Facebook (FB) 10/26/2016 – Hot or Not?
Hot or not? No, I am not referring to Facebook (FB) and its share price. It was a reference to Facebook's origins back in Mr. Zuckerberg's dorm room. That original idea has now blossomed to a company that is currently valued at more than $300 billion according to its market capitalization.
But since I know everyone is more interested in the share price projections than Facebook's history, let's review charts. Does technical analysis say Facebook is hot? Or not? With a new all-time high recently, I'd lean towards hot, especially when the market is not, but let's review.
Facebook (FB) - Short Interest
The first chart is a 1 year daily candlestick chart to look at Facebook's (FB) short interest over that time period.
Over the last 9 months, the total number of shares sold short for FB has decreased more than 25% from its highs around 28-29 million shares.
No warning signs are indicated by the short interest totals reported above. Next.
Facebook (FB) - Long-Term Trend Analysis
Let's look at Facebook (FB) and its longer-term trend using some trendlines. This next 5 year monthly chart has a Trading Channel that I have been monitoring in previous updates. FB's share price appears on the verge of breaking out yet of the Trading Channel I've illustrated. Buying volume has been decreasing as FB's share price continues to rise. Decreasing volume is not something that typically confirms a breakout though.
The overall decrease in buying volume as FB's share price continues rising is something to monitor. However, as of today there are still no long-term sell indicators present on FB's monthly chart. While the decreasing volume is a concern, I do not believe it is a reason for me to sell my long-term shares and lock in profits. However, those with shorter-term perspectives want to look at the weekly analysis.
But with earnings next week, there is still time for the possible breakout to gain buying momentum with a successful earnings report.
There still are 3 trading days left though before the month ends - things could change by the end of the month. If FB's share price closes the month around the $128 level, it would form a Shooting Star candlestick pattern on its monthly candlestick chart. That would be a bearish sign leading into earnings.
Facebook - Weekly Analysis
This next chart is a 2 year weekly candlestick chart. I like weekly candlestick charts better than daily charts, especially when the market enters periods of more volatility. The weekly chart helps to still show the longer-term trend while also keeping an eye on the shorter-term but not getting caught up in the daily moves.
With 2 trading days left before this week's candlestick pattern is completed, look to see if FB's share price reverses course and closes above the Shooting Star candlestick pattern resistance area like it did last week.
If FB can close above the Shooting Star candlestick's resistance area, I would think that the signal to the $150 area has been given. That would be price target calculated by the 161.8% Target Line from the Fibonacci Extension Tool.
Moving any higher than the $150 area would require FB's stock to see increased buying volume. Facebook needs increased overall buying volume, not just an increase next week from earnings. The convergence of the overhead resistance trendline and the 161.8% Target Line around the $150 area would make any further advances difficult without the volume increase.
What if Facebook (FB) disappoints on earnings? This is not something I anticipate this quarter but its share price should find support around the $115 range if it does. Something we can also revisit if a disappointment does happen.
Facebook - Summary
There is only one week to go before Facebook (FB) reports its next quarterly earnings report. Because of this, FB's share price has seen some recent volatility as it seems some people are locking in gains at or near all-time highs.
If you cannot decide whether to stay long or take profits, maybe wait until near the end of the trading day on Friday. See if this week's candlestick pattern is going to close above the Shooting Star resistance area or not. If it does, then that would be the second weekly close above the resistance area, a bullish sign.
After the week closes out, also take the weekly volume into consideration. There needs to be an awful lot of volume on Thursday and Friday this week for FB's weekly volume bar to keep the increase going from the previous 2 weeks. Otherwise, the potential breakout from the Trading Channel is going to be on low volume. A low volume breakout is typically not a good recipe for a successful breakout.
In summary, since I see no major sell signals on its longer-term trends, I will continue holding all my Facebook (FB) shares through earnings. I will re-analyze my position after earnings next week. But if your view is shorter-term than mine, just remember that no one ever went broke by selling shares, locking in gains and raising cash.