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What Now For Facebook?

02/08/16 04:14:55 PM
by Koos van der Merwe

Facebook shares jumped at the end of January, on better than expected results.

Security:   FB
Position:   Buy

Facebook shares rose strongly on January 28th after they announced better than expected results because of an increase in advertising on Facebook pages. Did the charts see this coming? Let us have a look.

Figure 1. Daily chart of Facebook.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a daily chart of Facebook with a JM Internal Band showing the buy and sell signals given on the RSI and Stochastic indicators, but not on the JM Internal Band indicator before the results were announced. The JM Internal Band indicator is a 15 period simple moving average offset by 2% plus and 2% negative. A move above the upper band suggests a buy, and below the lower band, a sell. The RSI indicator gave a buy on January 11th as the share price was still falling, and the Stochastic indicator gave a buy on January 22nd. The day after the share price dropped to $9.65. A concern is rising volume as the share price fell, a definite sign of weakness. Traders would have bought Facebook based on the buy signals given by the two indicators. Investors would have waited for the JM Internal Band buy signal.

Figure 2. Weekly chart of Facebook.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a weekly chart with and Elliott Wave count suggesting that the current rise could be in a WAVE V. Note that the Stochastic indicator gave a buy on January 22nd when the share price completed WAVE IV falling to $89.81. The indicator is suggesting that WAVE V has not topped out, and could rise further.

Would I be a buyer of FACEBOOK shares at present levels? As a trader, possibly, but I would look at a 30 minute and 5 minute chart to make my final decision. The weekly chart is suggesting a buy. The daily chart in Figure 1 is suggesting that one could buy at present levels but for the short term only and sell once either of the two indicators suggest a sell. As a trader, yes, I would buy. As an investor, I would wait.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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