Facebook Inc: Bulls & Bears Need to See these FB stock charts

FB stockFB stock: Cruise Control

I am bullish on Facebook Inc (NASDAQ:FB) stock and I frequent their many apps on a daily basis.  As a result, this company has actually become a staple in my life. Can I live without its products? Of course I can. Do I want to? Well, that question might be a little harder to answer. I, like many others, might have a slight problem of being attached to my smartphone from time to time. It is this addiction to our smartphones that has allowed Facebook to grow and flourish. The company has effectively become so successful by monetizing its viewer engagement.

The trend in FB stock has reflected the company’s success and, aside from the rocky initial public offering (IPO), FB stock has been cruising higher. The bullish trend that began in 2012 remains intact, but it is always wise to watch key levels of price support and resistance, so any surprises in the stock price won’t catch anyone totally off guard.

I base my analysis and investment decisions using price charts, and the process I am using to analyze Facebook stock is no different.

The following chart illustrates the predominant bullish trend in Facebook stock.


Chart courtesy of StockCharts.com

Facebook stock has spent nearly its entire trading career trading within the pattern outlined above. There are two parallel lines highlighted in blue that define this trend. The pattern is known as an ascending channel. An ascending channel has two trend lines that define the upper and lower bounds. The share price will effectively oscillate between these two lines for as long as the trend permits.

As long as Facebook stock is trading within this channel, a bull market exists. A trend reversal occurs when shares finally gather enough strength to break out of this channel.

A new trend has developed within the channel and is highlighted in green. This trend can have many meanings, but a break below the power uptrend line would suggest that the lower level of the channel is going to be tested. This same trend line can also be interpreted that the slope of the current run higher is about to accelerate.

The following FB stock chart illustrates the same chart using a daily scale.


Chart courtesy of StockCharts.com

The chart above illustrates how a simple signal like a golden cross can effectively contain a long duration move. For those not familiar with a golden cross, it 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). This signal first crossed in a bullish manner in August 2013, and has remained bullish ever since. Anyone using this signal would have purchased Facebook stock at $40.00 and would still be long today.

The other signal on the chart above is the 200-day moving average. This signal is computed by adding the closing price of FB stock over the past 200 trading days and dividing that number by 200. This line acts as the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When Facebook stock is trading above this moving average, it is bullish and when Facebook stock is trading below this moving average, it is bearish.

FB stock has spent a majority of time on the chart above trading above the 200-day moving average. Any dips below this line have proved to be buying opportunities. Taking a closer look at the chart, I noticed that these dips below this moving average are the exact points that were used in creating the power uptrend line.

Facebook stock has been bouncing off the resistance set by the channel, and it has effectively contained the price. For this reason, I am watching the power uptrend line with a keen eye, because if this level is beached to the downside, I believe the lower levels will be tested, as the lower bound of the channel currently sits a $100.00. On the other hand, this trend line might be the catalyst that causes FB stock to breach the resistance set by the ascending channel, and accelerate to the upside.

The Bottom Line on Facebook Stock

I am bullish on FB stock and my bias is based on the Facebook stock chart. I am watching the power uptrend line, as it can have many meanings. I am worried that if this trend line is broken, it might set in motion a significant drop to previous levels of support.