Shares of Facebook Inc (NASDAQ:FB) have largely trotted sideways so far in February. That’s despite an earnings report in between, and a march through intermediate-term overbought readings, technically speaking. As I often say, though, one can learn much by just watching. And the fact FB stock continues to get bought on every dip speaks to the underlying demand for it.
Novice traders and market participants often believe that once a stock becomes overbought or oversold according to their favorite momentum oscillator or other technical reading, the stock must quickly and sharply correct. However, remember: There are two ways in which stocks can work off an overbought or oversold reading:
- Price. In other words, the stock can correct lower or higher in a directional move.
- Time. In other words, the stock can move sideways, and over time, let the overbought/oversold readings cool off.
When I last discussed FB stock on Jan. 31, I offered two ways to trade the stock following its fourth-quarter earnings announcement. Facebook ended up moving less than expected after the report, and it reached neither important technical support nor important technical resistance. Thus, it didn’t set up any high-probability trade in my book.
In fact, after a one-day “sell the news” reaction, Facebook stock got back on its feet and over the ensuing days moved back up to its previous highs.
FB Stock Charts
Before looking at Facebook’s daily chart, let’s gain some perspective from the multiyear weekly look.
Here we see that the well-defined and much discussed multiyear up-trending channel marked by the purple-dotted parallels remains in play. In other words, FB stock continues to get bought at the bottom of the trend and sold at the top of the trend.
Through the lens of risk management, traders and investors alike should respect this channel until it breaks.
More to the point of the right-here, right-now: Facebook shares still have more upside to the very end of their multiyear up-trending range, currently around the $140 area.
Moving on to the daily chart, we see that after a one-day “pop and drop” following the Feb. 1 earnings report, FB stock quickly got back on its feet and in recent days has further tightened what has already been a narrow but choppy trading range thus far in February.
Also note that FB, at its current juncture, lines up with its previous all-time highs from late October 2016. So if buyers want to push Facebook higher from here, they would accomplish fresh all-time highs.
A daily close for FB stock above $135 could open up a next upside target around $140, while any bearish reversal should be respected as a stop-loss signal.
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