7/29/2012 Stock: Facebook (FB)

Stock: Facebook (FB)

Facebook’s IPO came out on May 17^th and raised the largest amount, $16 billion, ever for a tech company. I still remember everyone was talking about investing in Facebook shares prior to the IPO and the proposed price range was raised from $28 - $35 to $34 - $38. Disappointingly, the stock was only able to trade above $38 on the first day and never traded anywhere close to the proposed price range since then.   

I think Facebook has never been a good company to invest in because the stock price is overly inflated (P/E ratio of 51.5 compares to Google’s P/E ratio of 18.7) and the company doesn’t have a solid revenue stream to maintain consistence growth. Facebook just had its’ earnings report came out on Thursday, which Facebook’s 2^nd quarter reported a net loss of $157 million, or a loss of $0.08 per share, using the GAAP accounting method. The operating margin, under GAAP accounting method, plunged to a loss of 63% compares to a gain of 45% one year earlier, indicating a huge surge in operating expenses. More details of the earnings report can be found at: http://www.prnewswire.com/news-releases/facebook-reports-second-quarter-2012-results-163915536.html

Facebook undoubtedly has a huge population of users, which could make up the 3^rd largest country in the world, but having a large amount of users doesn’t mean the company can make money from every single one of them. Facebook’s revenue generates from 2 main sources, advertisements and users paid digital items such as games made by Zynga. Most of the revenue comes from the ads side of the business however, according to Bloomberg, the company’s sales growth wasn’t able to keep pace with user expansion. Amid rising competition from Twitter and Google in the advertising on mobile devices, some analysts expect mobile advertising could boost the company’s revenue in the future and Mr. Zuckerberg also said that mobile ads is the key area of focus for the company’s growth over the next several years. There is a potential for Facebook to grow in this area, unless you have a lot of faith with the company, otherwise I’d wait until the company starts to generate consistent result before I decide to put money in it.

Despite the fact that Facebook may not be a good company to invest in, it is a great day trading stock considering its intra-day moves. Here are some technical levels for the stock:

(Daily)

-          So far the daily chart is full of bearish signal and downward trend. The only bullish pattern in Facebook’s chart is the rounding bottom pattern in early June, which immediately led to a bearish double tops pattern and indicated the underlying weakness of the stock.

-          Facebook shares broke down on the earnings report during Thursday’s post-market hour. The stock ended up gapping down from $26.73 to $23.19 and made a new all-time low @ $22.28 on the next trading day. Given these conditions, I don’t think it is a good idea to long the stock because you’ll never know when and where the stock is going to turn around, there is no reason for anyone to catch a falling knife.

-          Facebook is not a good stock for long term investment but one can still be able to catch a $2 - $3 dollar move on an intra-day basis. If the stock moves back into the downward channel and breaks above the gap bottom level @ $24.54, one can expect a short term up move that will fill the gap by reaching the gap top level @ $26.73. The up move can go as high as the upper bound of the downward channel before the stock encounters heavier resistance.

-          Even if FB breakout of the downward channel to the upside, it still has quite a bit of overhead resistances. The stock formed 2 double tops patterns, one @ $33.44 while the other @ $29.51. The 1^st double tops resistance @ $33.44 is the highest the stock reached since the third day of IPO, so I mark it as a major resistance level. If the stock eventually breaks above the major resistance level @ $33.44, I expect the stock price to go above $38 and higher. The stock previously found support @ $30.51 and now becomes a resistance level. If the stock climbs above the 2^nd resistance level @ $30.51, it should trade within the price range between $30.51 and $33.44 until it forms a directional signal again.

(Hourly)

-          On last Friday, Facebook’s price made a low @ $22.25 and gradually climbed back until it found resistance at the downward trend line. Friday’s move looks like the stock is making a 1-2-3 pattern up move while it ended in the 2^nd leg move on Friday’s close. I'm expecting a 3^rd leg up on Monday to complete the 1-2-3 pattern, taking the stock back into the downward channel and perhaps filling the gap @ $26.73.

-          If Facebook’s shares price is not able to go above Friday’s high @ $24.54, the stock may drop back to the low @ $22.25 and see whether the stock forms a double bottom. A double bottom pattern can help the stock to pop back to the downward channel. If the stock goes lower instead of forming a double bottom, then let’s hope Mr. Zuckerberg will not charge Facebook users a fee to access the social network site.       

 I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback. 

7/22/2012 OIL #6

Light Sweet Crude Oil Futures (/CL)

(Daily)

-          Since the last post, the crude oil futures price made a new 52 weeks low @ $77.28 but reversed right on the upward sloping trend line from the weekly chart of last post.

-          By looking at the recent up move, the oil futures completed a 1-2-3 pattern rally from the bottom: 2 big green bars leading up to the consolidation area, between the 23.6% and 38.2% retracement levels @ $84.09 - $88.29, then broke out from the range and took the futures price up to the $90s area.

