Facebook (FB) Stock Review: Downtrend Remains, But Selling Less Aggressive

In my first post regarding the Facebook (FB) IPO, I talked a lot about waiting at least 10 trading days before making a decision on whether to trade the stock. While my initial theory of the stock running up for a few days didn’t play out the strategy of waiting proved again to be effective. The important take away from the first post was that if you jump in the first day, you run a big risk of getting burned and that’s exactly what happened to those that didn’t resist the hype and jumped into the fray. There has been a lot of anger amongst retail investors and resulting law suits due to the drop. To that I say, I don’t feel sorry for those that lost. You gambled and lost. End of story. Had the stock gone up, the issues at the Naz, the rumors of Morgan Stanley revealing inside information and all the other excuses would have been a moot point.

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This post isn’t about dissecting what went wrong after the stock began trading. There has been plenty of discussion around that which most people are aware of. I’m here to focus on how to trade the stock from here since the first 10 trading days are behind us. Now we have a much better since of the trend of the stock and the conviction of buyers and sellers.

Taking a look at the chart below, you’ll notice that Facebook (FB) stock remains in a firm downtrend. However, there are some signs that the tide may begin to turn. I say that because of the minor capitulation day last Thursday when the stock made a new low, recovered, and closed the day in the upper half of the trading range on higher volume than the day before. That’s a sign that buyers found a place where they’re willing to come in and support the stock. Since that day, the stock has continued lower and even hit another low in today’s trading. However, notice the sell volume diminishing which is an indication that selling conviction is waning.

Is it time to jump into the stock then? The short answer is NO. We still have a firm downtrend in FB and until that downward trend is broken and buy volume picks up, there is little indication that the trend down can’t continue. Even then, if you’re considering a position in Facebook, I would not buy my entire position all at once. You might consider a third on a break out above the downtrend, another third on a pull back off that initial move and the next third on a breakout from that consolidation. I’ll have another review of Facebook (FB) in a week or two to see where we’re at.