Shares of Facebook (FB) - Get Report have stalled since the powerful earnings-inspired surge back on April 28. The stock gained over 7% that day on the second heaviest upside trade of the year. FB put in a slightly higher high this month, but, as May comes to a close, the stock's post-earnings momentum continues to ease.
In the near term, the stock appears to be on the verge of a deep pullback. For patient investors, the result will be much lower-risk entry opportunities than currently available.
Facebook's breakout move on April 28 drove shares past multiple layers of heavy resistance. The stock opened that session well above both the February and March spike highs. Facebook has remained in a very narrow range since then while holding above the earlier 2016 highs. The inability of the stock to extend the earnings breakout after consolidating near key support is sending a bearish signal.
As May comes to a close, Facebook remains within its six-week range, but a downside resolution to the current consolidation is looking more likely. A clear break below the May low of $115.88 would confirm that a pullback is on the way. Once through this level, there is little support in place until the huge April 28 breakout near $109 is filled. This level is the lower band of a major support zone that includes the 2015 high of $110.65. A drop down to this area would produce a very low-risk buying opportunity for patient investors. Unless FB can move past the $121 area and reach new highs, the stock may prove a frustrating long prior to a deep pullback.
From a technical perspective, Facebook is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr wrote recently, following the announcement that Facebook would acquire virtual-reality audio firm Two Big Ears:
"For Two Big Ears, this is obviously a move that will help instantly scale their technology and tools as Facebook has a wealth of resources. For Facebook, this obviously fits perfectly with Oculus and with the company's long- term vision that VR will become the next-generation computing and interaction platform. Facebook, as we repeatedly mention, makes smart acquisitions aimed for the long term, and we expect this tuck-in to be no different."
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.