Medium term
Trade view / 25 August 2014 at 13:54 GMT

Facebook wants to break to new highs

Trader /
United States
Instrument: FB:xnas
Price target:
Market price:

The broader US stock market is again making new highs and while, as discussed on Monday morning, I think this overshooting rally will ultimately fail, the music is still playing and there are some trades to the long side to be had. The social media group of stocks is one area where I am still finding interesting opportunities in that regard, such as Twitter, as discussed in this morning's Traders Tale video.

Another social media stock looking ripe for another up-move and with defined risk parameters in place is Facebook (FB:xnas). The stock continues to hold its trend and in recent weeks consolidated near the highs while momentum as represented by the Relative Strength Index (RSI) is curling up again, although not yet making new highs or breaking into overbought readings. And while just because the stock isn't going down doesn't mean it has to go up, the broader market is supporting the stock if only for another while longer.

Source: Saxo Bank

On the daily chart, note that after reporting earnings on July 23, Facebook stock rallied around 5% the following day and by so doing broke the stock to fresh all-time highs. Over the past month or so the stock then settled into a constructive consolidation phase above previous resistance, and that's bullish until the stock breaks lower.
Source: Saxo Bank

Management and risk description

The social media stocks can move quickly, so through the lens of risk management any quick bearish reversal in Facebook's stock should be respected.


Entry: Buy the stock at $75.00.

Options: Alternatively, buy a November 75 strike call.

Stop: $73.50.

Target: $78.00.

Time horizon: 1-2 weeks.

-- Edited by Kevin McIndoe

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