Chart Of The Day: FB Walking On The Edge Of A Bear Market

Facebook (NASDAQ:) shares suffered their biggest slump to date yesterday, shedding a quarter of their value and setting up the social media giant for losing some $150 billion of its market capitalization should the price dive be confirmed by Thursday trading.

Some warning signs were already in place. Newton Advisors told CNBC Tuesday that the stock could correct 30% and still be in a long-term uptrend, considering it was up 35% from its longer-term trend line since 2013. Others pointed out that the company has an history of earnings calls that hurt shares, but the stock tends to rebound, also helped by the few alternatives left to advertisers.

Is the current price slump just the beginning of bigger losses, as FB stock enters a bear market, or an historical buying opportunity?

FB Stock Daily Chart

FB Stock Daily Chart

Trading Strategies – Long Position Setup

Conservative traders would wait for the dust to settle and for a clear trend to present itself, either with another peak above $217.50 or with two descending peaks and troughs to establish an official downtrend.

Moderate traders may wait for evidence of a bottom, which includes a rally that sustains profit-taking corrections.

Aggressive traders may enter a position straight away, providing they know how much they stand to risk, and that any exposure ensures a minimum 1:3 risk-reward ratio.

Trade Sample

  • Entry: 170
  • Stop-loss: 160 Risk: $10
  • Target: 200 Reward: $30 Risk-Reward Ratio: 1:3

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