FB: Fair price

In my posting earlier today about the small home health care company Almost Family Inc. (you can read it here), I discussed some modifications to the way I analyze charts.

In discussing the concept of a fair price range, I wrote:

I'll be looking at where the trades have occurred in the last five market days with an eye to finding entry points below the bulk of those trades, which I postulate occur in a range that both buyers and sellers see as being fair. Out side of that fair price range, either buying or selling will dry up.

Being a quant at heart, I use statistical methods to determine my fairness zone: It is the range that contains one standard deviation from the price that has the most trades. That range will contain 68.2% of trades.

Since no day is complete without a swing at the ugly duckling of the month, Facebook Inc. (FB), I though it would fun to apply my new chart-reading methods to everyone's favorite scapegoat.

After opening at $27.78, FB began a sharp rise on Friday, hitting a peak of $32.08 at about 12:30 p.m. today. It has since then declined, most sharply since 2:30 p.m.

However, it remains well above the fair price zone, which stands at $29.00 on the five-day chart.

Since opening today at $29.94, the price has risen to the $32.08 high. The fair price zone can move quickly on a current day chart, and so FB is trading within the zone and just in the last few minutes broke below the $31.77 level, the price that has the greatest number of trades so far today.

Bottom line: By this method of chart reading, FB is overpriced in the near term. It is fairly priced in  terms of today's trading levels.

Fair price zones:

• 5-day: $26.82 to $29.00
• Today, at 2:43 p.m.: $30.63 to $32.06

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.