After a wild day for large-cap tech stocks last Friday, Monday’s price action was much more muted. The worst fear of some hedge fund managers I spoke with, at least thus far, has not come to fruition as any mass liquidation of large cap tech stocks did not follow through — and to be clear, that was never my personal base case. Nevertheless, through the lens of chart analysis, many stocks such as Facebook Inc (NASDAQ:FB) remain near the very upper ends of their multiyear trading ranges, which now sets up one of two trading ideas.
I just finished up a two-day trading and investing workshop in for some clients in Boston. A major focus the workshop was to teach my students the importance of time frames, i.e multi-time-frame analysis, and ensuring any given trades strictly remain focused on the time frame which they are meant for.
The current setup in shares of Facebook is a perfect example.
FB Stock Charts
FB stock through a multiyear lens is trending higher in one of the most well-defined trading channels I have ever seen. In other words, the stock rallies to the upper end of its up-trending range, then stalls and ultimately mean-reverts back to the lower end of the channel. There, it again consolidates but before long buyers step in and the stock starts on a new leg higher back toward the upper end of the range.
The stock has been a trend-follower’s dream and through this lens remains so. At current juncture at the very upper end of the multiyear channel, FB stock in this time-frame thus does not offer a favorable “buy” spot.
On the daily chart, we see that FB stock has been consolidating at the upper end of the aforementioned range for the past five or so weeks. And this is where keeping perspective on time frame for trades becomes crucially important. Although the multiyear chart does not favor buying the stock, on the daily chart, a trade either to the upside or to the downside could begin to set up once the stock breaks either above or below this multiweek trading range (gray box on chart).
Chart patterns such as what are currently seeing in FB stock are important technical signals that can lead to high-probability setups, and for those unfamiliar, I’ll be hosting a special webinar June 15 for InvestorPlace readers to explain these signals and how to turn them into winning trades.
If FB stock can rally once more and break above the $155 area then a trade to the upside toward a next target at $165 sets up. Alternatively, if FB stock gives us a daily close below $144, then the next downside targets become $140, $135 and $130, each of which lines up with simple Fibonacci retracement lines (red horizontals).
Check out Anthony Mirhaydari’s Daily Market Outlook for June 13.
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