Shares of Facebook (FB) - Get Report have been moving quite well since the March 8 open. With today's slight gain, the stock is now up over 10% from this month's low as the impressive rebound following the early February flush continues. Currently, Facebook is working on a six-day winning streak and has gained ground during 12 of the last 14 sessions.
Despite this healthy move, investors should remain cautious while upside momentum continues to ease. A pullback appears likely before Facebook can mount a challenge of its February peak.
Back on Jan. 28, Facebook exploded to the upside. This powerful earnings-inspired breakout lifted the stock over 15% sparking a rally that would carry shares to new all time highs. Three sessions later, the surge hit a wall with a sharp downside reversal. Over the next four days, Facebook gave back all of the Jan. 28 gains during a massive selling wave. By Feb. 8, the stock had dropped over 12% and filled its breakout gap. Two days later, FB had regained its footing near this key gap support area. The stock has been on a steady climb since.
In the near term, it appears Facebook lacks the power to mount a retest of all-time highs set back in early February. The stock will likely consolidate further before the $117 area is reached. During this process, Facebook bulls should keep a close eye on the $111-to-$110 support zone. The stock should be viewed as a low-risk buy as long as this key area is maintained. A close below $110 would pierce an important underlying trend line that links the February and March lows. If Facebook can hold above this zone while the bull trend strengthens, a run up to all-time highs will likely follow.
"Facebook is the most powerful and iconic social media platform in the world, boasting over 1.5 billion users on its main platform alone. The company has been a leader in the shift to mobile, has a sprawling product ecosystem (Instagram boasts over 400 million monthly active users (MAUs), WhatsApp nearly 1 billion and Messenger over 700 million). Meanwhile, we like its earnings algorithm; its cost of sales is declining while average revenue per user is growing at breakneck speed."
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Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long FB.