Facebook - FB - Daily - Technical Pattern Suggests Big Retest

It must look like I am picking on FB and praying for a decline, but I really am being objective and seeing a pattern I rarely see and remember vividly from several patterns from the past in various markets.

This last rally in FB has defied all logic and probably has created the optimism necessary for a long term top to be put in place. For nothing terribly bad has to happen to FB for it to go down, rather there just has to be sellers at the margin. Stocks can and do go down on light volume , for the sole purpose that people don't want to sell at the lower prices and they hope for a rebound so the volume stays light during a long decline. So, I am suggesting that if FB can drift under $62.60, then it will be under the recent trendline AND it will have violated the last little area of buyer who were picking up shares for about 9 days between 63-64 recently.

This double-terminal pattern is similar to the 1987-pre-crash setup, which I will reference with a link below.

Target: 56-52 area initially.
Risk: 67-68 area.
64.50 last +0.21 today
Friday, June 13, 2014 Market Closed 4:26PM EST
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Thanks, I see a H&S forming on the 30min, so I'll look into buying put options next week at the right shoulder level
+1 Reply
When i opened the chart and seen it. First thought was "Tim is picking on FB":D . I do agree on the lineup of the points - but previous times when CCI went lower, it did not make such a tremendous move. Why is it so low still? Only based on sp500 of 87th ? I do see a larger head and shoulders type of formation though, loose, but still looks like 2 lower tops with higher top in the middle
+1 Reply
Thanks for the honesty! I do feel like I am picking on FB... but that is because the market cap is so insane and someday we will look back on it and remark at how crazy it was. It wont be as bad as Pets.com and the other newbie websites that were trying to get users quickly at any price. Facebook is a bit like the emporer without any clothes, and I would say that FB will never, ever earn its current market cap. It's a wonderful "game" and it has connected everyone, but the question always remains "how will it monetize its position" as the market leader in social media? (and earn 100% return on its market cap)
2use timwest
It has been trading several quarters now, and although not at the highest price, it is still holding on. I guess it is an iconic one, like tesla in the car industry, we have google, apple and fb in internet tech stocks. Whole goog and appl are not overpriced that much based on future, fb does indeed have a lot priced in already. I do get your point, but just as we dont follow fundamentals while some do, some dont follow then and technicals and believe in the stock - i read somewhere that traders need to know how to ride these stocks (not investors).

With this, i see also that you are fond of Tesla, but are not that picky on it - it also has a high valuation and with your charts that i follow closely, you are quite bullish on it. What is the difference in your view? They both have a lot of future developments priced in, and people here and there both argue about the abilities of the companies on upholding these in future. I find your choice a bit biased between the two - im sure you see why :)
Tim I do respect your analysis as you may be the only one I follow, however I do disagree on this one. I think it is a clear cup formation with a good potential earnings coming, I think we go higher from here provided the market holds....However like all trades which I am LONG FB, my key is position sizing, risk management and strong patterns. I believe FB is hitting on all cylinders other than a lower ROE than I like, the snapchat clone that came out may have popped it..however I don't see that moving down that low short term anyway...I am long for the rise with good risk management incase your story plays out :)
+1 Reply
timwest Vince
Thanks Vince. There are 40 days until earnings, so there is some time for some maneuvering. This idea is just a trade idea and thankfully not really important in the long run. I recall feeling the same way about MSFT in the year 2000 and how crazy the valuation was back then. I remember feeling the same way about CSCO when it hit 80 at its peak. I always think, if you ever bought this company, could you EARN back what you paid for the company in a reasonable amount of time, given the risks. MSFT, I don't think earned its market cap from the peak in 2000, but I will go look that up. It is just how I think about stocks that have sky-high valuations based on "growth" potential.

Technically, what this pattern shows is that there is a situation where there are only sell-stops under the current price. That's what makes this pattern so powerful and why it is so similar to the 1987 crash pattern. Certainly, there needs to be something to get the ball rolling and some fear to add to the urgency to get out. The decline doesn't have to be fast, but it is how the market is set up at the moment. The 1994 Bond Market Peak was a similar pattern also, and it panned out on the downside, but it took longer to complete the decline.

Also, I did say that FB needed to go under a certain price to trigger the pattern and that is about 3% below current prices. So, really this is just a trade "setup" that hasn't triggered an entry yet.

Thanks for your great comments and if you don't mind answering: What would make you exit your long position in FB? A price drop? News? CEO trouble? Bad trends in usage?

All the best,

Vince timwest
Tim great stuff, first I am an option trader so look at in based on good sound patterns and good fundamentals that move the momentum higher. With slingshot coming out and growing ad revenue I think it goes higher. If distribution kicks in I am out, I set a 20% contingent for a 40% plus gain and thus manage to do well off great patterns and great fundamental stocks. FB only has a 80 level PE..for a new growth stock that is not bad and the issue is their float is already high. I however will exit when I have distribution or 20% risk on option as it is I am profitable and locking in. News won't typically get me out just because I have traded news in the 90s all the time, today it is different as the markets overall are much more manipulated. I remember when earnings used to be announced DURING market which was great now the insiders get the game after hours. The HFT is a game that is causing a lot of challenges so it is not the old days it is different and I don't trust any of it therefore I have alerts, contingents etc set up..position sizing all so critical to insure i exit fast and stay in for the ride when right. I really analyze the psychology of the bar, volume and the indexes...trying to get most out other than price/volume Cheers
+2 Reply
2use Vince
Tim does have a good hit score... so i do try to see his charts his way. It is not yet a cup, and should it form it, then i am sure Tim would update accordingly. I see his projection from the current point in time has grounds. And although i wish they were more bullish, i will now not be able to say "Tim did not tell me so" should i skip his idea completely.
+1 Reply
Cant decide if this is in tact or violated?
I changed my mind about the H&S on the 30 min because it took too long for price to form the right shoulder. Big players were re accumulating on breakouts of lows using market orders.
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