ChartWatch: Facebook Isn’t Fooling Us

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Facebook ( FB ) 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 Facebook bottomed . Later in November, I wrote a similarly positive stock report .

The reason for my recent optimism (I hadn't always been bullish; read more about that here ) 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."


http://stockcharts.com/c-sc/sc?s=FB&p=D&b=5&g=0&i=p29860719595&a=270517649&r=1354734998821

This chart shows the price of FB shares along with an important resistance area to monitor.


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: FB

Don't Miss:  ChartWatch: The Most Interesting Chart I've Ever Seen



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: FB

Wyatt Investment Research

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