FB Update

While everyone was focussed on hating FB, we saw something apparently few others (judging by the Twitter Stream) saw and made some decent money long FB, many members are still making VERY good money long FB. Don't get me wrong, I DON'T like FB and think it is overvalued, but when the market offers an opportunity, it's best to leave personal opinions out of hard analytical fact. Many shorts have been taken to the cleaners on FB while we've made money, the only thing that separates us is our view of FB as it is on the charts vs their perception of the stock.

 I closed a call position in anticipation of a pullback, I haven't seen the pullback that I would like to see to re-enter a new position. In my opinion a position must offer high probabilities, low risk and an excellent entry, just to say, "it is moving up" is not enough-that's chasing a trade, there has to be an edge to a new entry and thus far I haven't seen that edge and I'm starting to wonder if we will see that edge before FB perhaps takes a turn for the worse.

As for the charts...

 Since FB first started trading, it has retraced about 50% of its losses.

 Here's the area in which we first noticed something was changing in the underlying 3C trade.

 Here's an example of the change on a 60 min chart, a leading positive divergence that just kept growing. For a 60 min divergence to lead so quickly, there must have been huge and very fast institutional accumulation at those low price levels. I speculated way back then that MS/GS, the underwriters of FB's IPO had lost significant money trying to defend the stock on the first day of trade and this was likely their position to make the money back by sending FB on a steady march higher through a forest of short sellers.

 The 15 min chart shows a negative divergence, this is one of the reasons I closed Call positions at a decent profit, but nothing like some of our members have made who continue to hold.

 As for a pullback, sometimes negative divergences simply lead to consolidation, FB saw a consolidation and although I was tempted to start a new long position, I just wasn't comfortable with the underlying trade activity. Yesterday we saw a small pullback, but again, it seems to me that the divergences are more negative than just a 1-day, 3% pullback.

 Here's a look at the 15 min chart, this has me a bit nervous about FB's future on this upward march, it can still jump back in line or it can deteriorate more form here. I would say one thing is fairly certain, the initial accumulation around $26 and below, has likely been distributed at this point, meaning it is likely GS/MS were behind this position and likely they have recovered a significant amount of their initial losses from the first day or two of trading in trying to defend FB's price at various levels (the last was $38).

 The 1 min chart's trend is not inspiring a lot of confidence as it goes from in line to a negative divergence. This is also probably the area in which smart money has been taking profits. After the stage 1 base and stage 2 mark up seen at the green arrow, the red arrow looks like stage 3 distribution as smart money almost always sells in to higher prices.

 The 5 min chart is seeing that bleed through from the 1 min chart as well, from positive divergence, to trend confirmation to a negative divergence; it is also seemingly starting to bleed through to the 15 min chart.

If I was still long FB, with these negative divergences migrating through the timeframes and just reaching the 15 min chart, I would consider the stock to be under distribution which can include short selling and I would CERTAINLY have a trailing stop. I personally would also be taking some profits, many of you have a large enough profit that you could take your original investment off the table and let the profits run with a trailing stop and have a guaranteed profitable trade. I still hope that we will get another chance to enter a new trade in FB, I don't really care if it is long or short, just as long as we get an excellent signal like we first did.

 As for a trailing stop, I have used the hourly trend channel (which I have said I think it may be a little too tight, but there's not enough trade data to construct a daily trend channel). This channel has held FB long since it was under $26, yesterday it saw a technical stop out of the channel so there may be some changes in character, watch for extreme volatility or a spike move up, that may be a signal to take profits.

 The 60 min 3C chart has gone from confirmation in a leading positive divergence to a mall negative divergence and pretty close to confirmation, but that in and of itself is a change in character.

One other stop you may want to consider is a 40 bar exponential moving average on a 60 min chart, it held yesterday's pullback. I would think a break of this m.a. would signal some real changes in character that should not be taken lightly if you have a large profit here.