Everyone's favorite social network, Facebook (FB), reported its first-quarter numbers yesterday, reporting mixed results as sales topped estimates while users stagnated. Even though shares are pointing higher early in this morning's trading, this stock is showing some technical signs of a top in the longer-term.
Facebook has been forming a head and shoulders top, a pattern that indicates exhaustion among buyers. The pattern is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head; the sell signal comes on the breakdown below the pattern's "neckline" level, which is right at $25 for FB. A drop below that $25 level would be a major sell signal for the stock.Even though the head and shoulders is a well known pattern (maybe too well known), it's worth heeding. A recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That's good reason to keep a very close eye on FB in May.
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