Can you like something too much? The answer is yes. But when it comes to Facebook (NASDAQ:FB) shares, there’s still room to enjoy a friendly trend in motion. Let’s look at what’s happening off and on the price chart of FB stock, then offer a risk-adjusted determination aligned with those findings.
Excess consumption — even of things that are good for us — is never healthy. The same logic applies to stocks. After a nice strong rally, conditions are similarly challenging to our financial fitness. Some might insist that’s where FB stock finds itself these days.
Shares of Facebook are up more than 32% in 2021 and at record highs. That’s more than double the tech-heavy Nasdaq exchange’s 12% gains. And compared to FANG stocks, two out of three are hinting at too much love for FB.
How Facebook Stacks Up Against Its Peers
More importantly, based on what we’re seeing in today’s price chart, FB stock appears to have legs to rally. It has the potential for quicker and larger-than-average gains following an earnings report on July 28.
If Snap’s solid and well-received Q2 results are similar to what FB stock investors can expect, there’s a lot to be excited about. Last Friday, Snap shares soared nearly 24% to all-time-highs on the back of surprisingly strong triple-digit sales gains.
Of course, one social media platform’s success doesn’t necessarily translate into triumph for others.
The fact of the matter is that Snap and Facebook compete, but they’re not terribly alike. SNAP stock is smaller, relatively new to the scene and can grow more rapidly than FB shares. Investors considering Facebook may be smart to temper their expectations.
During last quarter’s confessional, Facebook set the bar for sales growth to match or better Q1’s revenue increase. That bar amounts to a 48% increase. Facebook may not be the new kid on the block, but that looks pretty friendly — as does FB stock’s price chart.
FB Stock Monthly Price Chart
Source: Charts by TradingView
FB stock’s monthly chart reveals a couple reasons to be upbeat about higher prices. First, the long-term view shows a couple larger corrective patterns responsible for the bulk of Facebook’s share activity over the past three years.
In our estimation, the healthy size of its consolidations could reasonably push FB stock toward $450 to $500 over the next year to 18 months. But today — or rather later this week — shares can begin that journey before another corrective cycle starts.
Stochastics are bullishly-aligned but showing signs of stalling in overbought territory. A move of 5% to maybe 8% is conservative in relation to recent upside earnings reactions of 7% to 8% over the past year, and thus has our attention as a reasonable outcome.
For bullish investors looking for earnings plays and often all-or-nothing results to show for the effort, a modestly out-of-the-money bull call spread is a favored strategy to contain risk and leverage upside.
One combination which fits well with our earnings expectations while containing downside risk in the event of failure is the Weekly’s July 30 $380/$395 bull call spread. It’s priced for $3 or better mid-market.
On the date of publication, Chris Tyler does not hold (either directly or indirectly) positions in any securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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 market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.