What’s there to like about Facebook (NASDAQ:FB) these days? It likely depends on how you look at things off and on the price chart. And in this strategist’s view, for traders long FB stock it may be time to consider unfriending shares and minding the gap.
Let me explain.
Since the market bottomed in late December, it has been pretty much a one-way street in FB stock and one that bulls have benefited from big time. Shares are up a very respectable 34% from their corrective lows. There’s nothing wrong with liking that price action, right?
Well, maybe.
Behind Wall Street’s rekindled friendship with Facebook, bearishly persistent scrutiny of fake news, security breaches, slower growth and increased spending concerns were all but put to rest following FB stock’s blowout Q4 earnings report in late January. In fact, shares jumped nearly 11% immediately after the surprisingly strong results.
Of course, Mr. Market’s influence can’t be denied either. The other fact is roughly two-thirds of Facebook’s gains since bottoming occurred prior to earnings and in unison with the broader averages’ abrupt U-turn out of a correction flirting with bear territory.
So again, there’s nothing wrong with liking that price action, right? Well, maybe or maybe not.
FB Stock Daily Chart
As noted above, if traders caught Facebook stock near its lows, it has been a nice ride. And as the reversal was a variation of a classic double-bottom, it’s likely some of you are sitting on open profits. But please don’t get caught being complacent.
Shares of FB have been caught in a narrow trading range wedged in between the 50% retracement level and 200-day simple moving average since the post-earnings price spike. That’s potentially bullish if an upside breakout was to occur. But will it?
I’m concerned Tuesday’s odd failure to participate in the market’s broad-based rally was the proverbial canary in the coal mine for FB stock. It’s my contention shares aren’t going to overcome this key area of resistance and investors that own Facebook should mind the price gap and take profits. And for more aggressive traders, shorting shares below $163 with an initial stop above resistance seems like a very good way to secure additional profits which are at odds with today’s friendly headlines.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
