
FB Stock Charts
On Facebook’s multiyear chart, we see that despite a few mean-reversion moves along the way, the 30-week moving average (blue line) for FB stock has held all along, on a weekly closing basis. This support line is to be taken comfort in for the time being, but is also a good measurement tool for where the trend may end or exhaust itself for a while.
Each time that Facebook shares get too far extended above the 30-week moving average, they tend to mean-revert back to it eventually. At this point, the next mean-reversion move doesn’t look likely until 2016. (Again, all else being equal.)
Looking at the daily chart, we see that FB stock in October broke out of a well-defined base that may also be labeled an inverse head-and-shoulders pattern of sorts. The stock then exploded higher into early November and began to pause and consolidate along with the broader market.
With Tuesday’s first-of-the-month rally in stocks, FB stock too got giddy again, and by rallying 2.76% on the day also marginally broke out of this multi-week consolidation phase. From here, the path of least resistance in coming weeks looks to be higher, albeit not in a straight line.
Active investors and traders could use Monday’s lows just below the $104 mark as a first stop-loss area, with an initial price target at $111 followed by $115.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, Serge Berger did not hold a position in any of the aforementioned securities.
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