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Antonio Carradinha
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I'm graduated in Economics and Finance and work as a business consultant, specialized in company valuation. I have been an investor and trader for a couple of decades and Portfolio Manager on several situations, investing mainly in Commodities, Forex and US Stocks.
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Meu Caro Dinheiro (My Dear Money)
  • Trading Facebook 0 comments
    Jan 13, 2013 9:20 AM | about stocks: FB

    We are all investors in the broad sense of the word although some prefer the short term and others medium or long term. In this analysis I am not considering the day traders or, in the opposite camp, the very long term investors - Warren Buffett style, though they are respectable ways of being in the market, especially the last one that naturally made a vast number of followers.

    But almost all of us like to do trading and this action is often appropriate and necessary to take advantage of the volatility of a security, buying or selling in trend reversals, whether of small or large duration.

    To properly frame trading of a given security we should observe the following:

    1. Reference value in accordance with current data and future guidance
    2. Security Trend
    3. Market Trend
    4. Use of appropriate technical indicators

    The shares of Facebook (FB) are currently very much desirable to trading as we are yet on the after IPO period. Actually we see increasing unlock of their shares, which are arriving in waves to the market and relevant volatility of its prices.

    Although, personally, I think FB can provide in the future a long-term investment, currently trading is definitely the action to undertake. Following the above, we must consider as price reference a range between $25 and $38, for the following reasons:

    1. The price of IPO was $38 and that value sooner or later will be achieved again, not only for the volatility but also because FB is growing with substantial profits. When that happens, it will be a strong resistance level, and if broken it is also very important for trading.

    2. For months, the company has been in sell-off and the $25 zone had been an important support level which had only been broken down after serious attempts. When, later, it rose and broke up the same barrier it was done with extreme difficulty making that level of the utmost importance if a subsequent and pronounced decline happens.

    3. In fundamental terms, the value of each share of FB can perfectly fit within that wide range, depending on what is considered the degree of growth of its earnings, free cash flow and the discount rate chosen. If we could be more optimistic about its value, FB prices could even quote higher especially if the market is bullish.

    Now, I present a chart of FB since it has begun trading until last Friday (11.January.2013), where I introduced some technical indicators chosen and adapted to FB, and better suited for the time it has been negotiating. Any buy or sell signals will only be considered when all three indicators confirm it.

    I considered the Stochastic Oscillator, a price velocity indicator, with 16 periods (k=16, without signal line) generating buy or sell signals depending on the rise over 50% or the fall down 50%.

    I also used the Money Flow Index (which combines momentum and volume) only as an indicator of bullish or bear bias using also the centerline 50.

    The Percentage Price Oscillator is the last indicator chosen as a momentum oscillator. PPO is positive when the shorter moving average is above the longer moving average and negative when the shorter moving average is below the longer moving average.

    (click to enlarge)

    Chart courtesy of StockCharts.com at http://stockcharts.com.

    We can observe that the chosen indicators gave the following signals in accordance:

    a) Sell signal (or short position) in early July;

    b) Buy signal in early September;

    c) Sell signal in early October;

    d) Buy signal in late October, without a sell signal in November because the Money Flow Index did not allow.

    e) As until now those three indicators together gave only confirmation signals, the long position remains in good shape (the sell signal given by PPO in early December and the confirmation given by Stochastic was not followed by Money Flow Index, which stayed very close to 50% without really breaking).

    After November, it is also significant that FB price has been always above EMA50.

    Don´t forget that, in trading, you must map the performance of the chosen technical indicators against your specific stock and stick to your strategy. If you are not sure of your chosen system, change to one you feel more comfortable with and do an appropriate back test.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: FB
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