New Trade in FB

[Steven Place]

Just sent a detailed trade idea to Traderplanet, so here’s the “early release” of the notes.

From a technical standpoint, Facebook’s stock has a few things going for it.

First, we have short term relative strength. While all the other high beta tech stocks were seeing aggressive selling Tuesday morning, FB failed to break underneath it’s most recent pivot lows.

Second, we have intermediate term relative strength. If you look at other well known tech stocks, it seems that AAPL, BIDU and FB are the only ones currently above their major moving averages. Other story stocks suchas GPRO, TSLA, TWTR, YELP, and AMZN have all seen significant trend deterioration.

Third, the stock has seen volatility compression. This simply means it’s been in a tight range over the past month or so, and offers clear risk levels that will show you if the bullish thesis is wrong.

Finally, this pattern is called a “magnet trade.” This means there is an obvious level that will act as a magnet as price will auction up to that level to see if it will get rejected again. A good strategy is to take a position before that level is hit, and scale out of it as the magnet trade is fulfilled.

80 is the magnet level on FB. That’s the 52 week high level and was lost after an earnings gap down. So the stock will most likely trade up to that gap fill level to see if there are willing sellers there again.

The bullish thesis is invalidated if FB loses 74.24 – this is just under the most recent pivot levels.

Trade of choice:

Buy to open Jan 77.50 call at 2.50

Stop 74.24

Scale out as we come into 80.

[Steven Place]

FB now running into a big resistance level, time to take some off here.

Scale out half size FB Jan 77.50 call at 3.55.

Time is now an issue and if FB runs into the 81’s I’ll want to roll this out to February.

[Steven Place]

We’ve now got 3 up days in a row, FB is hitting new highs, and it tagged it’s 3rd standard deviation bollinger band.

It’s now overbought. But it can get more overbought.

You can either bail here, selling the calls at 5.10

Or you can trail a stop, using the late morning’s lows (just underneath it so you don’t see a stop-run-reversal).

[Author]

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