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Technical Analysis: Facebook Trades Within a Bearish K-Divergence Range

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Technical Overview

  • In January 2018, Facebook’s stock peaked roughly at the same time as the NASDAQ Composite Index. The stock actually did manage to make a new high on February 1, whereas the index had already started gradually moving lower (purple arrows on both the upper and lower charts in Figure 1; upper chart – FB; lower chart – NASDAQ Composite). From February 2 through the February 9 low (bright blue arrows), the stock and the index moved mostly in tandem.
  • By the February 26 minor high (orange arrows), the stock had already started underperforming subtly. It is during the subsequent pullback, and even more pronouncedly, during the next leg-up that it became evident that the stock is severely underperforming. Figure 2 shows a note sent to my institutional clients on March 4, advising them to trim/hedge the stock. Little did I know at the time that this underperformance is likely caused by those market participants who were already aware of the brewing Cambridge Analytica Data Scandal (referred to as the “Data Scandal henceforth). Shortly after, on March 19, the stock plummeted on reports that the company is linked to privacy violations and potential political manipulation (white arrow in upper chart).
  • The stock declined severely over the next eight trading sessions, eventually finding its footing after retesting a key support (green trendline in Figure 3).
  • On April 26, the stock gapped up after reporting a 49% revenue growth in 1Q18 (green arrow in upper chart in Figure 1). Since then, the stock has continued climbing, supported by the strength of the broader markets.
  • Last Thursday (May 10), the stock entered a bearish K-Divergence Range (violet horizontal trendlines in Figure 4). The implication is that market participants are now given a second opportunity to sell the stock at pre-Data-Scandal prices with post Data-Scandal information. After all, who wouldn’t have sold the stock in early March in the $184 – $195 range had they known about the looming Data Scandal. Of course, in this case, such analysis is not perfect as there has also been a stellar earnings report since news about the Data Scandal had surfaced.

Figure 1. FB & NASDAQ Daily Chart

Figure 2. March 4, 2018 – FB Recommendation

Figure 3. FB 2-day Chart

Figure 4. FB Daily Chart

Implications

  • The stock is expected to pull back once bullish momentum from Q1 2018 subsides. One should look for a sell signal within the bearish K-Divergence Range as a confirmation.
  • Minimum downside projection of pullback would be $170. Further down, the stock may potentially close the 1Q18 up-gap.
  • Strong post-earnings moves are often supported by the 8 EMA. A break below it may indicate that the stock is losing steam.

Outlook

  • Neutral with a bearish bias within the bearish K-Divergence Range.
  • Potentially short-term bearish below its 8 EMA.
  • A close above $195.32 should negate the bearish implications.

Disclosure: Small put position initiated today. Likely to add if the stock moves closer to the upper boundary of the range (as the risk-reward of the trade will improve at higher levels – $195.32 stop) or if it forms a topping pattern. In both cases will likely wait for a break below the 8 EMA.

Trade recommendation to be published once a clear sell signal transpires.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.3 stars on average, based on 16 rated postshttp://www.linkedin.com/in/konstantindimov




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    Analysis

    Crypto Update: Coins Settle Down After Weekend Pump & Dump

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    While crypto bulls had something to cheer about early on during the weekend following a rally attempt in the majors, the move once again failed to improve the technical setup in the segment, and the top coins quickly gave back their gains. Now, most of the coins are trading near the bottom of their short-term ranges and technicals continue to point to the continuation of the bear market.

    Correlations are still very high, there is no sign of a developing bullish leadership, and with none of the key coins showing bullish momentum, bulls are facing strong headwinds. While trading volumes and volatility remain relatively low thanks to the range-trading environment a move below primary support could trigger larger moves in the majors soon.

    The negative long-term trends are still in no danger, and although there is still a slight chance of a failed break-down pattern to develop in the market, odds favor a bearish short-term outcome as well. With that in mind, traders and investors still shouldn’t enter positions here, with our trend model being on sell signals on both time-frames in the case of the majority of the coins.

    BTC/USD, 4-Hour Chart Analysis

    Although Bitcoin is still relatively stable compared to its most important peers, it gave back all of its weekend gains and fell back below the key $3600 support/resistance level yesterday. Now, BTC is threatening with a break-down below the prior sing low, and given the recent weakness, our trned model is now on a short-term sell signal.

    While bulls could still be saved by a move above $3850, the failed rally attempts warn of selling pressure, and a bearish continuation is more likely here. Further strong resistance is ahead between $4000 and $4050, with support zones still found near $3250 and $3000, and traders should still not enter positions.

    ETH/USD, 4-Hour Chart Analysis

    Ethereum shoed relative weakness during the rally attempt this weekend, and it is now very close to a break below the key swing low, which would likely lead to a move towards the key support zone between $95 and $100. The coin remains on sell single son both time-frames, and with a test of the bear market low near the $80 price level seems likely in the coming weeks.

    Strong resistance is ahead just above the current price level and near $130, with further zones at $145, $160, and near $180 while a weak short-term support is found near $112, and the coin’s weakness is a negative sign for the whole segment.

    Altcoins Still Weak Despite Rally Attempt

    STR/USD, 4-Hour Chart Analysis

    While none of the major altcoins broke the key short-term support levels, the overall picture remains bearish and we haven’t seen signs of resilience that would indicate a short-term bottom and the resumption of the counter-trend move.

    Stellar, which has been among the bearish leaders towards the end of 2018, is once again showing relative weakness while following the trends in the broader market, should the coin violate the $0.10 level, a quick to new bear market lows would be likely, with the $0.09 level being the only lone of defense for bulls.

