Facebook (NASDAQ:) stocks rose on Friday, gaining more than 5% for the day. There were two reasons for that dynamic movement.
First, Credit Suisse raised its price target for the social media company's shares from $400 to $480, a 20% increase, after "talks with advertisers continue to suggest a recovery in advertising budgets in most sectors, which will help Facebook." , the bank said via TheStreet.com.
A second, though less obvious, explanation was Snap's (NYSE:) stellar Q2 on Thursday, which beat revenue, earnings and user growth. Markets viewed the success of the smaller Internet content and information company as a leading indicator of signs of growth in online advertising, which is, of course, SNAP's core business, but also key to the entire social media space — including the segment's behemoth, facebook.
Technical signals match, signal FB stocks go up.
FB Daily
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On Friday, Facebook completed a bearish flag, bullish after surging over $30, up more than 9% in just six sessions. At that point, taking profits led to a hiatus.
Despite the diminishing nature of the range, the fact that it is so busy – as opposed to the almost straight upward trend before – suggests that there is enough demand to absorb the supply, which is considered only temporary.
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The upward breakout is 'proof of the pudding'. Bulls were stronger than bears, and after taking everything sellers had to offer and more, bids were made to find fresh supply.
This behavior tends to market price in a chain reaction, including through short-covering and triggered longs. It is also expected to push the stock even higher.
Note: The price rose a whopping $25 from breakout, already most of the $30 target as measured at the flagpole, the sharp upward move for the flag. Friday's breakout was powerful, supported by rising volume.
On Monday, however, the price failed to beat the previous session and closed below its intraday high. Even Monday's session was lower than Friday's. Volume also fell by about half, just a little more than where it had been on Thursday.
The price seems to find resistance at the top of the rising channel, where sellers overcome buyers.
The RSI also passed the 70 overbought level, showing that momentum may be warming and may be poised for a downward correction. Therefore, cautious investors may want to wait for a dip before going long.
On the other hand, if earnings turn out to be as good as expected, there will be no dip at these levels. On the other hand, and we cannot emphasize this enough, perhaps Friday's gains were already priced into the higher earnings expectations investors saw at the pace of Snap.
Trading Strategies
Conservative Traders would likely wait for the release of earnings on Wednesday after the close, followed by a dip.
Average traders were able to go long and accept the possibility of potential whipsaws after the flag updated most of its implied target.
Aggressive traders could take an opposite short position, expecting a pullback. However, this is risky and a tight stop-loss is required. Here's an example:
Trading Example – Aggressive Opposite Short Position
Entry: $374
Stop Loss: $376
Risk: $2
Goal: $360
Reward: $14
Risk: Reward Ratio: 1:7
