FB Stock: Trending into Orbit
Facebook Inc (NASDAQ:FB) stock is one of very few companies that I follow that have trended in one direction for what seems like an eternity. If we disregard the poor showing following the initial public offering (IPO), the trend has been from the lower left to the upper right. FB stock is perfect example of a bullish trending investment.
Facebook has done a number on the social media landscape by purchasing up potential rivals and snapping up key assets. I am not sure about the longevity of the actual web site “Facebook.com,” but management has assured that Facebook, as a company, is here to stay as their strategic acquisitions continue to pay off.
Don’t get me wrong, Facebook.com is still growing and a major revenue stream for the company, but like most things on the Internet, fads come and go as new products gain popularity and die off. If I use the stock market as a gauge, on the premise that it is forward-looking, investors continue to be enamored by the business prospects going forward, as FB stock continues to make new all-time highs.
Will the trend in Facebook stock continue forever? I cannot say for sure, but the charts are alluding to further gains in the interim.
The following Facebook stock chart depicts the factors that helped define the trend.
Chart courtesy of StockCharts.com
In April 2013, FB stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this signal.
The key standout is that the signal was produced three years ago, and it is still holding that bullish premise. Following this signal would have produced a potential return of 365%, and this is a prime example of why I don’t trade against this signal.
Even more impressive is FB stock’s ability to trade above its 200-day moving average on a consistent basis. The 200-day moving average is the dividing line between stocks trading in a bull market and stocks trading in a bear market. When the share price is above the moving average, it is bullish; when the share price is below the moving average, it is bearish.
This moving average has acted as support, and any breaches of this trend indicator have been brief and proved to be a buying opportunity.
The following Facebook stock chart depicts the current bullish price action using a one-hour scale.
Chart courtesy of StockCharts.com
The chart above illustrates the health of the price move off of the June lows. Healthy trending markets are littered with impulse waves that are followed by consolidation waves. These patterns are extremely effective in setting up appropriate strategies to exploit the trend.
These patterns serve two functions: managing risks and setting price objectives.
The consolidation wave on FB stock chart is a pennant pattern. These patterns, on average, are continuation patterns and mark a midpoint consolidation. If this premise is true, then the target price of the impulse wave to follow is $141.00.
In order to manage risk, I would use the following price points. A close below the uptrend line, or close below the lowest point on the consolidation wave would be the price points I would use to exit Facebook stock.
The Bottom Line on FB Stock
I am bullish on FB stock. The trend is bullish and embedded. When this trend will end is anybody’s guess. Regardless of the scale that is used, the price action remains bullish. So as long as the charts remain bullish, so will my bias.