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.


Related Articles
  1. Chart Advisor

    Four Chart Patterns To Watch This Week

    This week is likley to reveal if the S&P 500 is in a consolidation with the expectation of a move higher, or if it's topping out. Here's four ways to play either scenario.
  2. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
  3. Technical Indicators

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
  4. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  5. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  6. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  7. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
  8. Technical Indicators

    Understanding Trend Analysis

    Trend analysis is the use of past performance to predict future price movement of a security.
  9. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  3. Indicator

    Indicators are statistics used to measure current conditions ...
  4. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!