Facebook

The crackpot notion that investors collectively are all-knowing and all-seeing has suffered yet another embarrassment with Facebook's whoopee cushion leap in after-hours trading.  The 22% surge (see inset) dwarfs the bullish hysteria that greeted Apple's lousy earnings report earlier in the day. It also puts in play the 36.49 target shown.  Traders looking for the easiest way to get aboard belatedly should view a pullback to the 29.58 midpoint pivot as a great opportunity. ______ UPDATE (8:09 p.m. EDT): Yesterday's lunatic leap got within 61 cents of our 36.49 target, a Hidden Pivot midpoint resistance. Traders can try shorting from 36.44, but I'd suggest risking no more than 12 cents theoretical per round lot on the stop, since this gambit will entail stepping in front of a speeding projectile. Assuming DaBoyz don't gap the stock on the opening bar, there could be a bull play here as well. If you use a camo approach for the short and the trade survives, please let me know in the chat room and I will establish a tracking position.______ UPDATE (July 28): The 36.49 target is still valid -- and so, therefore, are the tactics noted above.  ______ UPDATE (July 30 at 12:50 p.m.): DaBoyz easily popped the stock through 36.49, implying they've got bigger things in mind. If you reversed a long position to get short at 36.49 with 12 cents of risk, the pain would have been negligible.  Now, use the 40.53 target shown (a new chart) as a minimum upside projection for the near term. This of course implies that trades should be done from the long side until such time as the target is reached.

Facebook took a spectacular bounce (see inset) last week from within a penny of our longstanding target at 24.71.  Based on actual fills reported by subscribers and some partial profit-taking at 25.13, I had been tracking 200 shares with a cost basis of 24.93.  Since I subsequently advised stopping the position out if the stock created a bearish impulse leg on the 10-minute chart, exit on Friday would have come at 25.68, yielding a theoretical gain of $190. Since the target was prospectively a major one, my gut instinct would have been to stick with the position down to the break-even point. However, by exiting according to a pre-determined, mechanical rule, we put discipline ahead of "feelings."  I still like the stock and may recommend re-entering when it settles down some.

Facebook is closing on an important support at 24.71 flagged here earlier, but also a midpoint support at 24.84 (see inset) that should evince tradable support. Taken together, these two Hidden Pivots provide a compelling reason for camo traders to try bottom-fishing just south of here. I'd suggest limiting entry risk to no more than 6-8 cents per share. Please let me know in the chat room if you fill, since I'll establish tracking guidance if at least two subscribers report getting aboard.  _______ UPDATE (10:54 a.m. EDT): Facebook exploded this morning from within a penny of our longstanding target at 24.71.  For  camo traders, entry was perfectly signaled on the 1-minute chart at 24.91 (9:43 a.m. EDT). Buyers there never looked back. I'll record a 24.93 entry unless a less favorable fill is reported in the chat room. Assuming 200 shares exited at the 25.13 'D ' target of the camo pattern, we hold 200 shares with a cost basis of 24.73. For now, use a fixed stop-loss at 24.36. ______ UPDATE (9:45 p.m. EDT):  Switch to a stop-loss that would be activated by the creation of a bullish impulse leg on the 10-minute chart.  At the moment, that would imply an uncorrected downdraft touching 25.68 (see new chart).

During yesterday's weekly tutorial session for Hidden Pivot grads, we found the corrective pattern in the accompanying chart most compelling, with single-bar coordinates at all three ends and a dandy, non-sausage-y point B low.  The 24.71 target is a place where we could contemplate bottom-fish aggressively, but it will also become our minimum downside objective if the stock cannot muster an impulsive breakout above the red line.  My hunch is that the stock's a goner here and that the implied 8% fall will commence in earnest unless a powerful rally in the broad averages pulls it the other way. Even then, only an impulsive move on the daily chart should be regarded as strong enough to negate the downward pull of the 24.71 pivot. 

Exit the spread now for 0.50 or better, since, as I noted here earlier and in the chat room, I've seen this movie a hundred times before and the March calls are just sucker-bait at this point -- dead meat regardless of whether the broad averages rally to the moon.  It was my error to have neglected to take off half the position prior to the last earnings announcement, since no conceivable news could have improved on what had already been anticipated via the stock's run-up from $19. ______ UPDATE (February 25):  I'm going to record a $1300 profit on the trade, implying the spread was exited for around 0.40.  Chat-roomers have in fact reported significantly better results, but this was because they acted on their own initiative to take profits before I'd advised it.

