Facebook (FB - Get Report) is scheduled to report earnings after the closing bell Wednesday. From a technical standpoint, the stock stands well above a "golden cross" on its daily chart and is set for a positive reaction given a positive weekly chart.
Three months ago Facebook had a huge price gap higher on April 28 following a positive reaction to earnings reported after the close on April 27. This gap will be clearly shown on the daily chart below.
Analysts expect Facebook to earn 62 cents a share and the stock has the upward momentum. On a cautionary note, Facebook may be facing tough earnings comparisons for the remainder of 2016, which could reverse the upward momentum clearly shown on the weekly chart below.
TheStreet's Jim Cramer holds Facebook in his Action Alerts PLUS portfolio. In a recent note, he and co-manager Jack Mohr reported they had sold a small portion of Facebook, AAP's largest holding, to "take advantage of the opportunity to ring the register modestly on parabolic profits, rather than succumb to sheer greed."
They stressed that since investing "roughly $75,000 in Facebook two years back (1,200 shares at an average price of $63.75) we had watched the position grow to more than $142,000 in value, a $65,000 unrealized gain. We want to make it clear that Facebook remains a core holding and among our favorite long-term investments."
Here's the daily chart for Facebook.
Courtesy of MetaStock Xenith
Facebook closed Monday at $121.63, up 16.2% year to date. The stock set its all-time high of $122.20 on July 20 and the stock is 36.1% above its Jan. 20 low of $89.37. The stock traded above the all-time high before the opening bell on Tuesday.
The stock has been above a "golden cross" since Aug. 7, 2013 when the stock closed at $38.87. A "golden cross" is confirmed when the 50-day simple moving average rises above its 200-day simple moving, which is a signal that higher prices lie ahead.
When a stock is above a "golden cross" the trading strategy is to buy weakness to the 200-day simple moving average and this test occurred at $77.45 on May 11, 2015, then at $81.72 on Aug. 24, 2015 and at $92.62 on Jan. 20.
Here's the weekly chart for Facebook.
Courtesy of MetaStock Xenith
The weekly chart shows a red line through the price bars, which is the key weekly moving average (a 5-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean."
The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.
The weekly chart for Facebook is positive with the stock above its key weekly moving average of $117.70 and well above the 200-week simple moving average of $68.91. The weekly momentum reading is projected to rise to 73.66 this week up from 67.37 on July 22.
Investors looking to buy Facebook should consider doing so on weakness to $117.89 and $114.06, which are key levels on technical charts until the end of 2016 and the end of this week, respectively.
Investors looking to reduce holdings should consider selling strength to $124.32, which is a key level on technical charts until the end of Sept.