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Embrace Facebook Inc (FB) Stock, Just Don’t Chase It!

Some of the largest technology and tech-related stocks are set to close out the first quarter of 2017 with significant gains. Take Facebook Inc (NASDAQ:FB), which as of Wednesday’s close is higher by 24% for the year-to-date and so far showing little signs of stopping. However, while I like FB stock just as much as any viable growth play, this is a stock that technical analysis says is bracing for a pause.

Embrace Facebook Inc (FB) Stock, Just Don't Chase It!Understanding that — and knowing what levels to look for — is the kind of thing that makes the difference between subpar plays and great trades.

A very simple rule that has served me extraordinarily well over my career is to buy stocks on dips, not on rips. It might sound overly simplistic, but it works particularly well for strongly trending issues, such as Facebook stock.

Even institutional investors that typically are more focused on fundamental research when it comes to stocks still monitor some basic technical analysis — say, when a stock reaches the upper or lower end of a range. That is to say that when a stock reaches overbought readings (i.e., “rips”), the odds of a successful trade to the upside are lower because traders and active investors alike are looking to lighten up on stocks, and possibly looking to rebuy again lower.

When I last discussed FB stock on Feb. 21, I said that Facebook looked like it was coiling up in a tightening technical pattern that took place at its previous all-time highs from 2016. I said that a push above $135 could open the stock up to a next upside target around the $140 mark.

Shares reached that target by mid-March.

FB Stock Charts

On the long-term weekly chart, we see that the most recent multiweek rally brought Facebook back to the very upper end of its multiyear range.

FB stock chart weekly view
Click to Enlarge

The last time FB stock had touched the upper end of its uptrending channel was October 2016. The stock then corrected 15% over the course of a few weeks before finding better footing again at the lower end of the range.

To be clear, at this point it’s not my base case that Facebook will retrace all the way back to the lower end of its range. Still, I want to caution that the risk-reward on the long side has materially worsened for the near-term.

But I’m still a strong believer in FB stock for the long-term.

On the daily chart, we see the strong year-to-date rally has seen Facebook shares trade above its 21-day moving average (yellow). This moving average currently resides around the $39 mark.

FB stock chart daily view
Click to Enlarge

From a trend following perspective, traders could now look to buy FB stock again as it trades closer to this moving average as opposed to chasing it higher right here right now.

A pullback toward the $139-$140 area in Facebook shares could offer up the next buying opportunity for a trade back higher toward $145-$146.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/03/embrace-facebook-inc-fb-stock-just-dont-chase-it/.

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