Social media is one of the segments of the technology sector that has gotten more than its fair share of media attention over the past year. From privacy concerns to political manipulation, social media companies have weathered the storm and for the most part have moved higher so far in 2019. In the paragraphs below, we'll take a look at patterns suggesting that the fundamental concerns are waning and that the price of the stocks could be poised to make a move higher again.
Global X Social Media Index ETF (SOCL)
Analyzing the charts of niche exchange-traded products such as the Global X Social Media Index ETF (SOCL) has become the go-to method for active traders interested in forecasting the future performance of the social media sector. For the most part, holdings of the fund span all sizes of companies, but they tend to be located mostly in the U.S. or Asia.
Taking a look at the chart below, you can see that the bulls have recently pushed the price above the resistance of its 200-day moving average. The crossover is of specific importance because the surge in momentum has also forced the 50-day moving average to rise above the 200-day moving average, known as a golden crossover. This long-term buy signal is very popular and is usually used by followers of technical analysis to mark the beginning of a significant uptrend. From a risk management perspective, stop-loss orders will likely be placed below $31.27 in case of a sudden shift in sentiment.
Facebook, Inc. (FB)
When it comes to investing in social media companies, the 800-pound gorilla is Facebook, Inc. (FB). Many active traders may often just turn to the chart of Facebook as a barometer for the rest of the sector, and based on the nearly identical pattern as the one discussed above, it is obvious why.
Notice how the price has consolidated over the past several weeks near the support of its 200-day moving average around $162.79. The sideways price action followed by the golden crossover in late March was a clear indication that the bulls were taking control of the momentum. At this point, the breakout above the resistance of the short-term channel pattern will likely be used by active traders as confirmation of a move higher, and most will likely look to place buy orders near current levels in order to take advantage of a lucrative risk-to-reward ratio. Stop losses will likely be placed below $162.79 in case of a sudden surprise sell-off.
Twitter, Inc. (TWTR)
Another top holding of the SOCL ETF that many active traders will look to over the weeks ahead is Twitter, Inc. (TWTR). Based on the pattern shown below, you can see that the price is trading within a longer-term channel. The recent close near the trendline suggests that the bulls will be standing ready to take advantage of a surge in momentum should the price rise above the dotted trendline. A breakout could be the catalyst needed to trigger a bullish crossover between the 50-day and 200-day moving averages. Stop-loss orders will most likely be placed below $32.18 or $30, depending on risk tolerance.
The Bottom Line
Bullish chart patterns across the social media segment of the tech sector suggest that traders will likely be adjusting their watchlists over the coming days. Lucrative risk-to-reward setups suggest that this group could be poised to make a significant long-term move higher.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.