Social Media Pairs Strategy: Momo and Facebook Stock

Politics aside, a pair of buys in U.S.-based FB stock and in China’s Momo stock looks like a match made in heaven

Does the trade war have you frustrated when it comes to the market? Don’t despair. It’s time for investors to spread the love in Facebook (NASDAQ:FB) and Momo (NASDAQ:MOMO) using a bullish pairs strategy within the ongoing battles on the price charts of FB stock and Momo. Let me explain.

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By default, many Chinese and American-based companies stocks are inexorably linked to today’s official trade war developments. There’s also the off-the-cuff, rogue dialogue from an ever-volatile PPresident Donald Trump enjoying his Twitter (NYSE:TWTR) pulpit and tweeting almost 24/7 that are a sign of the times.

And this past week, along with the broader averages, FB stock investors and those in Momo had to cope with both kinds of market drivers in spades.

But what will tomorrow bring for the world’s two largest economies — or for that matter, what will coming weeks or months bring? Even insiders like President Trump’s top economic adviser Larry Kudlow sounded less-than-confident over the weekend as to how events will play out as Wall Street braces for a retaliation from China following Friday’s increase in tariffs from 10% to 25% on $200 billion worth of goods by the U.S.

The uncertainty and day-to-day volatility is enough to think about putting off any buying or selling decisions until clarity emerges and a friendlier trend reasserts itself. That might be a smart move. But that looks like a mistake on the price charts of social media platforms FB stock and Momo stock, where a bullish pairs strategy is seen as a win-win, one way or the other, for today’s investors.

Trade War Pairs Trade: Buy FB Stock

FB stock is the first of our two trade war pairs buy candidates. Following a solid earnings beat less than three weeks ago, investors catapulted shares cleanly above the 62% resistance level within a nine-month long corrective base. The price action was decidedly bullish.

Now FB stock is offering investors a very attractive entry to go long shares. As of Friday, Facebook has pulled back to fill the earnings gap near the key Fibonacci level. And with the price action finishing in a daily doji candlestick coupled with an oversold stochastics position close to signaling a bullish crossover, investors have a low-risk, high-reward entry and exit strategy in Facebook.

The recommendation in FB stock is to buy shares above the doji high of $190. The entry is contingent on Friday’s low holding or all cards are off the table. Should that occur, I’ll wait until POTUS’ next tweet or other scheduled market drivers before revisiting a purchase.

Source: Charts by TradingView

If the technical low does hold and shares trigger a long entry, risk management on the bullish position should use a trailing stop that’s initially tied to the doji. This allows for exposure of less than 3%.

On the upside I’d suggest peeling off some risk at $200 as shares of FB test the century level. With the reward roughly twice the risk, that’s sensible enough. But I’m confident a breakout will end up producing a move to last summer’s all-time-highs without too much effort and then onto fresh highs.

Trade War Pairs Trade: Buy MOMO Stock

Our second social media stock for buying is MOMO. It wasn’t long ago shares of the dating app company were performing similarly to FB stock. Momo stock also began its own correction last summer. Shares were also well on their way to righting those losses on the price chart following better-than-expected earnings results in mid-March. Then along came some unexpected trouble.

Momo stock has come under pressure the past couple weeks after the company warned one of its acquisitions, Tantan, was banned from certain mobile app stores in China on behalf of government officials. And in Friday’s session the news and reaction in shares got a good deal more threatening.

MOMO finished off more than 10% as the company released a statement announcing regulators were temporarily suspending users’ ability to post social newsfeeds over the next month, while Momo takes measures to strengthen its content screening.

Source: Charts by TradingView

The vague update left investors to shoot first and ask questions later. But that could be to the bulls’ advantage. With shares outside their Bollinger Band, stochastics oversold and piercing the 62% retracement level, this looks like a case of an overreaction in Momo stock similar to Facebook’s own run-in with regulators the past couple years.

What I’d recommend for entering into a long position is to wait for a bottoming candle above the 76% retracement level and buy Momo stock once you see price confirmation that a low is in place. Giving an actual entry price is difficult business right now, if not impossible. But if a proper daily candlestick trigger does make its way onto the MOMO chart, a long in MOMO could be a match made in heaven.

Investment accounts under Christopher Tyler’s management currently own positions in Momo stock and its derivatives, but no other 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.

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