Facebook (FB) Stock Breakout or Correction?
Despite recent weakness in the markets Faceboook (FB) has managed to rally and even breakout of a pennant formation. The question is can Facebook continue to rally or after flashing topping tails on the Japanese candlestick on Thursday roll over and retest support or even break down? What is the significant of a topping tail or as others may call a “wick” or “shadow” on the Japanese candlestick stock chart? It implies that as the stock is breaking out possibly to new all time highs there are sellers above which does not bode well for the health of a breakout. Now, it being the end of Q4 2014 and Facebook having had a very good year maybe we have fund managers booking profits and heading off to Aspen for the holidays. The opposite side of that view is that as we see high beta and multiple names like Amazon.com, Tesla and Netflix breaking down what is the probability of Facebook defying the ever growing trend of the pop culture names breaking down. Food for thought.
What we are watching is a retest of prior resistance which would now as support. This level is annotated in blue on the stock chart. If Facebook stock breaks back down into the prior formation it will constitute a “breakout point failure”. The most recent example of a breakout point failure which we traded short was Salesforce.com which just so happens to be a pop culture name. Breakout point failures ofter lead to a breakdown below the prior support level which for Facebook sits at $73.07 which represents the neck line of a possible head and shoulders formation.
Now, am I advocating a short of Facebook stock now based upon the observations I have laid out? No darned way. Until breakdowns up support happen odds favor longs and the path of least resistance remains to the upside. Keep an eye on the charts.