Have you friended Facebook (FB) yet? Here’s one way to do it without taking too much risk.
Discussed in this article: Facebook Inc. ( $FB )
I want to look at Facebook ( NASDAQ:FB ), Why? Well, because everybody else is. No matter which way you slice this thing you want to be long now. It broke through this resistance level on pretty solid earnings. The thing about earnings that was so appealing to everybody is that their revenue from clicks on mobile ads is good, and that’s the key to the future. So if they had cut costs and made their numbers, but that metric was not improving, well they’d have done what Google did, right?
So we look at this, it’s broke through this down trending resistance line, which I think you actually could draw clear back to the opening print up here, so it’s broke through it this way it’s broken through this intermediate-term high, and most importantly, it is holding the gap on light volume on Friday; now, heavier than average volume, but relative to Thursday’s volume, a paltry sum.
So what do we do? Well, we’ll look at the weekly chart and this kind of gives you a better sense because you get some continuity; yes there’s a gap there, but it doesn’t look like it here. This is a volatility expansion. I have not been trading Facebook ( NASDAQ:FB ) it’s just not something that I’ve done, but I did actually buy a little bit, just a little bit on Friday.
So here’s the way I would suggest playing it. Here’s the gap, I really doubt that it’s going to fall down too deeply into the gap, unless there’s just some massive market day. Because even though valuations pretty rich, I just don’t think it will fall below 30.00. At some point Facebook’s ( NASDAQ:FB ) going to be added to the S&P 500, I mentioned that in and a video just this last week. We don’t know when that’s going to be, but ultimately it’s going to be added, and at that point all the index following funds who are not long Facebook ( NASDAQ:FB ), will be forced to be long Facebook ( NASDAQ:FB ), and that’s going to really push this stock higher. Again, I don’t know when this will be. It could be in a year, it could be next Thursday. That’s really the upside catalyst to me.
So what I would suggest doing is, if you like this stock go ahead and even take just a little bit right now, I would say even 25 percent of what your ultimate full position would be; then if Facebook ( NASDAQ:FB ) starts to drift down to say $30.00, then take another 25 percent. This lowers your cost basis down to $32.00 on half of your position. Then at that point you wait for the stock to firm up, if it falls a little further then sure, maybe you can add on the way down.
But what I prefer to do, just because I’m a little skittish about losing money, I don’t like to do it, I’ve done it many, many times before and it never feels good. What I like to do is after my first buy at a lower level, I wait for the stock to come back up above that buy level, even if it falls down lower, I just want to see where the stock is going to bounce. Maybe if it bounces down here I’d buy a little bit, but a lot of times I’m real conservative and I would rather wait for this stock to come back up say if we bought our second 25 percent at 30.00, I would wait for the stock to come back above 30.00 and then maybe buy another 25 percent, or maybe just buy it all, it just depends on how the price action is.
This stock is really, really ripe for a pull back. You look at the Bollinger Bands; well outside the upper Bollinger Band, which doesn’t happen too often, so it’s really, really strong. I think this is a stock that you can own, just don’t own a bunch of it at 34.00. There is such a thing as a three day rule, and members, it’s not the usual three day rule that I talk about, there’s kind of a the three day rule where if you really want to buy a stock that pops on earnings you wait at least three days. What those three days are for is to just let the buying interest cool out.
Let everybody who’s rushing to buy this stock right away, let them get their business done, because ultimately when that demand tapers off then you’re going to see some profit taking from the folks who brought down here. They’re holding that as long as they can, and once the stock starts to roll over then they say, “Okay, well now it’s done, now I’m going to go ahead and take that profit.” And then the stock starts filling the gap to whatever extent it’s going to go.
I hope that helps you in building a plan on going long Facebook ( NASDAQ:FB ).