Monday was another snoozer in what seems to be an endless summer malaise. But one area perked up a bit yesterday: tech stocks, and specifically Facebook Inc (NASDAQ:FB). While the S&P 500 remains altogether unwilling to do anything, the Nasdaq eked out a 0.5% gain, which sadly is what’s considered a big move these days. While the sector boasts some attractive setups, it’s FB stock that commands our attention today.
Given the heavy selling that greeted Facebook’s price gap following earnings last month, I find its ability to remain aloft quite impressive. Facebook stock has barely budged since then, suggesting any and all supply entering the market has been soaked up quicker than water on a thirsty sponge.
More on FB stock in a minute. First, let’s take a fresh look at the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) to see just how the tech sector has fared during the summer.
The QQQ Simply Can’t Lose
I find the volume patterns in QQQ over the past two months unnerving. Distribution days litter the landscape, adding legitimacy to the previous three downswings. And yet, for all their fury, the Nasdaq remains a mere pebble toss from record highs. The underlying bid beneath this market is undeniable.
Consider the latest episode. On July 27, an overbought QQQ ETF got whacked on monster volume. But did we see follow-through?
Instead, the QQQ has taken a seven-day nap. We didn’t even break below the 20-day moving average, for heaven’s sake. And now, with Monday’s 0.63% pop (which was 3x bigger than the S&P 500’s rally, by the way), it appears the Nasdaq is ready to rally anew.
Bet against the QQQ at your own peril. The 20-, 50- and 200-day moving averages are all trucking higher, so I see little reason to get nervous in tech-land. A break below $142.25 would change my mind. Until then, the bull run is on.
Facebook’s Chart Remains Hot
I could begin like usual with a weekly chart of FB stock to ensure you fully appreciate its uptrend, but why bother? Just trust me — it’s a friggin’ rocket ship, having long since jettisoned any bears out of the airlocks. Facebook is up just shy of 50% year-to-date.
The daily chart is slightly more interesting.
This looks quite similar to QQQ. Earnings on July 27 delivered an outsize candlestick on heavy volume. By and large, traders used the positive earnings as an excuse to ring the register. But the profit-taking was short-lived — a sortie instead of a drawn-out campaign.
Since then, we’ve seen a complete inability by sellers to inflict any lasting damage. From peak to trough, the pullback took all of 5% off of Facebook’s share price.
Is it just me, or are stock bulls being outright coddled by mother market right now?
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While veteran dip buyers would have certainly preferred a retracement to the 20-day moving average, demand for FB is simply too elevated these days. Monday’s 1.39% rally confirmed the downswing is done and the next advance has begun.
Double Your Dough With This Trade on FB Stock
If you’re looking for a quick way to garner high returns on continued strength in Facebook, consider buying a Sep $170/$180 bull call spread for $4.10 or lower.
The worst-case scenario is to have Facebook shares sit below $170 at expiration, causing you to forfeit the $4.10 cost. But, if the stock can rally past $180 (another 4.7% rise from here), then you will capture $5.90. That’s a potential 144% return on investment.
To break even, FB stock needs only to rise to $174.10 by expiration so all we need is a slight increase over the next 39 days to at least recoup your cost.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.