Facebook Inc (NASDAQ: FB)

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application.

Take a look at the 1-year chart of Facebook (Nasdaq: FB) with the added notations:

1-year chart of Facebook (Nasdaq: FB)

After hitting its 52-week high at $175, FB has fallen into what is known as a flag pattern. The pattern gets its name from the appearance of a “flagpole” created during the steep, July rally, and then the formation ofthe small pennant formation after (green/red). This type of price action usually implies a break higher, but is certainly not a guarantee.

The Tale of the Tape: FB is consolidating within a flag pattern. A break above $170 area should lead to higher prices, thus a long trade could be made, and a break below the $165 area should lead to lower prices and a short opportunity.

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!

Good luck!

Christian Tharp, CMT