Facebook, Inc. operates as a social networking company worldwide. It builds various tools that enable users to connect, share, discover, and communicate with each other on mobile devices and computers. The company’s Facebook Platform is a set of development tools and application programming interfaces that enables developers to integrate with Facebook for creating social apps and Websites. As of December 31, 2012, it had 1.06 billion monthly active users and 618 million daily active users. The company has a strategic partnership with Trend Micro Inc. for educating and protecting users’ digital lives against malicious sites and malware. Facebook, Inc. was incorporated in 2004 and is headquartered in Menlo Park, California.
FB could be forming a head and shoulders (H&S) pattern. Please take a look at the 1-year chart of FB (Facebook, Inc.) below with my added notations:
FB has performed quite well over the last 5 months while creating a key level at $45 (blue). That $45 level, which has been recent support, is also the possible “neckline” for FB’s potentially still forming H&S pattern. Above the neckline you will notice the H&S pattern itself (pink).
Remember, patterns such as an H&S need to confirm to have the meaning that they imply. Confirmation of the H&S would occur if the stock were to roll over and break below its $45 support. If FB does break that level, the stock should move lower from there.
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The Tale of the Tape: FB could be forming a head & shoulders pattern. Although a trader could go long at $45 expecting a bounce, the stock’s pattern would imply an eventual breakdown. If that happens, a short trade should be entered on a break of that $45 level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach