Facebook (FB) reports on Wednesday after the close. Here’s how to trade it. (April 28, 2017)
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I want to look at Facebook ( NASDAQ:FB ) today, here is why: The company reports earning on the 3rd of May, that would be next Wednesday, we will call it ‘wacky Wednesday’, after the close.
Now, Amazon ( NASDAQ:AMZN ) reported earnings Thursday night and you can see what happened to the stock. “Hey, it closed up almost $7.00.” Great! But it fell from 9.50, it fell like $25.00, so I wouldn’t exactly say advantage bulls here. Google ( NASDAQ:GOOGL ), on the other hand, rallied, gapped up, great earnings. The stock basically held it’s own until the last 15-minutes of trading.
We will go into the 5-minute chart and you can see, right towards the end of the day traders were selling. So it does not exactly bode well for Google ( NASDAQ:GOOGL ) on Monday. When they close down near the bottom of their range after they gap, that isn’t a good thing. So we have got Amazon ( NASDAQ:AMZN ) down in kind of a big way, close to support. Google ( NASDAQ:GOOGL ), still far away from support, but the end of the day, didn’t look too good.
So now we are back to Facebook ( NASDAQ:FB ), this three more trading days to move higher. Frankly, I am not really sure how much higher the stock can move before earnings, because it is already pretty extended relative to these Bollinger Bands, which I will get to in a second. What is important is, that the stock continues to trade outside of this upper Bollinger Band. These bands, two standard deviations, supposed to contain the closing prices 91, 92 percent of the time, basically all the time.
Now, the stock is trading above that level so my suggestion is, and my question is, how much higher can this stock move before Wednesday, at the close, so that great numbers are going to bring out even MORE buyers? We are seeing quite a few buyers coming in on Friday when all these other stocks were kind of in the toilet, at least from the open, Facebook ( NASDAQ:FB ) is going on twice average volume and it has got three more days to go.
So my suggestion is, treat it as two different trades. Between now and the end of the day on Wednesday, between now and then use a fairly tight trailing stop right along here. In fact come Monday, honestly, I would look at this intraday low of 149.00, I would keep at stop at like 148.95. Seriously, like if stock falls below Friday’s intraday low then you want to go ahead and sell some of the stock. Because you don’t want to ride this down for a couple of days only to get freaked out and sell it on Wednesday and then have the stock pop basically back up to where it is now.
We don’t know how this stock is going to trade over the next three days, but we know the stock is in an uptrend. So we manage our risk of missing out on profits by selling, verses getting losses by NOT selling. So we have got this nice trend on the upside, we keep a tight stop on this, and then frankly, we are out of our position before the market closes on Wednesday. You can say, “Well, I think Facebook is going to surprise so I still want to be long the stock.” And that is fine. My contention is, that it is just risky to hold over earnings. You might win, you might lose, who really knows?
So we treat this as two trades, one trade long over the next three days with a tight stop. But the other is this: If we look at this on these Sigma Bands, they are three separate sets of Bollinger Bands. We have got the red one, which is one standard deviation, it is supposed to contain about 65, 66 percent of price movement. Here about 91, 92 percent on the second standard deviation. And finally the third standard deviation, like 99.99, essentially the stock is never supposed to close, it can trade outside but it is never supposed to close outside this third standard deviation. And if you look here, we have never once had the stock close outside this third standard deviation.
So right now, we are looking at 152.00 as the absolute TOP on this stock. But this also sets us up up for the POST Wednesday trade. Keep an eye on these Bollinger Bands. The third standard deviation, if the stock happens to gap up where ii is outside of these third standard deviation Bollinger Bands you are likely to see a reversion. A reversion, I am not saying back to the mean, back way down into congestion, but at least you know that you decide to take a chance, you are going to stay long on Facebook ( NASDAQ:FB ) into earnings, fine. The stock rewards you by moving up on Thursday morning but it is outside of this third standard deviation Bollinger Band, then you sell into that. You say, “Thank you very much, I will take my profit and maybe buy it back at a lower level. I appreciate all of you interest, you guys are great, I’m out of here.”
That would be my strategy for trading Facebook ( NASDAQ:FB ) after earnings. So we have got a before earnings strategy, ride the trend with a tight stop. And then we have got an after earnings strategy, which is, if you held the stock and the stock moves up above the third standard deviation, sell the stock. And by the way, if you didn’t hold the stock over earnings, the stock gaps up over the third standard deviation, then you short the stock. That would have worked for Google ( NASDAQ:GOOGL ), not great because again, Google ( NASDAQ:GOOGL ) was trading strong most of the day until the very close. But this was the standard deviation so you would have been okay actually selling this.
And by the way, I expect lower prices on Monday. And you would have definitely been okay selling Amazon ( NASDAQ:AMZN ), this was the third standard deviation down here, the stock gapped WAY up there so you just know the stock is going to revert. So now you have got your trade on Facebook ( NASDAQ:FB ), before and after. Hope this works for you.
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