The communications sector of the S&P 500 is higher by close to 30% for 2019. One of its main constituents, shares of Facebook (NASDAQ:FB) continue to grind higher and now look to be coiling up for another move toward a well-defined next upside target.
The old saying, “the trend is your friend” is one that trend-following market participants live and die by. Trends can reverse and come to an end quickly, however, which is why trend-followers have to be diligent. Yet as long as the trend is in tact, the proverbial game of musical chairs continues.
As I always discuss in this column, being aware of the trend of a stock’s sector or group is of primary importance. Once we have that trend, then it’s a matter of looking into the sector or group’s constituent holdings to look for leading or lagging stocks that could be played in the same direction as the group.
FB stock is higher by approximately 50% for 2019, thus outperforming the communications sector that it belongs to. However, the technical construct is promising for Facebook to continue this trajectory.
Facebook Stock Charts
For perspective, let’s first look at a multi-year weekly logarithmic chart of FB stock. Here we note that despite the stock’s strong 2019 performance, it has ‘only’ worked its way back higher toward a well-defined technical resistance area as marked by the black horizontal line.
This is the third time since mid-2018 that FB stock has bumped into this area. Will the third time be the charm for a bigger picture breakout?
Zooming in on the daily chart, we see that Facebook stock has held its red 200-day simple moving average as support since June. Once the stock started pushing above its 50- and 100-day moving averages again in October, it held those as support as well.
In mid-December FB stock had a quick two-day pullback, which was swiftly bought again. Now the stock is flirting with a breakout past the year-to-date highs and toward the $215 – $217 area as an upside target. This area is also where it would finally fill its down-gap from July 26, 2018.
Any strong bearish reversal with the stock closing below $192 would be an initial stop loss signal. Instead of playing the stock with the aforementioned parameters, options traders could look to buy the February 205 – 215 bull call spread.
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