A premium member noticed social media, specifically Facebook enjoying some nice profits lately and wondered if it was due for a correction.
Here’s my response:
FB has just ripped higher from my recommendation early this year; see green arrow.
All of the lines on the chart (below) represent support zones. When a support zone gets violated the probability of further declines is high. So, when looking at the chart you can actually see your risk at these support zones.
Facebook, Inc (FB) daily
There is no way of predicting a correction however if, for example, price broke down through and closed below support zone 1 we should expect further losses. Don’t worry about channels. Watch price action around support and resistance zones.
If price violates support zone 1 I will likely recommend selling some if not all. The slope of support zone 1 is an annualized 62% return so this is probably not sustainable. Primary support has a slope with an annualized return of 28% which is much more sustainable for a company like FB in a bull market.
If price comes in to primary support it is looking for equilibrium and reverting to the mean I have created. This would be a place to put on a new position or add to a position if price gets bid up.
Hope that helps.
Don’t hesitate to send over some questions. Free analysis for premium members.
Don