-          The oil futures formed an inverted head and shoulders pattern, a bullish signal, with the green upward sloping trend line serving as the neckline, or confirmation of breakout. Given the recent break of the neckline, I'm expecting the oil futures price to push up a little further until it meets resistance @ $95.21 and consolidates again. The $95.21 level is where the oil futures price previously based and it is also the 61.8% retracement of the big down move happened in May 2012, some selling pressure should be seen as the oil futures price approaches this level.

-          If the oil futures price continues to go higher, the 200 day moving average (200 SMA, white in color) and the whole number level @ $100 will serve as resistance levels. The 200 SMA is always a decent support/resistance reference while the $100 mark is a psychological gauge. Historically, stocks and futures prices like to flip up and down around this particular whole number. It is unlikely for the oil futures price will go right through this level without any kind of consolidation beforehand, therefore I believe this is a rather important level to watch.   

-          For downside support, the green upward sloping trend line is the 1^st layer of support if the oil futures price drops. The 2^nd layer of support includes a minor support level @ $88.9, the previously range top level @ $86.53 and the 38.2% Fibonacci retracement level @ $88.29. The last support on this uptrend is the 23.6% retracement level @ $84.09, which the oil futures price based before the recent breakout. If the oil futures price forms a low, or trough, lower than the $84.09 level, this may signal an uptrend reversal. The best scenario is the oil futures price trades between the resistance level @ $95.21 and the green trend line, forming a bull pennant pattern that favors an upward breakout as the candlesticks come to the edge of the pattern.

(Hourly)

-          In the hourly chart, one can see the oil futures price broke out from the upward channel on last Thursday but failed to continue further. Then it dropped back into the upward channel area and formed an intra-day double bottom, which is a higher low as well. The formation of higher high and higher low indicates the trend is still on the upside; oil future price shall push up again, but it needs to make a high, or peak, above the $93.25 level in order to maintain the upward trend. As long as the move continues to make higher high and higher low, going long in oil is still in play.

-          On the other hand, if the oil futures price breaks below the upward channel, watch out for a short term down move that brings the futures price down to the area between minor support and the 23.6% retracement levels (from daily chart) @ $84.02 - $88.9.

-          Notice there is a rising 200 moving average (200 SMA, white in color) currently sitting at $88.07; if the futures price drop, the 200 SMA should offer another source of support to hold up the price.

 I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback. 

7/15/2012 SPY #13

S&P 500 Cash Equity (SPY)

(Daily)

-          Not many changes on this chart since the SPY moved as I expected 2 weeks ago, filling the 2^nd gap @ $132.99 - $134.85 (better shown in the hourly chart), and making a higher high (P3) and higher low (V3) within the upward channel. From my experience, trend lines connecting tops/bottoms are only reliable until the 3^rd time candlesticks touch it. The SPY made 3 peaks and 3 valleys already, so I'm expecting a move that breaks out of the channel to happen soon.  

-          The resistance level @ $135.92 was previously a double top pattern confirmation line and the same level where the 2^nd peak (P2) topped. If the SPY breaks above this level, the stock will rise to the upper bound of the channel and find the next resistance level @ $139.21. On the other hand, if the SPY can’t break the resistance level, the tradable area will get narrower and the stock has a good chance to break downward.

-          Notice the declining 50 day moving average (50 SMA, grey in color) is closing up with the 200 day moving average (200 SMA, white in color). When the 50 SMA crosses below the 200 SMA, the bearish golden cross is generated, signaling a bearish trend. Be alert when these moving averages cross and be cautious with any long trade.

-          On Friday, the SPY erased losses of last week. The rally was led by JP Morgan’s better than expected Q2 report and speculation of China will boost stimulus measures, easing concerns about earnings and the global economy. And because of these reasons, I think the SPY is very likely to continue higher in the next few days. Until the bearish cross occurs, sellers probably won’t step in due to the lack of sell signal. If a breakdown does happen, each of the prior pivot lows (V2 and V3) will serve as minor support levels. Also keep an eye on the rising 200 SMA, it always provides good support to a declining stock.    

(Hourly)

-          There is a 3^rd gap @ $135.98 - $136.72 to fill, if a candlestick closes above the 3^rd gap level @ $135.98 and opens another candlestick above it, then look for the stock to trade up to the gap fill level @ $136.72. The 2^nd gap @ $132.99 - $134.85 is a good example. When the SPY dropped below the $134.85 level on late Tuesday and opened another bar below it, the gap trade was triggered. From breaking into the gap to filling it, the trade lasted 2 days. Expect the same thing to happen, when the stock breaks the 3^rd gap level @ $135.98.

-          If the current up move is not able to reach above the prior pivot high (P3) @ $137.54 but form a peak that is lower than the P3 level instead, then one should be careful for a trend reversal. If the SPY starts to trend lower, the prior pivot low V3 @ $132.58 and V2 @ $130.88 will both serve as support levels.           

I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.  

