Facebook Inc (NASDAQ:FB) stock has been among the standout tech performers of the year. And with its latest move in the advertising space, most traders expect the stock to accelerate its move higher. But the appearance of a reliable bearish pattern on the daily chart could spoil the party for the social networking stock.
Shares of Facebook closed last week at $119.38.
Facebook Inc Could Be a “Divergence” Play
Facebook announced last week that it will be expanding its ad network to reach non-users. Many on Wall Street contend that this should be bullish both for the company and the stock. While that may be true for the medium to long term, the immediate short term is a different story.
A look at the daily price chart of Facebook shows the stock has been in a strong uptrend since February, hitting a lifetime high of $121 last month. And as shares once again inch closer to that zone, the consensus seems to be that a break out is just around the corner.
However, one key worry from a trading stand point is that despite price trending higher, momentum indicators are failing to follow suit. Both Stochastic and Relative Strength Index (RSI) are showing signs of exhaustion. Under such circumstances, market participants needs to be cautious.
While the breakout may eventually materialize because price-indicator divergences are notoriously difficult to time, traders should watch out for signs of weakness in the stock. On the down side, $116 is the all-important support area for FB, a break below which could see shares slide all way to $110.
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S&P 500 Also Looks Technically Weak
Adding to the short term bearish outlook for Facebook Inc is the failure of S&P 500 Index to pierce through 2100. Analysts reckon this doesn’t augur well for equities as a whole.
“In the near term, it feels like the markets are kind of melting up,” TradingAnalysis.com founder Todd Gordon said on CNBC. “I don’t see the markets panicking to the topside for any particular reason, other than short covering,” he added.
Katie Stockton of BTIG seems to agree with that assessment. “The S&P is now testing some resistance right around 2,100, so you need to see it spend a couple weeks there to confirm a breakout, and I don’t think that’s going to happen,” she noted.
S&P 500 ended Friday at 2099.06. The index is up a mere 2 percent year to date.