Wednesday, September 12, 2012

FB: Chart Talk

OK. Time to look again at everyone's favorite bad boy, Facebook Inc. (FB), in light of Tuesday's TechCrunch interview with CEO Mark Zuckerberg. (See the highlights here.)

Zuckerberg said all the right things -- I think the words "long term opportunities" escaped his lips -- and the stock price responded the way I would expect with an issue widely held by traders who focus on news, image and narrative rather than hard numbers: With a 6.8% opening gap.

That broke free of a sideways trend, and perhaps more significantly, brought the price above its 10-day high, signalling an end to a bear phase from July 16 under the trend-following Turtle Trading rules (read about them here).

Actually, the bear phase ended Monday as the price peaked above the 10-day high at the time, $19.53. So Turtle Traders who were paying attention would have closed their bear positions on that day, before the upside gap.

Since they would opened their ber positions at $20.35, the position would have provided a 4.2% gain, not too shabby for a few months work. Given the typical leverage that options provide, I would have expected a gain in excess of 30%.

A break above the 20-day high, now at $21.60, or 44 cents above today's high so far, would signal the start of a bull phase under the Turtle rules.

The broad chart of FB's movements is a sad tale known by all -- A high amid high hopes of $45 on IPO day last May; steady decline to $25.52 by early June; a recovery up to $33 plus change by late June; and then a slow pull back to $26.85 on July 26, the day before the bottom fell out with the first earnings release.

Since late August, FB has traded in a narrow sideways range with a $19.75 ceiling and a $18.95 floor, but then fell again, hitting an all-time low of $17.55 on Sept. 4.

Today's breakout would signal a trade in my opinion under traditional chart analysis, but there is significant resistance at $22.45, and the cautious trader will wait until that level is breached before opening a position.

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.

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