has fooled many investors this fall …
But not ChartWatch readers.
In fact, I've been bullish on the stock for several months. In
October, ChartWatch noted that
. Later in November, I wrote a similarly positive
The reason for my recent optimism (I hadn't always been bullish;
read more about that
) was the strong support near the $19 zone. Investors were
clearly supporting the shares at that level (blue arrows below).
A resistance area was easy to spot on the chart, too (blue line).
Sellers had been protecting that price since July.
However, I noted that there was more to Facebook's story than the
price movement. After a great earnings announcement in October, I
penned, "The positive earnings and guidance news launched FB to
$24 overnight. In fact, I believe the fundamentals are
robust enough to bring the stock back up to $27."
This chart shows the price of
shares along with an important resistance area to
The stock has indeed risen to $27, which also happens to be the
spot where it tanked in July (blue circle). Accordingly, this is
likely to become an area of intermediate-term selling pressure.
Though I vehemently believe FB bottomed in September, the stock's
upside is likely limited to $30 this year, perhaps even into
February. The selling pressure is simply too strong below $30 for
the shares to rise above that level without a positive catalyst
such as an analyst upgrade or positive earnings data.
How I'm trading FB ...
I continue to own Facebook stock. However, I am selling calls
against my position.
I'm selling calls above $27. This protects me from a modest
decline in the stock. It also locks in a substantial gain from my
entry of $19.00 should those options be "called away." That's
fine, because I am comfortable selling my FB stake here. The
near-term upside is that limited.
However, I do believe the stock will rise through 2013.
Therefore, I'll be looking to add the shares near $24.50.
Ultimately, I expect to be able to sell the position above $33.
Equities mentioned in this article: FB
Positions held in companies mentioned above:
ChartWatch: The Most Interesting Chart I've