Facebook's Chart Creates a Trading Opportunity

After a breakout, Facebook gave traders a second chance to buy the stock.
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One month ago, Facebook (FB) was faced with some bad news. One by one, companies declared that they didn't want to advertise on the dominant social media platform. Eventually, over a thousand companies joined the boycott. 

Names included major advertisers like Coca Cola (KO), Best Buy (BBY), Starbucks (SBUX), Ford (F), Verizon (VZ), Clorox (CLX), lululemon athletica (LULU) and SAP. 

If you were paying close attention to the news, you probably didn't buy Facebook and you may even have sold it. Meanwhile, the charts were telling us that despite the ad boycott, Facebook was going to be just fine.

Throughout June and July, Facebook formed a bullish pattern known as an inverse head and shoulders. This formation indicates a continuation of the stock's current direction when it appears in an uptrend. The pattern indicates that Facebook will eventually hit $290 per share. 

Facebook (FB) chart by TradeStation

Facebook (FB) chart by TradeStation

On July 30th, Facebook broke out to a fresh all-time high after reporting earnings. What happened next provides a valuable lesson. 

When a breakout of this nature occurs, traders look for a pullback to the breakout point. This doesn't always happen, but when it does, it gives traders who missed the initial breakout a second chance to climb onboard the stock. 

In the future, when you see that a stock has already broken out, keep an eye out for a second chance buying opportunity, similar to Facebook. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.