Low risk short on this former high flier. (February 25, 2019)
FB QQQ FB
I want to show you this potential trade on Facebook ( NASDAQ: FB ). I will be honest with you this could go either way and so I am absolutely not pounding the table here. It might actually be something that you may want to paper trade.
Here’s the thing: Because Facebook ( NASDAQ: FB ) is such a huge part of the Nasdaq 100 ( NASDAQ: QQQ ), it trades right along with the NDX ( INDEXNASDAQ: NDX ), a big influence. If the NDX ( INDEXNASDAQ: NDX ) falls back tomorrow, because it broke out above the 200 but then it is trading lower, if there is some weakness here you can look at Facebook ( NASDAQ: FB ) as a potential short.
When I say potential short it is important that you understand that, frankly, the stock could go up just as easily as it could go down; it just depends on where the most aggression is. If you look at the way this stock is trading, this is all just function of risk parameters and levels here, if the stock were to trade back above the 200-day moving average then that could be a sign that traders are still buying this stock. They don’t report earnings until the end of April so it has a ways to go.
But the way you have got to look at this now is the thing came back up to the 200-day moving average, it got bought for a couple days but then the stock is trading lower, it is trading back down. So there is obviously not a huge appetite for this stock. In fact, institutions are using this retracement to the 200-day moving average, they are using it as an opportunity to liquidate their positions.
Look, you guys know Facebook ( NASDAQ: FB ), it’s not owned, it’s been over owned for a heck of a long time here, so this is what a top looks like. But again, it could go either way, I can’t emphasize that enough; when something can go either way then here’s what you edge is: Your edge is your risk management. Your edge is how many shares I buy, where I buy them and where I am out? Where do I know that I am wrong on the trade?
So my suggestion is if the market is trading lower tomorrow consider this as a short sale, where you are shorting the stock right here. And your theory is, that the stock came up to the 200, came back and tried to get it again and now is not working so it is probably going to go down to 150.00 or something like that. Maybe lower, but you know what? Maybe not.
So it is going to go down to 150.00; you would short the stock very close to the 200-day moving average. And then where would you put your stop? Would you put it up here? Not me baby, it’s too loose, I don’t want to put a stop up there. I would look and put it like 168.70, that is about 2.5 percent above where you would be shorting the stock.
So what you are doing is you are looking at the trade as having this kind of potential. But if it starts to move to the upside back above the 200-day moving average you’re out immediately. You don’t stick with the trade you are just out of it. So this is how you short Facebook ( NASDAQ: FB ) with a low-risk trading strategy.
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