Monday, January 7, 2013

FB: The numbers behind a bull signal.

Facebook Inc. (FB) gave a bull signal on Friday, breaking past its 20-day high of $28.75.

It's not a trade for me because FB publishes earnings on Jan. 30, meaning that we're within my moratorium on opening new positions within 30-days of a future earnings publication.

Even so, FB fascinates (and infuriates) me, and with the stock having average volume of  57 million shares, I clearly have a lot of company.

So, let's  run some numbers.

FB started trading last May, so there's not all that much history. The stock has had eight 20-day price-channel breakouts, five to the upside and three to the downside.

Of those breakouts, 43% overall were profitable, with an average return of 12.2%. The upside breakouts showed a success rate of 25%, with an 8% average return, and the downside signals showed a 67% success rate, for an average gain of 14.3%.

The scores -- combining the success rate and the average return -- come to 5.2 overall, which is at the high end, but only 2.0 for bullish signals. Bearish signals give a stunning score of 9.6.

So, clearly, history shows FB has a bias toward the downside.

With those numbers, I doubt that I would trade FB to the bull side, even without the looming earnings announcement. A downside breakout, on the other hand, would be pretty much a no-brainer.


My trading rules can be read here. (They don't talk about the trend score because I'm still developing the tool.) A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.

And the classic Turtle Trading rules on which my rules are based can be read here.

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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