Facebook Inc (NASDAQ:FB) reported its latest quarterly results on Wednesday after the close of trading, and the initial reaction in Facebook stock was positive. FB handsomely beat both top- and bottom-line expectations and showcased another overall good-growth quarter.
Facebook stock rallied in after-hours trading as a result, but now it looks like shares are overshooting their multiyear uptrend. Active investors should look to lighten up on their long positions now, or even short FB shares for a trade.
In the second quarter, Facebook saw revenue rise to $6.43 billion, which was close to 60% higher from the $4.04 billion in revenue in the same quarter a year ago. Growth continues to come from mobile advertising, which makes sense because 90% of Facebook’s users are accessing the service through mobile devices.
The bottom line is that Facebook continues to be a growth story that is both real and believable in an otherwise low-growth world. As such, barring any major negative trend shifts, Facebook stock should continue to trend higher through the intermediate to longer-term lens.
Facebook Stock Charts
If we look at the multiyear chart of FB, we see that the well-defined uptrend since 2013 remains well intact, with the lower end of the range also lining up with the stock’s red 200-day simple moving average.
As a simple but important reference line, the 200-day moving average for Facebook stock, for now, is the main line in the sand to respect for trend followers. Should FB shares fail below this line on a weekly closing basis, Facebook could be in for a more serious corrective move. But until such time this line serves as key reference support, particularly because it still also lines up with the bottom of the up-trending channel.
The Wednesday’s initial post-earnings rally, we saw FB stock rally as high as $134, which is to say that Facebook is now attempting to overshoot out of its multiyear uptrending channel. While a so-called range-expansion rally to the upside cannot entirely be ruled out, history has shown that Facebook stock tends to mean-revert back lower once it attempts a break out of this already steep channel.
On the daily chart, we see all of this a little bit more closely. Note that technical resistance at the upper end of the trading channel is just as well-defined as is the aforementioned technical support. Facebook shares traded as high as $134 in after-hours trading — right at the upper end of this range, and inside the blue box on the chart below.
Instead of chasing Facebook stock higher after earnings, I believe a better-probability trade here is to sell FB, short it or buy put options/sell out-of-the-money call spreads to bet that a sustainable breakout above this channel is unlikely.
Ultimately, Facebook stock could end up mean-reverting back into the $115-$120 range.
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