Tech stocks continue to dominate the market. While selling pressures have weakened small-caps and sectors from healthcare to industrials, the who’s who of tech titans continue to reign supreme. And that makes someone like Facebook Inc (NASDAQ:FB) a top pick for a potential year-end run. Let’s take a stroll through the Facebook stock charts.
The weekly view of FB is a thing of beauty. Truly, it belongs in a textbook to illustrate the power of price trend. Like the energizer bunny, it keeps going and going and going.
Over the last three weeks Zuckerberg’s flagship has paused, even pulled back slightly. That’s allowed the 20-week moving average to play a bit of catch-up bringing potential support in its wake.
The daily view reveals the recent pause in greater detail. With the past eight days of chop, Facebook has now returned to the rising 20-day moving average as well as an old resistance level. That’s two potential support areas that could bring all the buyers to the yard.
Another factor taking the teeth out of the pause is the lack of volume. As shown in the lower panel, participation over the past week has been subdued.
Rather than a groundswell of distribution signaling heavy profit-taking, we’ve seen garden-variety churn. Some nervous-nellies have rung the register but not enough to worry about at this stage.
Throw it all together, and Facebook stock looks like a solid dip-buy here. To confirm the next advance has begun, wait for a break above Monday’s high ($179.04) before pulling the trigger.
A Facebook Stock Trade Worth Liking
To position for additional upside, buy the January $180/$190 bull call spread for $3.68. The position consists of buying to open the $180 call while selling to open the $190 call. The initial cost represents the max loss and will be forfeited if Facebook stock sits below $180 at expiration.
Since this is a $10-wide spread, the potential profit is $10 minus the cost, or $6.32. If Facebook can rally above $190, a mere 6.3% rise from here, you will capture the max reward at expiration.
By risking $3.68 to capture $6.32 you’re looking at a mouth-watering potential return of 172% in Facebook stock.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.