Another great earnings report for Facebook. It beat on all metrics again but issued cautious guidance. As I have mentioned before, earnings are a combination of actual results and also its future outlook. With management’s cautious outlook in 2017, Facebook finally developed its first significant sell signal regardless of the earnings.

I also heard a news story on CNBC that Snapchat has filed for its IPO. Do you think some of the recent selling has been for that too?

Let’s monitor this first significant signal and see what it possibly means for Facebook’s share price going forward.

Facebook Post-Earnings Analysis

Let’s start with a 1 year daily chart and see if it provided any clues leading up to the earnings announcement. Clues of an earnings pullback would be seen in the form of rising short interest totals.

Analyzing Short Interest on a 1 Year Daily Chart for Facebook (FB)

Short interest did not provide any clues. Matter of fact, analyzing short interest alone would have you think the stock is going higher since there was a 10% decrease in the short interest totals reported on October 31, 2016. A decrease in the short interest counts typically lead to higher share prices, not lower.

While I had the daily chart up, I also looked the candlestick patterns on the chart. I found a similar candlestick to today’s candlestick pattern that also developed right around the same time – shortly after an earnings report. There is one noticeable difference though – the MACD Histogram for the current sell-off indicates greater selling momentum.

I remember a similar sell-off with 3D Systems. It had appeared its uptrend was over at the sale of $84. But after a sharp rebound it went on to climb and make “one more high”.

The first significant sell-off like this for FB is very indicative of a Wave 4 in a Bullish Impulse wave pattern. After Wave 4 finishes its correction, there is one last high to make and complete Wave 5. I do not see anything different for FB other than you may want to start fading the Facebook (FB) trade once the new highs are being made.

Let’s get some different perspectives.

Facebook (FB) – Monthly Chart Analysis

I’ve been tracking Facebook (FB) in a trading channel for several months now, watching as FB sat on the precipice of a breakout. But there was never a volume confirmation on the breakout.

Unless FB’s share price can rebound and close out November around the $145 area, something that is improbable, it is going to form a bearish reversal candlestick pattern on its monthly chart. If the month were to end today, FB’s bearish candlestick pattern would be a Bearish Engulfing candlestick.

Analyzing Monthly Price, Volume & Candlestick Activity for Facebook (FB)

A bearish reversal candlestick pattern that develops on selling volume that is heavier than the previous month’s volume is a sell signal. Even if FB were to pull all the way back up to its high by the end of November, it would then form a Hanging Man candlestick pattern.

Even though FB developed a bearish reversal candlestick pattern back in February 2016 and then continued its uptrend, this time appears different. Buying momentum as indicated by the MACD Histogram is slowing as a whole over the last 5 years. Without another profit driver and continued growth, it could be time for a consolidation. Mark Zuckerburg said 2017 was going to be a year of investments and slowing growth. Is he sand-bagging like Steve Jobs used to do? Either way, the candlesticks say to sell soon and wait a bit.

Facebook (FB) – Maximum Short-Term Potential

This is a 2 year daily candlestick chart. It has a Fibonacci Extension Tool starting on the flash crash low back in August 2015. It’s Golden Ratio reflects a “probable” price target of $151.91. Facebook’s share price has seen significant resistance at the 100% Target Line.

Analyzing the Maximum Upside Potential for FB in the Next Couple of Months

Facebook would need to beat analyst estimates in the next quarter after providing “cautious” guidance. This would most likely be the short-term catalyst for its share price to reach this level before a longer consolidation period.

Reaching the maximum short-term target price does not seem plausible. Rather, I would think that FB barely breaks above its previous high and then starts its longer consolidation period. If the gray shaded box from the short interest chart is any indicator, FB’s share price should creep on up over the next couple of weeks leading to the end of the year, not move faster.

C’mon FB, prove me wrong….I really want to be wrong on this one…

Facebook (FB) – Short-Term Potential

On this 3 month chart I’ve illustrated a Bearish Impulse wave pattern. The 5 wave pattern to the downside appears complete from a technical perspective.

Analyzing Short-Term Price & Volume Action After Earnings; a Bearish Impulse Wave Pattern Developed

Even though FB’s share price appears ready to rebound, its time with the $113 area does not appear to be done with it yet. Especially when you consider one of the general rules with Elliott wave corrections: When a Bearish Impulse wave pattern begins a correction, it is typically only part of the corrective pattern, not the entire corrective pattern itself.

So if this is not the end of the correction, what could be next? A Flat wave pattern? A Zig-Zag wave pattern? Regardless of the pattern, FB should continue its rebound in the short-term. Look for it to develop a probable 50% Retracement of its current downtrend. That would put FB’s share price back around the $124 level.

Facebook (FB) – Summary

With Facebook’s share price sailing into some short-term headwinds, starting to fade the trade near the Falling Window Resistance area and above appears to be the best course of action for the short-term. At most, expect 1 more all-time high from Facebook before it starts this probable correction.

If you own FB shares and are currently long on your position, stay the course. Higher prices will present themselves. But monitoring a daily chart for possible bearish signals is the best course of action once FB’s share price rises back towards the $125 area.

Trading Facebook (FB) through the year-end could be riskier than just holding it. With recent news of “bad metrics” and other recent developments at FB like fake news stories, it seems as if “someone” is pushing down the share price for a while. If you want to trade the bull rally into the year-end, there are better prospects out there.