7/9/2012 EUR/USD #1

Euro Dollar Spot Rate (EUR/USD)  

(Weekly)

-          As you can see from the downward channel, the general trend of EUR/USD rate is to the downside. The upper bound of the channel will serve as a resistance while, on the other hand, the lower bound went below the all-time low @ $1.1876 becoming obsolete to use with.

-          In early May, the EUR/USD broke down on a descending triangle. The descending triangle is formed by the upper downtrend line and the 2^nd resistance @ $1.3, which was previously a flat base. Statistically, when price rises into a descending triangle, the pattern is bullish with an approximate 70% chance to breakout on the upside. However, the failed pattern in this chart indicates that investors at large are bearish on the Euro, smashing the currency rate passed the 52 weeks low @ $1.2289 and still heading lower. With the exchange rate sitting at a 2 years’ low @ $1.2256, it is not recommended to go against the trend and long the Euro at current rate.

-          The EUR/USD rate is currently sitting at the bottom of the range @ $1.2289 - $1.2697 and it has a pretty good chance to go lower. If the Euro breaks down on the range, the next major support level will be the whole number @ $1.2. Notice how the Euro previously held support @ $1.3, I'm expecting it to do the same thing when it comes down to $1.2. Furthermore, the $1.2 level is only a penny above the all-time low @ $1.1876, it is possible that majority of the investors will wait the Euro to get near the level before they start making a move. Nevertheless, it is never wise to long a new low or short a new high, always wait for a few signals to confirm the trend reversal before you jump in and make a premature decision.  

(Daily)

-          In the daily chart, I add a 3^rd resistance level @ $1.3286 in case the Euro rises sharply.

-          The 3^rd resistance level @ $1.3286 was also the initial move of a 1-2-3 down pattern. The 1^st move (highlighted in dark green) took the currency down to the range bottom @ $1.2289 then retraced. The 2^nd move (highlighted in light grey) was a consolidation action, setting up for the 3^rd move. With the EUR/USD rate at the edge of breaking lower, there is no reason for anyone to jump in front of the train and be a hero.

-          The study in light blue color is the Fibonacci Extension. I usually use it to project the 3^rd move of a 1-2-3 pattern in order to plan and locate my exit strategy, taking a percentage of my profit out correspond with the Fib Extension levels. Every time the EUR/USD rate pushes lower, it should find some support at each percentage level shown in this study. Notice how the Euro touched the 50% extension level @ $1.2243 and bounced a little bit. If the Euro breaks the 50% level again, 61.8% level @ $1.2124 will be the next support in line.

-          If the Euro doesn’t break to the downside, it most likely will trade within the range @ $1.2289 - $1.2697, use the range top and bottom as reference to determine the direction of your trade.

I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback. 

7/1/2012 GOLD #5

Gold Future (/GC)

(Weekly)

-          The gold future has been trading in a 260 points range @ $1532.7 - $1791.1 since late 2011. The top of the range @ $1791.1 is where the future formed a double top, indicating an area of resistance. On the other hand, the gold future triple bottomed @ $1532.7 and it may form a 4^th bottom if it bounces again, signaling a consistent buying interest at this level.

-          Three scenarios can happen here:

1.          The range bottom level @ $1532.7 doesn’t hold and the gold future price breaks to the down side. The gold future should find major support @ $1478.8 because it consolidated at this level once in the previous up move. If the $1478.8 level doesn’t support the gold future either, next support should be @ $1313.2, which is last year’s low.   

2.          Gold future price bounces from the range bottom @ $1532.7 but can’t break above the downtrend line. Notice the 50 week moving average (50 SMA, grey in color) is closing up to the downtrend line, acting as another layer of resistance. If the gold future turns around at the downtrend line, that indicates buyers don’t have much faith in the gold market, selling out their long position when the future encounters some resistances. This is a signal for the bears to step in, expects the gold future pullbacks to the range bottom @ $1532.7 and breaks lower.

3.          If the gold market experiences a bull rally taking the future price up to the range top @ $1791.1 again, the gold future is quite likely to breakout. The reason behind is simple, “if the stock price doesn’t go down then it is going to go up.” If sellers try to punch the gold future price lower for 4 times and fail, this tells that buyers are showing interest and holding up the gold market; if buyers are the bigger player in this case then long is a better option, there is no reason to go against the majority.    

(Daily)

-          In the daily chart, the 50 day moving average (50 SMA, grey in color) crossed below the 200 day moving average (200 SMA, white in color), forming a bearish golden cross and signaling a continue downtrend.

-          On the upside, there are multiple overhead resistances: the resistance level @ $1631.6, the 200 day moving average (200 SMA, white in color) around $1650, and the yellow downtrend line from the weekly chart. If the gold future wants to rally back to the top of the range @ $1791.1, it may experience a hard time to do so.

-          Take a look at the future price movement starting in March 2012, the gold future is steadily trading underneath the green downtrend line, showing signs of weakness with multiple lower highs. If the gold future makes a 9^th lower high and pull back to the range bottom level @ $1532.7, watch out for a major break in either direction as the trend line and the range bottom level closing up.   

 I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.