Shares of Facebook (FB) - Get Report have been moving in a nearly perfect technical uptrend for the past four years, rising steadily above their rising 40-week moving average. They have breached the average just three times in that period, and only closed below it on weekly basis, briefly at the end of 2016. This year, the stock price has accelerated higher and deviated significantly above its 40-week moving average, and this, along with volume and money flow, is a flaw that has developed in the otherwise perfect technical long-term uptrend.
The two-year weekly chart shows the jump off the brief consolidation that took place the below the rising 40-week moving average at the end of 2016. Facebook broke above that average this year, and moved into its upper Bollinger band range. It has remained in the upper band, as a trend has accelerated. But there are technical internals that suggest a pullback for reversing and some period of consolidation in the near term.
There is a bearish deviation between the relative strength index and the money flow index. This is unusual because these oscillators are generally closely correlated. The relative strength index is an amalgam of the rate of change and the rate of price movement, while the money flow index is a volume-weighted momentum indicator. It includes a ratio of typical price and money flow in the basic relative strength index formula.
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This divergence suggests that buyers are losing interest as the rally continues, or that there are some initial signs of selling. The graph just below the price chart shows weekly volume as a percentage of the 40-week average of volume, and it has dropped well below its center line, indicating overall volume is weak. Below that is the Chaikin oscillator, an average of the 3-day and the 10-day averages of the accumulation/distribution line, that and it is still in positive territory but has crossed below its 21-period signal average.
These negative internal indications are not suggesting that the rally is over, simply that Facebook may be preparing for a brief pullback or consolidation period. How the averages that have a heavy weighting in this powerful stock react remains to be seen, but it could have a significant technical and psychological impact.
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The author is an independent contributor and at the time of publication had no position in the stock mentioned.