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SEASONAL TRADING


Facebook Comeback Continues -- Or Does It?

12/19/12 08:09:40 AM
by Matt Blackman

Facebook, which plummeted right out of the IPO gate when it was launched in June, became the most public example on record of how not to price a new stock. Lately, though, the stock has been making a comeback. Is now the time to buy?

Security:   FB
Position:   N/A

Within two months, the price of Facebook (FB), one of the most eagerly awaiting initial public offerings (IPOs) in recent memory, lost more than half its original value of $38, after which many investors and traders appeared to write it off. However, after a slow albeit volatile bottoming process, the stock is approaching $30 once again, but this time from the right direction. After flashing a bull flag pattern in the first few days of December, FB experienced a small but notable breakout (see green circle in Figure 1).

But given the seasonal factors at play, could the breakout be premature?

FIGURE 1: FB, DAILY. Here's Facebook since July, when the stock experienced a large gap down. After the gap was filled, a bull flag pattern appeared above gap support and then the stock broke out on above-average volume.
Graphic provided by: TC2000.com.
 
As we see in Figure 2 showing technology seasonality, unlike homebuilders ,which have very strong year-ends, technology stocks have historically lost ground in December.

FIGURE 2: TECH SECTOR. This technology sector chart shows periods when the sector has performed best. December is not one of those times.
Graphic provided by: www.equityclock.com.
 
Another caveat to buying the latest FB breakout is the falling momentum shown in the RSI (see the red rectangle) in Figure 1. Unless there is a huge bout of renewed buying on some unexpected good news or other fundamental factor, FB will probably see some weakening from here.

Once that is out of the way, however, which could, based on Figure 2, come as early as the first week of January 2013, Facebook has the potential to claw its way back to its IPO price in relatively short order.



Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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