FB Update

The most addictive social site on the web yet the most hated stock. Our man on the street who keeps me informed of dumb money sentiment (via the sites he visits and the Twitter/StockTwits Stream) has shared some good ones with me recently about FB-many have been shorting it, comments from last week included:

"would not touch it with a bar or soap. The current recent trouble spells it out pretty clearly...."leave...the...phuck....alone" This IPO is gunna crash and burn.... while it will not happen today or tomorrow....just wait and see. LOL. Most people should have learned with the DOT.COM boom and bust!!"

That's all well and good, but in the mean time, there's money to be made, I have no problem shorting FB if the probabilities say it's a good trade, I probably will at some point, but obviously just about every member I know of has already made money in FB while the crowd continues to talk.

To be clear, I'm not in love with the stock, I don't even like it, but I also don't understand why people get so emotional about a stock, this is a business and if FB is offering upside, I'll take what the market offers.

After selling Call contracts at a decent profit (not nearly as large as it could have been, but I don't kick myself about decisions like that as you can only make a decision with what you know at the time), I've been looking forward to a pullback in FB to add some longer dated calls as I feel there's more upside than just the 23% we have seen over the last 10 days (many members have made multiples of that with calls/leverage).

Here's where we stand on the stock that inspires so much hatred...

 FB since we first noticed an opportunity on the long side.

 The opportunity in the form of a 60 min leading positive divergence.

 FB levels of resistance, the next at the $34 area looks like a Stage 2 mark up area.

 FB has formed a bull flag/pennant, this is a bullish consolidation/continuation pattern, while I'm not sure how many people are buying FB, obviously some are so there's a chance for a head fake move on this price pattern as price now is right around yesterday's resistance. I'm almost tempted to take a position here, but I'd rather be patient and buy in to a pullback. If I were to take a position here, it would either be a straight stock purchase (taking leverage out of the equation as I still suspect a pullback) or using very long dated calls, but in either scenario, it would be a partial position looking for a pullback to add in to. Whenever partial positions are entered, I always suggest you figure out the rik management before entering any partial position so you are not caught averaging down which is much different than planning ahead of time to leave room in your risk management to add to the position at better prices. The advantage to this strategy is you have long coverage, you have room to add on a pullback and you don't have excessive risk. In addition, all long positions at this point are still counter trend to the primary trend and as such I consider them to be speculative, which means I lower my risk; perhaps instead of 2% of portfolio risk, maybe consider 1%.

 FB over the last two days in the bull pennant.

 The 30 min. Bollinger Bands look like FB is getting ready to make a highly directional move, a pullback can still fit in this scenario.

 The 1 min chart still suggests a pullback, of course as mentioned many times before a 1 min negative divergence can also lead to a consolidation as we are seeing.

 However in FB's case, the 5 min chart which was confirming the upside very well is also in a leading negative divergence, that's not a positive divergence today, that's in line movement intraday

Even the 15 min chart is showing a small leading negative, this suggests to me a pullback is much more likely than just a consolidation. The strength of the 60 min chart makes me believe that we will see positive divergences in to any potential pullback, making that an ideal entry as the trade comes to you on your terms with high probabilities and lower risk.

Finally, the Trend Channel as a functioning stop for those who want to use it.

Just last week the Trend Channel had a stop below $26 and now it is at $31 and has allowed FB to consolidate without stopping out the trend once.

I suppose that's the area I might looks for a pb, although as I have stated, I'd prefer a wider stop on the Trend Channel, there just isn't enough data to construct a wider daily TC stop.