FB Update

THIS IS ANOTHER POST I WAS WORKING ON TODAY, BUT HAD TO ABANDON IT DUE TO MORE PRESSING MARKET MATTERS, IT'S THE FOLLOW UP FROM THE FB SHORT POSITION COVERED EARLIER IN THE DAY.

Well I managed to squeak out of FB with a small profit, which to me is the same as a small loss. I believe in the FB short (for a decent swing, I think that could lead to a new FB long position later as well)), but I don't believe in exposing you account to a situation that isn't going anywhere at the moment.

The uncertainty in the FB short, could be what most people call "dead money" or "opportunity cost", I look at it in more severe terms, "No matter what asset you are in, no matter how safe it is considered, whenever you have money in the market it is at risk" so you should have a pretty darn good reason to have it at risk.

Look at MBS, Mortgage Backed Securities, these sounded like the safest bet going, an asset backed by real tangible property and what happened with MBS? They put us in to recession. Even in a trade that is working in your favor, you have no idea if another 9/11 happens (I pray that it doesn't) or some other out of left field event.

Here's what FB looks like as well as what I'm watching for and my plan based on certain things happening.

The FB gain of a mere +3.05%, nearly a full size position.

This is the 1 min. chart

The 3 min chart also has a leading positive divergence.

The 5 min chart shows a good negative divergence/reversal down, but now there's a positive divergence. I don't know if these are done and will lead to a move up of a couple of days or if they build a bigger base and lead to a stronger move up. I just know that if I looked at FB today as a new short position, I wouldn't take it here or now.

The 30 min chart which is where the longer term or big picture probabilities are to be found, clearly shows a top pattern that could be an incomplete H&S top or a broadening top, the volume is not correct for a textbook H&S and although most price patterns are never like you see in the books, volume in this pattern is essential to determining whether it is a true H&S top. A Broadening top however (which all H&S tops start as first) does not have any volume requirements and volume is often very random in these tops. The impression I get is we had a left shoulder that saw distribution, a head and a break below the neck line.

Do you remember what my choice entries are when confronting a H&S top? I either want to be in at the top of the head where my entry is the best price wise and my risk is the lowest or I want to wait for the initial break that all retail technical traders short and wait some more for the volatility shakeout back above the neckline that almost always happens to shakeout those initial shorts as Wall St. knows how technical traders will behave, when and where they will short it (on a break below the neck line) and Wall St. runs these volatility shakeout move to the upside to make traders believe it is a failed pattern, causing them to cover at a loss. After that occurs, then I want to look at a short position near the top of the volatility shakeout.

There is a gap as well and the market (especially apparent today,) has been moving more and more to fill gaps.

Here's what a Broadening top would look like, we have two breaks below the neck line, the first was a head fake and the second I presume will be a head fake based on the 3C charts above. If FB makes another bounce that has a high lower than the January high, we may have a H&S pattern. The point is, with a shakeout level so close at the red trendline and 3C looking the way it does, there's no point in being short right now as it is likely price moves above the red trendline for at least a short period of time and maybe more.

Looking at the 2 hour chart, we can see the big picture, we can see how the base that we predicted in early August formed and how it led to a rally in FB that had good 3C/price trend confirmation (green arrows) and then a leading negative divergence (which is the top area we were just looking at. The point being, cause and effect is clear here in the 3C signals, some sort of top and deeper pullback is likely at some point, I just don't feel strongly that it is ready right now.

Lastly, after a decent pullback, maybe to the $25 to $26.50 area (which happens to be a rough price pattern implied target on the downside) there's a good chance that FB could continue higher. We'll know if that is the case by looking at the 3C charts as a larger pullback takes place, but for now, the short term accumulation suggests higher prices so I see no point in waiting for FB to turn from a slight gain to a loss and even more bothersome, I see no reason to have precious portfolio reserves deployed for sub-par timing for the trade. There's nothing wrong with changing your mind if you have evidence, you think smart money doesn't do the same?

Finally, I had to widen the Trend Channel to get the appropriate fit (for those using the TC, increase the median from 10 to 20 and the ATR components from 11 to 21 each, leave channel width the same) for the FB trend, the channel has held the entire trend without a single stop out (remember a stop out is on a closing basis) until yesterday. However, remember that most often, after we have a TC stop out, price tends to get volatile and sloppy, it could be volatile and sloppy enough to move above the neckline I showed. When the Channel turns down, then we have a higher probability short trade, until then I'll stay on the sidelines.