FB as a Short and Other Market Considerations

I received an email from a member who is more of a trader and would like to try to short FB for a pull back which is something I mentioned yesterday in the FB update a being high probability, "A Pullback'.

This is not really my type of trade, I might consider trying to trade around it by letting go of some shares, take the profit and try to buy a greater number of shares with that profit on a pullback, but because I view FB as a long term trade I prefer not to mess around with it too much.


However that wasn't the question.

Lets take a look at FB as a possible short on a pullback move.

I'm not going to make the bullish case for FB because I did that already in yesterday's post linked above, I would just encourage you to look at the bullish scenario in FB and understand that is where the highest probabilities are, that does not preclude FB from a strong or tradable pullback whatsoever, it just must be considered a counter-trend trade and those are a little more speculative than trading with the trend (in this case the 3C trend). Just know what you are potentially trading against.

 FB 15 min -I'm not going through each divergence, you can see the general positive 3C trend with price and the recent negative 3C trend against price, this is a divergence and suggests a pullback as 3C is contradicting price.

 FB's large ascending triangle base has seen a breakout, the orange area though i where we see some of these negative divergences suggesting some selling in to strength, perhaps because a pullback i part of the plan, perhaps the base ultimately will look more like a 'w' than an ascending triangle, I don't know what their thoughts are, I can only see the 3C signals.

I find volume on the breakout to be low and not impressive, this may also be a marker suggesting a pullback and larger base before stage 2 is hit solidly.

 30 min 3C chart shows trend confirmation and a recent negative divergence. This looks too big to be consolidation only, I think some price consolidation/pullback must come out of this.

The question now is, "Where is the entry? When?". On the 5 min chart this one move up around the 3rd doesn't look like a strong candidate as a head fake move, the recent small accumulation sent FB higher and today in red we have a small intraday head fake move or failed gap.

Here's a closer look at it...

 5 min

I'd prefer a head fake move above the recent highs, I kind of doubt we get it with the way the charts look now. I think a break below the 50-bar 60 min chart's moving average is probably a decent area to consider FB as higher probability.

One thing you might consider is a phased entry if you are trading the stock and not options, take 1/2 the position here and maybe add on either  break above the red line on a negative divergence (better pricing/less risk) or add on a break below the moving average above (still decent average pricing, better probabilities).

There's also a strong chance that the initial break of the moving average leads to a volatility shakeout back above the m.a. and then below it on the real move to the downside.

I will say the 3, 5, 10, 15 and 3 min. timeframes all have a negative divergence of some degree, so I think it's a pretty good bet FB pulls back and there's probably some money to be made on that pullback.

The Trend Channel stops would have the highest probability, but they would also require you give up significant chunks of the trade as you'd miss a better entry in this area.

Feel free to email me with any questions.

FB is still a long term long position in my opinion, that hasn't changed.