This update will look at some the recent attempts Facebook (FB) has made to close its overhead resistance area. The resistance area is from a Falling Window candlestick pattern that developed the first full day of trading after FB reported earnings. I want to try and analyze FB’s attempts to “close the window”, also known as closing the gap. Is it time to fade the Facebook (FB) rally?

Facebook’s next earnings report is currently scheduled for February 1, 2017 after the market closes. One course of action I previously mentioned was that I could see FB making one more all-time high after it reports its earnings. The new high would present an opportunity to sell some shares into strength and lock in gains. Let’s see if that course of action still looks possible.

FB – Elliott Wave Analysis

Facebook (FB) saw a Bearish Impulse wave pattern develop at the beginning of a new downtrend. In a previous article for FB, I mentioned that when a Bearish Impulse wave pattern starts a new possible downtrend, it is typically a bearish sign of a further correction to still take place. That was exactly what happened for FB’s share price.

This is a 6 month daily candlestick chart for FB. Waves 1-5 represent the Bearish Impulse wave pattern. Then you will 2 sets of Waves A-C. The first set is a counter-rally that is correcting the Bearish Impulse wave pattern. The second set is just another correction to the downside. Let’s take a look.

Analyzing a Short-Term Daily Chart (6 Months) for Facebook (FB) From an Elliott Wave perspective

Since the second Wave C did not break below the $113.85 low, FB’s share price then rallied back towards the overhead resistance area but again fell short.

The MACD Histogram is starting to round-out though, meaning the buying momentum is almost ready to slow down. How much higher can FB’s share price push before its earnings report?

FB – Trendlines & Candlestick Charts

This is the same 6 month daily candlestick chart, but this chart is marked up with trendlines, candlestick patterns and a Fibonacci Extension Tool. The Golden Ratio from the Fibonacci Extension Tool (the 161.8% Target Line) is fast approaching. It may even get reached in tomorrow’s trading action.

Analyzing Overhead Resistance Areas During Facebook’s (FB) Attempt at a Rebound

So after 2 failed attempts to even break above the resistance area, Facebook’s share price finally “closed the window” or closed the gap from the Falling Window candlestick with today’s price action. It looks like the 3rd time was the charm for Facebook.

Facebook appears to be developing a very nice Cup Pattern with above average buying volume on the right side of the Cup. The Cup also has very nice symmetry.

FB – Monthly Candlestick Chart

This next chart is a 5 year monthly chart to look at FB’s long-term trend. In November 2016, FB developed a Bearish Engulfing candlestick pattern on selling volume that was greater than the previous month’s volume, a definite bearish signal.

About a month ago, I discussed in the Idea Chamber that FB’s share price was ready to make a move either back up towards the top of its Trading Channel or breakdown and head back towards the bottom. My thoughts at that time were this – FB was going upwards and make one more new high before a longer possible correction. Something similar to what Apple did when it reached the $135 level.

A Bearish Reversal Candlestick Pattern Developed on FB’s Monthly Chart

Let’s jump back to the 6 month chart again and see just how FB’s share price may make 1 more all-time high before a longer possible correction.

Another earnings beat and FB could try to reach for the 261.8% TargetLine from the Fibonacci Extension Tool. An earnings disappointment or bad guidance and I see FB’s share price diving down towards the $108 level.

Developing Expectations for FB’s Share Price Leading Up To and After Its Next Earnings Report

The bullish scenario suggests a new high around the $135 – $137 area, and then a probable consolidation. That consolidation should lead to the development of a Handle for the Cup Pattern.

The bearish case for FB suggests the development of a Zig-Zag Wave Pattern, where the second leg down is equal to the first leg down (approximately $20). That would also place FB’s share price right on top of another support area at that level.

Facebook (FB) – Summary

So is it time to fade the Facebook (B) rally? If you are a longer-term investor, I do not see any reason to relinquish any shares at this time. While November 2016 did develop a bearish reversal candlestick, you would want to wait and see if FB’s current rally can close above the resistance area. If it does, continue holding. As with any re-test of a prior high, there will be some selling pressure as investors that did not sell before the pullback typically look to sell at the next attempt at it. So do expect some volatility though.

Shorter-term investors may look to trade around the earnings report, selling some shares around the 161.8% Target Line. Any sold shares could be repurchased as the pullback reaches back down towards the 100% Target Line. Or you just might want to wait until FB does report earnings and jump back on the trade afterwards. However, do be aware of the overhead resistance areas I’ve illustrated above as these areas should provide trading opportunities.