Look, I'm no fan of Facebook (FB). I'm not disgruntled for a lack of Facebook friends -- I just think that this stock has been priced way too high in a market where premiums are getting punished. And those concerns have been warranted from a technical standpoint too. But the selling could be coming to an end after Facebook's 22% rebound yesterday.
That's because shares of FB broke out above resistance at $23 yesterday, completing a double bottom pattern in shares. Essentially, a double bottom is formed by two swing lows that come in at around the same price level. The buy signal comes when shares pop above the intermediate peak that separates those two lows. While the lows in Facebook aren't exactly even, the later low is higher, so the buy signal is still valid.Momentum, as measured by the 14-day RSI graph at the top of the chart, adds some extra confirmation to the setup. Yesterday's massive jump broke the downtrend in RSI, removing one of the big red flags that's been in place for the last month or so. I'd recommend waiting for a close above that $23 resistance level today before buying. The breakout isn't confirmed until we get some better evidence that buyers are willing to come out and pick up shares at these higher prices. Even then, be tactical with this stock. With all of the problems in FB, it's crucial to keep a tight stop on the trade. Facebook was also featured yesterday in "4 Stocks Soaring on Monster Volume." To see this week's trades in action, check out the High Volume Technicals for the Week portfolio on Stockpickr.-- Written by Jonas Elmerraji in Baltimore.
Twitter and become a fan on Facebook.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV