I don't really pay attention to Elliott waves when analyzing a stock because they are too subjective. You can find a pattern in everything, and when it goes wrong, you blame yourself for counting wrong, and change it into another Elliott pattern and so on. But here it looks to good not to point out. I believe that Facebook is going to continue upwards, that is what I wanted to point out with this chart. The fibonacci ratios and clusters are only extras, because I don't believe you can go long or short based only on fibs.
Ok, so let's start with the beginning. After the IPO Facebook fell strongly. Last year in July a good earnings report came out and propelled Facebook into the air. After a strong rally ( wave number 1) a correction is imminent, that is wave number 2. Around wave number you could hear only bad things about Facebook, it is overpriced, it has a H&S pattern and so on and so forth. After the neckline has been broken a piercing pattern called for another strong rally, and that is wave no3, which is equal to wave no1. Here at wave no3, there was strong resistance, and that is 100% of wave1, which means the completetion of an AB=CD pattern, 200% of the fall since the IPO and a round level of 70$, so a strong correction came, this being a possible wave no4. Now, there are two ways of interpreting wave no5. First, we could say that Facebook is a great business (and I think it actually is, considering how many people live through facebook) and the fall after recent acquisitions of Whatsapp and Oculus is ilogic and has no fundamental bias, so the stock must continue up. Secondly, Facebook is indeed overpriced and the smart money is getting out, hence stock distribution. In order to get out of a stock, you need a market to sell, and in order to obtain a proper profit you need high prices. If all the smart money would liquidate their longs the stock would collapse (how could anyone profit from that ?). Both scenarios, for me point to higher prices, but keep in mind that distribution is more volatile and my target might be too high. There is no way I can tell which one it's gonna be.
Looking for some classical TA signals, there is a hammer at the first strong support zone, and into a fib cluster. The MACD lines have drawn a hidden divergence, a continuation pattern of the prevailing trend.
I based my target on a fib cluster, considering that wave5 is usually smaller than wave3, and as you can see by looking back at the top of big wave 1 and 3, breakouts over previous highs don't advance ( smaller wave 5 breaks smaller wave 3 and then comes back down).
This is the weekly view of Facebook
Comments
sublimares2
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Nice chart Vlad - the hidden divergence is working nice and reliable on most oscillators and chart timeframe. I would only disagree with the wave counts. I totally believe we are into a correction phase and we should hit the 46-47 level before a new healthy impulse wave will take place. This shorter impulse wave will probably go up to around 68 and will finish the correction at 46. The first 6 months of 2014 is not the FB higher highs best time.
vlad.adrian
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Thank you! You might be right, my target could be too high. In that case, we would still be in a big 4 wave, and right now would be the a or the 3, going to around 68 would mean b or 4, than further fall to 46 would be c or 5, so yes, it might happen. As I said in the description, this is the problem with elliott waves, you can never be sure.
TradeVulture.com
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what the hell is hidden divergence? nothing about this price action could be more obvious.
vlad.adrian
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There are many articles written on hidden divergences that surely will explain it better than me
TradeVulture.com
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Divergence is divergence. Nothing is hidden unless you don't understand how to recognize, accumulation/distribution.
vlad.adrian
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I didn't invent hidden divergence you know... I checked it out and it actually works.
TradeVulture.com
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Divergence works because its a measure of volume being displaced. That hidden divergence is noting more than what happens after distribution (head and shoulders pattern seen there). Price moves down to retest the leg start, in an upward trend. What happens on first touch? You always fail to break through. Thus, we pop, usually back to support lost. Calling it hidden seems silly. It's not hidden at all... you're in a uptrend, and to break that trend you need to distribute on the larger time frames first (i.e monthly and weekly charts)
vlad.adrian
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You are disagreeing with the wrong person :)). I totally agree when you say that a normal divergence is much stronger than hidden divergence, but sometimes they actually work. In this particular chart, the hidden divergence isn't the main point of the chart, it's just another signal that has drawn my attention