QuantumLogicTrading
Long

LONG FACEBOOK: 7% PULLBACK & SOLID FUNDAMENTALS

NASDAQ:FB   FACEBOOK INC
Wanted to make this post as FB             as opened up a chance for a lower risk entry point.

FB             has pulled back 6% which is the first time in months that it has given any $ away to the market - hence i recommend buying and holing until 1$20.

Trading strategy

I suggest buying in a pyramid, and adding more long FB             if it continues to fall e.g. 1@114 2@111 3@106 etc

As FB             is such a strong stock in terms of net income and revenue (grew 250% yoy in april) and holds a monopoly in the social media market.

Volatility

- Vols have been trading higher for FB             in recent days, with Implieds trading much higher (26% vs 14%) than HV possibly inferring that the market is expecting further pull backs BUT the above trading strategy is built for a scenario like this (and actually is more profitable is FB             continues to fall)

- One thing to note is that it isnt really shocking for FB             Imp Vol             to be trading higher, since price falls = higher vols in general - and i may add that implieds are still only trading at the 40th percentile, i consider 80th to be extreme/ worrying so we have some cushion before we get to that.

- Finally FB             risk reversals are trading at +0.8, meaning in the options market we are seeing more demand for calls at these levels - this is a bullish bias for the spot stock market also as it is an indicator of overall sentiment.

Volume

- FB             volume has spiked predictably, as we would expect in a falling market, but it still trades about the average so i think Supply/Demand is balanced so it is safe to enter.

-I would like to see volume trade below average in the coming days to help give us a bullish push but i am not worried if not - infact i would prefer some further downside since FB             hasnt given us much for months.

Technicals

- We have a nice support handle at 113, 110, 108 - clear re-entry points for me. FB             ATR is trading below average which is good meaning price volatility isnt too stochastic , and this is just a controlled pullback.

- It also looks like FB             is just filling the earnings gap it created in April. The actual candles formed have traded about the median, with equal wick/ range lengths higher/lower, which also suggests this downside doesnt have too much momentum, as i would expect to see the price close at the lows if this was the case.

- Also as you can see FB             is trading at the -2SD level on the 4h, which historically is a good level of support and another + for entry. We have also just crossed the 60 day VWMA meaning that FB             is trading at a cheap price which is good for entry and a higher probability trade.
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