Facebook Has Been Friendly to Investors Since August 2013's Golden Cross

After its May 2012 IPO, Facebook traded down until September 2012, then became a momentum stock in August 2013. Last week, a “golden cross” led it to an all-time high.
By Richard Suttmeier ,

Facebook (FB) - Get Report has many "friends," including happy investors who have been owners of this stock since August 2013, when shares confirmed a "golden cross" which indicated that its rally could be sustained. Until that technical signal, the stock was struggling along after decline that followed its May 2012 IPO.

My, how times have changed: The stock set an all-time high of $105.12 on Oct. 29, powered in part by anticipation that the stock is poised for higher highs after the company reports quarterly earnings after the closing bell on Wednesday.

"Connections" who invested in LinkedIn (LNKD) were cheering when that social media company reported a much smaller than expected loss in its earnings report released on Oct. 29. The stock popped above its 200-day simple moving average on Oct. 30 and closed Monday up 26.5% so far in the fourth quarter.

"Followers" with shares of Twitter (TWTR) - Get Report moaned after the social media company reported its earnings on Oct. 27. This stock is the puppy of the three, as its IPO came in November 2013. Near the end of 2013, the stock set its all-time high of $71.25, and has been trading lower ever since. The low of $21.01 came on Aug. 24, aka "Black Monday." Shares of Twitter are up 8.4% so far in the fourth quarter, but down 18.6% year-to-date and in bear territory. Patient followers should note that the stock held its 50-day simple moving average of $27.85 on Oct. 28.

Analysts' average expectation is that Facebook will report earnings of 35 cents a share. TheStreet Ratings has a buy rating for Facebook. Among 30 analysts covering the stock, the earnings bar is high, as 29 rate the stock a buy.

Here's the daily chart for Facebook.


Courtesy of MetaStock Xenith

The daily chart shows that Facebook closed at $103.31 on Monday, up 14.9% so far in the fourth quarter, and up 32.4% year to date. The stock has been above a "golden cross" since Aug. 7, 2013, when it closed at $38.87. The stock tracked this signal higher, with the 200-day simple moving average tested between May 6 and May 12, and again during the broader tumble on Aug. 24. Last week, the stock set its all-time high of $105.12 on Oct. 29. The stock is way above its 50-day and 200-day simple moving averages of $94.08 and $86.10, respectively.

Here's the weekly chart for Facebook.


Courtesy of MetaStock Xenith

The weekly chart for Facebook is positive but overbought, with the stock above its key weekly moving average of $97.63. The weekly momentum reading is projected to rise to 88.50, up from 85.81 on Oct. 30, becoming more overbought.

Momentum scales from 0 to 100, with a reading below 20 indicating the stock is oversold and a reading above 80 indicating it's overbought. A rising reading above 20 is positive while a declining reading below 80 is negative. This study is shown in red along the bottom of the chart.

Investors looking to buy FB should place a good-till-canceled limit order to buy the stock if its drops to $99.52, which will be a key level on technical charts until the end of November.

Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $110.84, which will be a key level on technical charts until the end of 2015.

Another key level of $102.44 should act as a magnet until the end of the year.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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