Sooner or later, our turn on the hot seat was going to come. And now it has, with Facebook shares currently in the throes of a headless chicken dance following the release of Q4 earnings after Wednesday's close.  I've reproduced a five-minute chart that shows how Wall Street's best and brightest are taking the news. Not well, for sure, since, after some extremely wild swings, the stock is down about 5% on word of 40% revenue growth. Profits were down 79% as well, but this reportedly was due mainly to the cost of some new initiatives and charges related to employee stock. The numbers supposedly were in line with expectations, but as always, it's who is doing the expecting that matters, not the numbers per se. Perhaps cooler heads will prevail on Thursday, but there's little point trying to second guess these whackos on a day when they've swung the stock 13% in mere minutes.  For our part, we continue to  hold a bull spread that is guaranteed to make money  — two dozen March 30-33 verticals legged on in November for a 12.5-cent credit.  We'll bank as much as $7500 if Facebook is trading above $33 come March 15, but no loss is possible since we own the position for a net credit of $300.  Click here to sample Rick's Picks free for a week.

We hold a bull spread that is guaranteed to make money  -- two dozen March 30-33 verticals legged on in November for a 12.5-cent credit.  We stand to make as much as $7500 if Facebook is trading above $33 come March 15, but no loss is possible since we own the position for a net credit of $300. FB has rallied sharply since we completed the spread, hitting a recovery high of $29.79 yesterday while the broad averages were falling.  Although I doubt it can keep up the pace, yesterday's thrust refreshed the bullish impulsiveness of the daily chart by exceeding July's highs near 29.50. And while this is no guarantee that our spread position will achieve the maximum theoretical gain of $7500, it is sufficient for now to make us feel pretty good about it. 

Traders should still be long two dozen March 30-33 call spreads for a 12.5-cent credit. We stand to make as much as $7500 by expiration, but the worst we can do in any case is come away with a $300 gain before commissions. The spread settled yesterday @ 0.82, implying a paper gain so far of $1134.  I'd be inclined to close out the position if we can extract profits of at least $3000 by mid-December, but otherwise we'll let it run, since the factors that have been driving the stock are only just starting to percolate.  Here's what the San Jose Mercury had to say earlier this week: "Facebook's stock surged more than 8 percent Monday, briefly passing the $26 mark for the first time since July, amid signs that Wall Street is regaining some of its lost confidence in the social-networking service's ability to make money."  This is exactly why we jumped on the stock when it was trading 50% lower just two weeks ago. (Note: It ended last week at 28.11, a recovery high.) Since we're sitting so fat, let's fool around with the stock today, shorting the 27.95 target shown with a tight stop-loss. Specifically, you are to offer 400 shares short for 27.93, stop 28.01.  Cover half on a pullback to 27.40, and await further instructions in the chat room and via the subscriber 'E-Mail Notifications' feature (if you are signed up for it).  We are doing this simply for the fun of it, and because our spread position will offset most of any loss. Here's why: Each spread we hold has a delta value of about 13 shares at these levels, making us long the equivalent of about 312 shares. At the 27.95 target, however, because the March 30 calls we are long would

I'm tracking 24 Mar 30 calls acquired for an average 0.375.  Continue to offer 24 March 33 calls short against them for 0.50.  If successful, we'll have legged into a vertical bull spread that cannot lose. The best we could do would be to make $7500 on the position if Facebook is trading $33 or higher come March expiration. And the worst? That would be with the stock below $30, which would still produce a trading gain of $300.  The stock, meanwhile, looks bound for the 25.36 target of the pattern shown, having blown through its 'p' midpoint sibling at 22.12 on Friday. _______ UPDATE (11:15 a.m. EST):  There are 7 billion people on the planet, but when Facebook gapped higher on this morning's opening, evidently not a one of them was bidding for March 33 calls.  The options just sat there as a result, and so we'll continue to offer them short, hoping for a modicum of interest if the stock continues higher as I expect. _______ UPDATE (November 23, 1::04 p.m. EST):  We caught a gust of wind on the opening -- a head-fake that allowed us to short the calls for 0.50 before they topped at 0.55 and the stock receded into negative territory.  As noted above, this spread can't lose. The absolute worst we can do is come away with a $300 profit if the stock collapses. However, we stand to make as much as $2400 a point, up to $7500, if the stock is above $30 come March.  Incidentally, the calls themselves had a pattern that projected a top of at least short-term importance at 0.58.