In the short-term a news story or rumors can cause such volatility that technical analysis will have little use. Zooming out on the technical picture though can provide some objectivity at times when emotions are getting caught up in the hype of a story. These stocks all have big daily volume and recent or developing news stories. Technicals can help establish when to take positions, how to control risk and when to take profits.
Facebook (Nasdaq:FB) made a new high at $55.18 on December 17. The stock was already trending higher, so the news that Facebook will begin utilizing video ads didn't cause the new high, but the overall move higher does show investors were expecting Facebook to continue to find and push new revenue streams. The strong pullback in November, relative to prior pullbacks, increases the probability that the price could stall near the high. The overall trend is up, so if the price does reverse it is likely a large consolidation before another move higher. Buying opportunities occur in this scenario between $50 and $43 (depending on the magnitude of the pullback) with a long-term target at $65. If the price falls below $43 a further overall slide is likely. Buying at a new high presents challenges for controlling risk, although short-term traders could buy the new high with a target between $57 and $58 (with the possibility to extend if strength continues) and a stop just below the breakout point near $54.
Twitter (Nasdaq:TWTR) has been trading for more than a month now and is in a state of nearly perpetually news driven speculation. While it got off to a slow start Twitter has exploded higher in December. With so little price data it is difficult to a get a technical perspective. Yet there are some potential projections that can be employed. Currently the trend is up, but after hitting a high of $60.24 intraday on December 16 the price has been retracting indicating the start of a pullback. Using Fibonacci Retracement levels support for the pullback is likely to come in at $52.70, $50.30 or $48 before the price starts making its way higher again. A strong bounce off any of these indicates the potential buy point. There are a lot of assumptions here, mainly that the uptrend will continue, but the strong recent rally indicates that it will. Projecting a profit target without yet seeing a pullback creates an even more ambiguous scenario, yet based on the above modeled pullbacks, a projected target for the next wave higher lies between $63 and $68 (basically the shallower the pullback the higher the target).
Sprint (NYSE:S) and Dish Network (Nasdaq:DISH) announced on December 17 that the companies will jointly develop and trial wireless broadband services in Texas (reference 2). Sprint rose 5.42%, although such moves haven't been uncommon over the last couple months as the stock has rallied from $6 to a recent high of $8.88. There is a cluster of Fibonacci Extensions just below $9, indicating an area of likely resistance. If the price pushes through that though the next resistance area indicated is not till $9.50. The trend is up, but buying near the high makes risk difficult to control unless trading short-term. One way to participate in further strength is to buy a move above $8.90, with a stop below intra-day support at $8.45. The stop can be trailed below new support levels as they form.
Frontier Communications (NYSE:FTR) made news on December 17 when AT&T (NYSE:T) said it would sell its wireline operations in Connecticut to Frontier for $2 billion in cash. The share price closed up 8.64% and hit an intra-day high of $4.94. The strong surge may have been partially due to Frontier saying the deal would boost the dividend ratio, according to Reuters (reference 1). The company already boasts a 8.37% dividend yield, one of the more appealing aspects of the stock. Technically the stock has struggled to get above $5 since early 2012. Lack of follow through on the December 17 news indicates that may still be a challenge. The play here is the dividend, and a potential increase. The stock is in a nearly two year range between $5 and $3.20 (usually above $4 though) so buying the stock as a long-term play between $4.75 and $4 for the dividend appears to be a good trade. The possibility that the stock could break $5 (requires a strong close above) and provide some capital gains as well is just a bonus.
The Bottom Line
News creates a stir, but the news itself doesn't need to be traded. Take a look at the overall technical picture to help determine at what price to enter, exit and control risk. News can create volatility and therefore increases risk, but also potential opportunity. By maintaining some objectivity and following a well laid out plan you can potentially capitalize on the price moves which follow the news, without getting emotionally involved or caught up in the hype.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.