    XRP/USDT, 4-Hour Chart Analysis

    Ripple still seems very fragile from a technical standpoint, and a move below $0.30 looks inevitable in the coming weeks, with a likely test of the bear market low near $0.28. The $32 support/resistance level remains in focus, but given the weak rally attempts and the bearish long-term setup, we don’t expect the coin to get back to the $0.3550 level in the coming period.

    Our trend model is still on sell signals on both time-frames, with further strong support found near the $0.26 level, with resistance ahead near $0.3750, and in the key long-term zone between $0.42 and $0.46.

    LTC/USD, 4-Hour Chart Analysis

    Litecoin is back near the key $30-$30.50 support zone after the volatile weekend, and it also looks ready to dip below that zone, even as the short-term trading range is still intact. The steep long-term downtrend is intact despite the recent counter-trend move, and traders and investors shouldn’t enter positions here, with the short-term setup also being bearish. Strong resistance is ahead near $34.50, $38, and $44 with further support found near $26 and $23.

    Featured image from Shutterstock

    Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.7 stars on average, based on 445 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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    Altcoins

    GBP/USD Price Prediction: Bulls Reclaim 1.2900, Eyes Locked on Another Retest of 1.3000

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    • GBP/USD bulls pick up momentum to the upside, following generally positive tone to Theresa May’s Plan B statement.
    • Next upside targets for the bulls should they firmly breakdown 1.2900 again, will be the psychological 1.3000 mark.

    GBP/USD throughout the session on Monday remained very much elevated. This came as market participants were somewhat maintaining an optimistic view. All of which heading into the British Prime Minister Theresa May’s speech to the House of Commons, on her Brexit plan b. Of course, this had to be drafted again, given her humiliating defeat at the vote last week, on the initial EU withdrawal plan.

    Theresa May Plan B

    In terms of her details this time round, she will be going back to Brussels, to seek some amendments to her initial agreement. This needs to be done in order to get a plan through another vote in the commons. Looking at some of the GBP bullish takeaways from this statement; she guaranteed rights for EU citizens at several angles, scraping the application fee EU nationals registering in Britain, discussing the backstop with the DUP this week.

    To conclude, PM May appears keen in her language to ensure of a soft-Brexit, rather than one that is hard. All of which supported GBP in its push to session highs, at the time, briefly moving back above 1.2900. The price had given up this area on 18th January, when the bears were reversing the run observed on 17th, where GBP/USD touched to big psychological 1.3000 mark again.

    Technical Review – GBP/USD

    GBP/USD 60-minute chart. Near-term resistance eyed at 1.2900, with bulls locked in on a retest of 1.3000.

    GBP/USD at the time of writing continues to trade around the 1.2900 territory. This price did see a brief period cooling, on touted profit-taking post the statement. Near-term resistance can be seen within this price region, but if convincingly broken down again, then there is decent upside potential. Aside from the supply observed here, there isn’t much in the way of the 1.3000 price region.

    Given the renewed optimism around Brexit now, this has assisted in maintaining momentum to the upside for GBP. In terms of support to the downside, a strong area of demand should be noted at 1.2850-25 price region. As can be seen via the 60-minute chart view, this has supported the price since 15th January.

    Featured image courtesy of Shutterstock.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.6 stars on average, based on 112 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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    Analysis

    3 Things You Need to Know About the Market Today

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    1, Chinese GDP Growth Slows to Multi-Decade Low

    Shanghai Composite, 4-Hour Chart Analysis

    When even the strongly PR-optimized Chinese economic releases are showing severe weakness, it’s not at all surprising that the local stock market is in a deep bear market, and even the explosive oversold rally on Wall Street combined with the trade optimism of last week is not enough to meaningfully change the technical setup.

    While economic growth slowed to an almost 30-year low on a yearly basis, retail sales and industrial production beat the consensus estimates by a hair, but that wasn’t enough to cause a material rally in equities, with the global sentiment leaning slightly bearish. This week’s most important question will be how risk assets will hold on to their recent gains, with a special attention on China and Europe, which continue to lag behind the US from a technical perspective.

    The Shanghai Composite is more than 30% below its bull market highs, while the main European benchmarks are also around 20% below their respective highs, and that’s following one of the strongest short squeezes in history on Wall Street, mind you. The next few days could be crucial for markets, and we now advise caution even for short-term bulls.

    2, Stocks Retreat after Friday Ramp with Wall Street Closed

    German DAX 30 Index, 4-Hour Chart Analysis

    Looking at Europe, the major indices failed to extend their gains from Friday, while US stock futures are also modestly lower after the European close. With the US markets being closed in observance of the Martin Luther King Jr. Day, trading volumes and activity has been predictably low, and things will likely get heated tomorrow, as the earnings season will also continue.

    Johnson & Johnson (JNJ) and IBM (IBM0 will report earnings tomorrow, and all eyes will be on their overseas numbers and guidance amid the global economic slowdown. We had some negative reports regarding the US-Chinese trade talks, concerning the sensitive issue of Intellectual Property, and we still think that even though an agreement is likely in the coming months, implementation and enforcement will be borderline impossible.

    3, Oil Tests December High

    WTI Crude Oil, 4-Hour Chart Analysis

    While risk assets, in general, had a slightly bearish half-session crude oil kept on pushing higher following Friday’s move to new correction highs, with the WTI contract entering the resistance zone that capped the December consolidation. The crucial commodity, which has been slightly lagging US stocks from a technical perspective is still squeezing late shorts, but we expect a short-term top very soon, possibly after a stop hunting rally above the $55 per barrel level.

    What’s sure, is that we wouldn’t be buyers at these levels, even in light of the OPEC production cut, since over-supply remains a major issue, and the increase in US output continues. That said, the short-term uptrend is intact and the topping process could take a while, but we will keep a close eye on the day-to-day price action following the 25% rally off the December lows.

    Featured image from Shutterstock

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.7 stars on average, based on 445 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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