FB Update

When I think about FB, even though in the last week we've probably made more money on a percentage basis in quick trades in GLD, FB is perhaps one of better pieces of analytical work.

I just want to take a moment to mention for newer members and remind older members that I DO NOT favor these quick trades, this is not a day trading site. I simply look at the market, look for opportunities and bring them to you when I see them. I would much prefer a trending trade over a 1 or 2 day options trade (I'm not a fan of leverage unless it is needed). However, the market dictates what the proper tool is for the trade, I'm not going to recommend a trending trade in a volatile choppy market (unless of course we have the charts to back that trade up). When I taught Technical Analysis for 3.5 years I use to try to correct people's methods in picking a trade which almost always focussed on analysis of a stock. The most important factor in how an individual stock will move (as a rule of thumb) is the market's direction itself which has given rise to phrases like, "A rising tide lifts all boats". This simply means whatever direction the market is headed in, chances are very high that your stock will head in that same direction near term, it has a bit less influence on longer term trends. The second most powerful gravitational pul on prices is Sector rotation. You may recall over the last week or so I've ben mentioning how "Highly correlated" the market is, this simply means that pretty much all of the sectors are moving together with the market, which means "Stock Pickers" will have a hard time in a market like this as a simple market ETF will likely perform just as well as a "Stock Pickers" pick.

As the market starts to trend, sector rotation will come back and stock picking will be advantageous, right now though it's a very directional market.

As to the FB update, this is a stock that trended well for us DESPITE what the market was doing; it's a stock we picked as a long and made good money on when EVERYONE hated it and I imagine they still hate it. FB also, to this point, has done everything we expected it to do when we it first appeared on our radar back in late May/early June. This is why we use 3C in multiple timeframes, it tells us generally what to expect near term, mid-term and longer term. Another factor is market behavior, you'll just get a feel for it as we go along, but a market or trading journal will help expedite the process and I recommend everyone keep one, you'll learn a lot and become your own teacher as well as identify what works best for you.

FB Update...

 This is when we first picked up on a change in character in 3C for FB. Think about FB at the time, it was the most hated IPO probably ever except maybe E-Toys. Think about the market psychology, everyone said FB was a short because of price action and what they read and heard in the financial media. From a Wall St. perspective, FB was a prime candidate for an upside shakeout which shorts continued piling in to even as it moved higher each day. There's no room in trading for loving or hating a stock, it's business.

When we first identified the long opportunity in FB, the red trendlines represented a stage 2 breakout area, it also represented an area I expected to see volatility, even a pullback from that level and although I closed my long position in FB, I waited for a pullback to materialize to re-enter the position.

 Here's the 60 min positive divergence (shorter timeframes were already much more positive) in the area in which we started buying FB long. I suspect MS/GS (the FB IPO underwriters and defenders of the $38 level on the first day, lost significant money and were looking to make it back). As FB reached the resistance level, look at the trajectory of 3C, not VERY negative, but it obviously looked like upside momentum was failing and we'd see that pullback; the question remained, "Is FB going to pullback and move higher as originally expected, or is this it for the move up in FB?"; we can only get  hint on the actual pullback and those hints are coming in now.

 I'm working from the longer timeframes to the shorter ones as each shorter timeframe provides a little more detail. The 30 min chart made it clear to me that FB was going to reverse near that resistance level. Keep in mind a reversal or correction can occur in 2 ways, 1) through price in which price pulls back and 2) through time in which price is relatively stable, but trades laterally or 3) a bit of both.

Since going negative at resistance, FB is starting to give clues as to the question above, "Is FB done or more to come?", the 30 min chart is showing the makings of a positive divergence in a flat area of lateral consolidation after a slight pullback in price, this appears to be the pullback I was hoping for to re-enter a new long position in FB and hopefully see a breakout to stage 2 mark-up, a definitive short squeeze area.

 The 15 min chart has more detail as a shorter timeframe than 30 min, but I'm focussed on the trend which has been leading positive . We do have a negative relative divergence in effect, but again this comes back to the gravitational pull of the market, I don't think it i FB specific.

 The 5 min chart with more detail shows the actual reversal and is showing a positive divergence in the flat trading range.

 A closer view of the 5 min chart...

 Now we'll work from the earliest timeframes to try to better understand near term activity, we see a negative divergence today at the FB highs and a small leading negative divergence, this is intraday trend and does not compare to the 15-60 min charts. Think of the longer timeframe charts as strategic and the shorter timeframes as tactical.

 While the 2 min chart has been leading positive recently, we see a negative divergence on today's activity.

 There's a slight hint of the same on the 3 min chart (remember divergences progress or migrate from short to longer timeframes).

During this lateral period which is often where we'd expect to see accumulation, note the market has not allowed a support level to form and there have been plenty of volatile shakeouts, the market doesn't want anyone getting wind of what's going on.

In my view FB is accumulating on the expected pullback, suggesting it will move higher. We may have to wait for the market to move in to better, more bullish territory before FB really looks strong enough to enter on the long side, I don't see that yet, but I do believe we will see it and as such, I would keep FB on your radar as a probable long set up, we just ned to see higher probabilities/timing to emerge.