Facebook Inc. (FB) - Get Facebook, Inc. Class A Report has been sliding down its 200-day simple moving average since the end of January and that's when the 50-day simple moving average began to rise. This morning these moving averages are $163.70 and $163.77, respectively, and the 50-day will rise above the 200-day Tuesday or Wednesday. This will confirm a "golden cross," which indicates that higher prices lie ahead. The upside targets are annual, quarterly and semiannual risky levels at $181.70, $187.14 and $189.47, respectively.
Facebook's weekly chart is positive and this member of the FAANG family has strong momentum. The stock is above its weekly value level at $164.80, which targets its annual risky level at $181.70. The stock closed Monday at $168.70, up 28.7% year to date and challenging its 2019 high of $174.30 set on March 11. Facebook is one of those stocks that is consolidating a bear market while in a shorter-term bull market. It's up 37.1% from its Dec. 24 low of $123.03, and down 22.8% from its all-time intraday high of $218.62 set on July 25, 2018.
Since the 2016 election of President Trump, Facebook has faced congressional scrutiny about censoring conservative thoughts and favoring liberal commentary. It seems now the dust is settling, which makes the stock more favorable for investors. Facebook remains the leading social media platform on the planet.
The company is more than just Facebook; its other platforms are Instagram, WhatsApp and Messenger. This combination should continue to capture a significant portion of the digital advertising market in the quarters ahead. Here is a link to several stories on Facebook published Monday on TheStreet.com.
The Daily Chart for Facebook
Courtesy of Refinitiv XENITH
The daily chart for Facebook shows how the stock is sensitive to earnings volatility. A year ago, on April 26, the stock gapped higher, which was a sign that the social media giant was in recovery mode from the Cambridge Analytica scandal. After the stock set its all-time intraday high of $218.62 on July 25, they missed earnings estimates in a delayed reaction to the scandal. This is shown by the huge price gap lower on July 26. This weakness led to a "death cross" formation set on Sept. 20 when the 50-day simple moving average fell below the 200-day simple moving average indicating that lower prices would follow. This signal was still in play when the stock set its Dec. 24 low of $123.02.
The stock closed Dec. 31 at $131.09, which was the first 2019 input to my proprietary analytics. The annual and semiannual risky levels remain in play at $181.70 and $189.97, respectively. The latest input to my analytics was the March 29 close of $166.69. This established a value level for April at $144.13 and a second quarter risky level at $187.14.
In addition, a weekly pivot at $164.80 provided a floor above the formation of a "golden cross" being confirmed Tuesday or Wednesday. The 50-day and 200-day simple moving averages are $163.70 and $163.77, respectively. The "golden cross" is confirmed when the 50-day moves above the 200-day to indicate that higher prices will follow.
The Weekly Chart for Facebook
Courtesy of Refinitiv XENITH
The weekly chart for Facebook is positive but overbought with the stock above its five-week modified moving average of $164.67. The stock is above its 200-week simple moving average or "reversion to the mean" at $141.23. This was a buy level as 2019 began when the average was $135.97. The 12x3x3 weekly slow stochastic reading is projected to end this week at 83.14 above the overbought threshold of 80.00. When Facebook set its all-time high on July 25, the stochastic reading was above 90.00 at 93.47, which I describe as an "inflating parabolic bubble," which is the first technical warning that justified reducing holdings. Then, during the week of Oct. 19, this reading was below 10.00 at 7.94, which made the stock "too cheap to ignore."
Trading Strategy: Buy weakness to the 200-day simple moving average at $163.77 and reduce holdings on strength to annual, quarterly and semiannual risky levels at $181.70, $187.14 and $189.47, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels were based on the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in already. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.