FB Update

As I mentioned late last week with regard to FB, the nice thing about FB in our first long position there was it doesn't trade with the normal risk-on/risk-off market correlation or what you may have heard as a market maxim, "A rising tide lifts all boats" and vice versa. I also warned Friday I believe that the same concept and unique character of FB may not be so helpful in a market move up as it trades independently from the market correlation and we are seeing that today with the SPX up +1.5% on what has been an exceptionally strong TICK (market breadth) with the downside today being in the -500 area which is almost unheard of. Meanwhile FB is bouncing back and forth between in the red for the day and break-even.

I still like FB longer term, I still think it's likely that it has been putting together a larger base, I just don't see the high probability short term indications that would cause me to buy FB right here and if I'm not willing to buy it here (forget even strategic entries as an excuse), then I have a hard time justifying holding a large FB position right here, a smaller position and an add to that position on a pullback that remains healthy I can justify, but the market is all about probabilities, not certainties and I just don't trust the probabilities right here and now to have a full size open position in FB here.

Here's why and a potential stop you might consider.

Out first long in FB at the yellow arrow and the suspected base in the white box. This is a difficult area to make these decisions because FB is so close to a potential breakout and "if" the general market conditions were strong enough, it could drive buyers in a kind of shotgun blast to buy long in a number of stocks they may not normally consider, although FB has had a dubious reputation at best with retail traders.

In any case, in most situations like a potential breakout of the base here, we typically see a pullback to gather energy before an attempt is made at resistance and we can typically see the accumulation on that pullback.

 The 15 min chart shows FB is very near resistance.

 Today's gap up opening didn't hold, with so many stocks on the TICK holding up, it's strange to see FB, after the recent momentum not hold up well with the market in some sense. I get the feeling FB is still VERY much under the influence of the IPO underwriters rather than the broader market at this point and with the recent lock-up expiring, it wouldn't be surprising to know MS and GS were still the main movers/players in FB, even if only on a swing basis.

 Since the first very positive divergence in the white box at our first long trade, the base area has seen this longer term 2 hour chart move to a large relative positive divergence, again highly probable this is a large base under construction and probably near the end.

 I have a lot of respect for the 15 min chart in situations like this and it was fine through the green are, the last tun up in to the lock-up ending shows a negative divergence on this 15 min chart. There are different signals in different timeframes below this and when I see that, I always look to the longer signals as they have less noise, in my view, I don't want to hold a full size position of FB here or at least I don't want to add any more exposure here. If I'm wrong about it, it's not going to cost money, but going the other way it very well could, especially after the recent run and the opportunity to add shares at a lower price.

 Another way to handle this is to use the Trend Channel, it will tell us if trade becomes unusual by breaking below the $23-ish level. So far the range has come down in white, but so has price's range and the candlesticks aren't giving us much to work with. I suppose if I was still undecided about how I felt about FB, I'd let the Trend Channel stop tell me, it will still preserve a significant amount of the profit from the run. If you want an even wider stop, email me, but this one has held the entire run.

This certainly isn't the ideal situation in which things are VERY clear, but as I said, it comes down to probabilities and whether you think they are heavily on your side or not.