Political crosswinds have buffeted Facebook, Inc. (FB) in recent months, with fake Russian accounts, hate speech and unruly algorithms decaying trust in the social media Goliath while drawing D.C.'s unwelcome attention. COO Sheryl Sandberg just wrapped up a quick visit to the capital, meeting with dozens of lawmakers to exercise damage control while Congressional committees are set to review 3,000 Russia-linked advertisements.

Market players have largely ignored the whirlwind since a late September swoon dropped Facebook stock nearly 7% in three sessions. The bounce into October has now recouped those losses, lifting back to the July high, which also marks the all-time high. Strong October volume confirms committed buying interest, setting the stage for a healthy trend advance toward $200 following the company's Nov. 1 earnings release. (See also: Facebook Breaks Out, Could Rise 16% to $200.)

FB Weekly Chart (2012 – 2017)


Facebook shares dropped like a rock after peaking at $45 during a heavily subscribed May 2012 initial public offering, closing the inaugural session at $38. Selling pressure picked up while sentiment soured into late summer, finally ending in August at an all-time low in the upper teens, ahead of a two-step recovery wave that mounted the IPO opening print in the low $40s one year later.

The stock broke out in the fourth quarter of 2013, lifting into a powerful uptrend that eased into a rising channel in March 2014. Channel support narrowly aligned at the 200-day exponential moving average (EMA), with that level generating multiple tests into an August 2015 breakdown. The stock bounced strongly in the second half of that session, leaving behind a fat finger reversal that has carved a long-term trading floor in the upper $70s. (For more, see: Facebook Is All Grown Up.)

An extended test at channel support in the fourth quarter of 2016 found equal buying interest, yielding a strong bounce that reached channel resistance in March 2017. The stock pressed against that level for three months and broke out, signaling impressive relative strength that has generated new support near $160. As a result, that level should offer a low-risk buying opportunity the next time that aggressive sellers take control.

FB Daily Chart (2016 – 2017)


Price action since November 2016 has carved a triple bottom, followed by a powerful uptick that has generated two impulsive buying waves and two reactive trading ranges. This price structure suggests that the stock is now engaged in the fourth wave of an Elliott five-wave rally pattern that will yield a climactic advance, ending the uptrend. The third wave carved a 31-point rally, while the first wave added 42 points, predicting a shorter-than-usual fifth wave advance, suggesting that round number resistance at $200 will act as a formidable barrier. (See also: 4 Reasons These Giant Tech Stocks May Be Unstoppable.)

The stock posted a series of lower lows off July's all-time high while carving horizontal resistance near $175. In turn, this raises the odds for a final downturn prior to a breakout, filling in the bullish pattern with a higher low. August price action suggests that the sell-off will find support in the mid-$160s, because a bounce would then draw the right shoulder of an inverse head and shoulders breakout pattern.  

On-balance volume (OBV) confirms many years of institutional sponsorship, in line with the stock's elite status as a member of the FANG quartet. The buying trajectory eased in the fourth quarter of 2015, while the subsequently shallow slope has continued to gain ground. The indicator hit a new high at the end of July and again last week, generating a bullish divergence that predicts price will follow with an intermediate breakout. (For more, see: FAANG Stocks May Lead Market in Last Quarter.)

The Bottom Line

Facebook buyers have ignored recent headlines and lifted the stock back to range resistance in the mid-$170s. Volume measurements have matched bullish price action, raising the odds for a breakout that reaches $200. However, current price structure looks inadequate to support a trend advance at this time, suggesting a final decline that posts a higher low in the $160s. (For additional reading, check out: Facebook: 7 Secrets You Don't Know.)

<Disclosure: The author held no positions in aforementioned securities at the time of publication.>

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