In my last discussion on the charts of Facebook (FB) on May 17 I stated that through both the longer and shorter-term points of view the stock to yours truly at the time didn’t offer great risk/reward for trades in either direction. Fast forward roughly one and a half weeks to today and while the stock still doesn’t look any better for the bulls, the bears are watching closely for the very last line of support to potentially snap.
On May 17th I wrote that ‘the key lateral level to watch lies around the $24.50 mark (red dotted line), which acted as resistance until the Nov. 28 breakout, and ever since turned into support. In late March, FB tested the $24.50 area, from which it proceeded to bounce.’ The stock’s sell-off from the early May reaction high has now dropped the stock below this support line and moved another 40 cents lower to the very last support at $24.10, which acted as near-term resistance in late October 2012. The same level also exactly coincides with a 61.80% Fibonacci retracement of the sharp rally from the lows on November 12, 2012 up to the highs on January 28th. Should the stock fall below $24.10 it will enter a free-fall zone with no real meaningful support until roughly the $19 area, which would equal roughly a 20% drop. Traders looking to lean against Facebook (FB) on the short side may find increased downward acceleration in price on a break below $24.10, however two things must be kept in mind: 1) just because support gets broken does not mean a stock immediately falls into the abyss. More often than not the going gets choppy for a few days before ultimately resolving lower. 2) While Facebook (FB) would enter this ‘free fall zone’ below $24.10, it also doesn’t mean that the stock must fall all the way $19 to find support. A proactive trader will monitor the situation closely and go for an initial 5% – 10% slide before taking some or all profits.
All in all, Facebook (FB) is now wobbling on its last technical legs and unless buyers come to the rescue immediately the stock risks continuing and potentially accelerating the recent slide.