FB 7/26/2013 – Feel The Power
Facebook (FB) Post-Earnings Analysis
In case you missed it, Facebook (FB) reported earnings two days ago after the market close. According to most, they knocked it out of the park. As depicted on the next chart, FB opened at $33.55 after a strong earnings gap-up. FB then dropped to consolidate above, below and around the $33 range in $.50 swings until an hour or so before mid-day. From there, FB climbed from $33 to $34.88 in regular market hours (FB actually hit $35 about 15 minutes before the market opened in extended hours activity). FB closed regular trading hours yesterday at $34.36.
The next chart reflects a very strong move by FB by skipping over several prior resistance areas in the 2nd largest volume day the stock has seen since its IPO. Such a big move on such heavy volume indicates to me that there is still a little room for FB to run before it starts to consolidate before its next move. The first area of resistance I was expecting FB to run into was the top of the navy blue trading channel that intersects with the purple gap-down resistance area in the $29 – $30 range. Take a look at the daily candlestick chart since FB’s IPO.
The next area of resistance was the red trend line above the grey shaded box. That was the resistance line from 2 prior attempts at an uptrend. My Think or Swim platform from TD Ameritrade shows 365 million shares traded yesterday. Heavy volume on an upwards day is one of the best signs there is showing demand for a stock.
The black trend line that slices almost through the middle of yesterday’s candlestick is another potential support/resistance area on the way to the purple channel on the top of the chart. The purple channel at the top of the above chart represents a large gap-down, a day after FB’s IPO. There were lots of problems with FB’s IPO and this is the area in which it happened and above. I expect resistance here. With resistance usually comes a little more volatility. One way to get through more resistance areas though is with continued doses of increasing volume during this uptrend. I do think todays volume will be the heaviest we will see for a single day, so when I say continued doses of heavy volume I mean to compare the volume to the days prior to earnings.
Price and volume are two of the most important indicators for any stock that you follow. When stocks are going up, you want volume to be heavy indicating there are lots of interested buyers, when stocks retreat or pullback, you want volume to be lighter indicating that there are not many people actually selling their shares. Certain candlestick formations give hints that the uptrend has ended and I will be keeping an eye out for them.
I will be watching to see if FB makes a higher high tomorrow (breaks above $34.88) or a lower low (drops below $32.75). This could be your first indicator of FB’s direction over the next few weeks. But based on the power of todays move, I think FB may make a move upwards for the purple channel.
Two of the other prior uptrends also have trend lines that converge with that purple gap-down resistance area. With that resistance there, the $36.50 – $38 looks like a great area to unload another allocation of my FB shares. One last chart, where I think the potential “playground” could be based on today’s initial move. The “playground” is indicated by the grey shaded box. I will be looking to purchase shares to trade near the bottom of the playground and selling those shares on any rebounds back to the top of the playground.
The “playground” area will hopefully be narrowed down a bit after FB tips its hand over it’s next move. So check back soon!
Disclosure: I sold another 25% of my FB shares today at prices of $33.53 and $34.49. I now hold 50% of my original FB position. I intend to keep these shares unless we reach the top of the “playground” on the above chart. I may consider selling another 25% if that target is reached in the near future. Remember, every person’s trading strategy is different however it is never a bad thing to lock in gains and take profits on the way up.