Shares of Facebook Inc (NASDAQ:FB) rallied 1.7% on Thursday, January 5, taking the year-to-date rally up to nearly 5%. While just three trading days don’t yet make a new trend, the price action on Facebook stock does look encouraging thus far. From a reward-to-risk perspective, traders would be wise to look at FB stock once again from the long side, keeping a close eye on a specific catalyst on the calendar.
For some perspective, when I last chimed in on FB stock on Dec. 14th, I offered that the stock remained in a well-defined, bigger picture up-trend, but the relative weakness versus the Technology SPDR (ETF) (NYSEARCA:XLK) had to improve for Facebook stock to once again offer better buying opportunities.
The company is scheduled to report earnings on Feb 1., which will likely be the next big toggle date for FB stock as well.
In other words, active investors would be wise to tread somewhat carefully around Facebook stock until the next earnings report, which has the potential to make or break the multi-year up-trend that the stock has so nicely carved out.
On Dec. 14, I showed a relative or ‘ratio chart’ pinning FB stock versus the XLK exchange-traded fund. At the time, the relative weakness of Facebook stock was painful to watch and while the stock is not out of the woods just yet, the year-to-date and week-to-date rally is improving the picture both in absolute and relative terms.
FB Stock Charts
On the multi-year weekly chart we see that the multi-year up-trending channel remains intact and that the yellow 50-week simple moving average, which roughly equates the 200-day moving average still coincides with the lower end of the channel as support.
From this angle, a meaningful weekly close below this moving average and below the lower trend line could likely see FB stock tumble closer to its blue 100-week moving average as next support. However, support is not broken until it is, which is another way to say that the trend remains our friend until it ends.
On the daily chart, we see that the three-day rally so far in 2017 has pushed Facebook stock back to the upper end of a ‘wedge-like’ consolidation phase that the stock has been trading in since early November.
Note that on Jan. 5, FB stock closed the day right at a technical confluence resistance zone made up of the upper-end of the wedge, and also where both the yellow 50-day and the red 200-day moving averages meet.
A major difference between where Facebook stock currently is and how it has traded over the last couple of years is that its intermediate-term moving averages on the chart (50- and 100-day moving averages) are both trending lower and the 50-day has crossed below the 100-day. This is yet another reason why, in my eyes, FB stock is not yet out of the woods through a multi-week/month lens.
However, quicker traders could look to either buy Facebook stock for a trade if this confluence resistance area around $121 can be overcome, keeping the Feb. 1 earnings date in mind. Alternatively, any bearish reversal around this confluence resistance zone could offer small short-side opportunities back down to the $116-area.
In summary, FB stock is trying hard to get back on its feet after under-performing the broader technology sector the last couple of months. Until a more meaningful bullish reversal has taken place on the weekly charts, Facebook stock is better traded within shorter time frames.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.