Trading Facebook After Its First-Quarter Surge

Is it time to exit Facebook (FB) - Get Report ? Shares of the social media giant moved sharply higher last week, getting 11% pop on strong volume to $120.79, thanks to the company's blowout first quarter. If you followed our buy recommendation and bought the stock at around $108 then you've executed a profitable trade.

FB shares closed Friday at $117.58, up 0.73%. The shares are up 12.34% so far on the year, compared with a 1% rise in the S&P 500 (SPX) index. Based on Friday's closing price, FB stock has skyrocketed more than 63% above its 52-week low of $72, reached in August 2015. But with the perennial "sell in May" mantra imminent, where's the stock heading next? Take a look at the 3-year chart below, courtesy of TradingView.

Since FB stock traded at around $24 per share in July 2013, the stock has risen almost 400% to Friday's close. But it hasn't been a steady climb. The red arrow show the valleys that followed each peak. The stock declined 15.5% in November 2013, only 30 days after the shares first spiked to around $55 in October of that year.

Then, after its 52-week high of $72 in March 2014, the stock tumbled almost 22% 30 days later. You can see the pattern. The 13.73% decline in July 2014 occurred roughly 30 days after FB stock made yet another 52-week high of $99.24 on July 2015. All told, each of the red arrows in the chart averages out to an almost 17% decline after a 52-week high. The shares reached a new 52-week high of $120.79 last Thursday. And this time won't be any different. Take a look at that chart.

With FB stock now trading at 52-week highs, there are two things to look out for. First, it's the black oval, illustrating the gap the stock created from its close last Wednesday at $108.89 to its close on Thursday at $116.73. And when factoring its close on Friday at $117.58, the gap difference is 8%. Secondly, the red arrows in the first chart suggest a 17% correction and puts FB stock to around $99 per share. This means FB stock is a good, if not a solid, short candidate on two fronts.

How to execute the trade: If you want to play the gap, this means FB stock will at least correct to the downside by 8% to around $108, especially with the stock trading well above its key moving averages. Sell the shares short at market open Monday at $117, using the 52-week high of $120.79 as near-term resistance. If it breaks $120, take the loss and live to play again. Otherwise, hold the position through the week, betting the stock falls to its 50-day average of $110.69 for 6% swing, if not an 8% to 17% correction within a few weeks.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.