Shares of social networking giant Facebook (FB) got shellacked yesterday, dropping 4.67% over the course of the trading session. But that drop doesn't mean you should run for cover if you own this stock. In fact, it means we're coming up on a big buying opportunity in FB today.
Facebook's chart is about as simple as it gets. The firm has been bouncing higher in an uptrending channel since the end of November, and yesterday's selloff puts FB back at the trend line support level that's acted like a buying opportunity each time it's been tested. This week, the time to buy comes on a bounce off of that support line.
Waiting to buy off a support bounce makes sense for two big reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring FB can actually still catch a bid along that line before you put money on the line.
We'll see if a bounce holds up in today's session.