Shares of Facebook are taking a pause in their rally and while I remain bullish on the stock through the longer-term lens, in the near-term another trade is setting up to the short side, with a well-defined price target.
It's hard to deny the defiant uptrend in FB stock over recent years. While valuation concerns may deter some investors, the fact remains that Facebook is believable growth story in a low-yield and low-growth economy. Both institutional and private investors must make their coin and attempt to reach certain minimum yields, so they chase the "obvious" single-stock growth stories, like Facebook.
The multi-year weekly chart below depicts this story very well and investors continue to get rewarded for buying the dips in FB stock. At the same time, however, for the more nimble investors and traders FB stock also continues to offer good selling/shorting opportunities when the stock reaches the upper end of the multi-year trading range, such as it did once again last week.
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Source: Saxo Bank
On the daily chart we see that since FB stock gapped higher on April 28 it has been stuck in a consolidation phase and holding above previous horizontal resistance (black line).
At the same time, FB stock has a good tendency to fill its gaps and the April 28th up-gap increasingly looks to be vulnerable to closure in the not-too-distant future.
Management and risk description
The risk to this trade is simply that investors will pile into FB stock anew without giving it a chance to reset.
Entry: short the stock or CFD or buy cheap puts on a break and hold below $116.
Time horizon: two to three weeks.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more