Facebook, Inc. (FB) shares closed the first half of 2019 at $193.00, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot at $181.70, which is now considered a value level. The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 21, when the stock closed at $191.14.
Fundamentally, Facebook is reasonably priced for a FAANG stock with a P/E ratio of 29.18 without paying a dividend, according to Macrotrends. The stock is one of four FAANG stocks under investigation by the Department of Justice. When Facebook reported earnings back on July 25, 2018, there was a huge gap lower on July 26 on missed expectations. This reflected the fall-out from the social media giant's privacy scandals.
Facebook had a positive reaction to earnings released on April 24, and the stock popped to its 2019 high of $198.48 on April 25. Shares of Facebook then slumped with a correction of 18.9% to a low of $160.84 set on June 4. This low was a test of the 200-day simple moving average at $161.33 as a buying opportunity.
In the longer term, Facebook stock is consolidating a bear market decline of 43.7% from its all-time intraday high of $218.62 set on July 25, 2018, to its Dec. 24 low of $123.02. The stock has been strong in 2019, with a gain of 49.8% year to date, and it is up a bull market 59.6% since its Dec. 24 low. Even so, the stock is also in correction territory at 10.2% below its July 25 high.
The daily chart for Facebook
The daily chart for Facebook shows that the stock has been above a "golden cross" since April 3, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. Even so, the stock slipped to a test of its 200-day simple moving average at $161.33 as a buying opportunity.
The close of $193.00 on June 28 was an input to my proprietary analytics and resulted in the following key levels. A monthly value level for July is at $186.74, with its annual value level at $181.70. Its quarterly pivot is $193.39, and its semiannual risky level is $219.31. This is just above the all-time intraday high of $218.62.
The weekly chart for Facebook
The weekly chart for Facebook is positive, with the stock above its five-week modified moving average of $186.57. The stock is also well above its 200-week simple moving average, or "reversion to the mean," at $147.46, which was a magnet between the weeks of Nov. 23 and Jan. 4, when the average rose from $134.20 and $135.97.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 70.52, up from 62.38 on June 28. At the April 25 high, this reading was 89.61, just below the 90.00 threshold that marks an "inflating parabolic bubble."
Trading strategy: Buy Facebook shares on weakness to the monthly and annual value levels at $186.74 and $181.70, respectively, and reduce holdings on strength to the semiannual risky level at $219.31. The quarterly pivot at $193.39 should remain a magnet.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.