Facebook's initial pullback phase from its 2015 peak ended on Nov. 16. The stock had fallen just over 9% from its Nov. 6 high before mounting a sharp rebound 10 days later. Facebook has been trading in a tight range over the last seven sessions following the recovery, but that pattern appears to be coming to an end. A second phase of the pullback may soon bring much lower entry opportunities.
Facebook is testing a key support zone as a new week begins. This area combines the powerful Nov. 5 breakout gap as well as the October high. Near the lower band is last week's low of $104.40. If the stock fails to hold this area, the second phase of the post-third-quarter earnings pullback will be underway. In the near term, Facebook bulls should focus on the $104 area. A close below this level could spark a heavy selling wave.
Once this phase of the pullback runs its course, investors will be presented with a very low-risk entry opportunity. Facebook bulls should keep a close eye on the $100 area for purchases. This important zone includes the stock's summer 2015 high of $99.60 and a key breakout gap left behind back on Oct. 23. Facebook's upward sloping 50-day moving average is resting right at $100 as well. If selling pressure eases as this area comes into play, a solid short-term base can be built. Once in place, Facebook would be set up well for a renewed rally.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.