Booking new highs
06/28/18

What a difference three months can make.

In late March Facebook (FB) was trading around 20% below its early February record close, dropping briefly below $150 to its lowest level in more than eight months amid the company’s efforts to address concerns about its ability to safeguard user data:

Facebook (FB), 5/22/17 – 4/4/18. FAANG. Facebook (FB) price chart.

Source: OptionsHouse

For a while, it looked like the first letter of the FAANG club ran the risk of getting its membership revoked.

The obituary was premature, though. As the following chart shows, since then (and really starting when CEO Mark Zuckerberg first spoke before Congress in April) a lot of traders have been clicking their “Like” buttons: FB has not only hit several new record highs, it topped the $200/share threshold for the first time. In fact, the question on the minds of some traders may be whether the stock has overheated after rallying around 34% from its April lows to its June 20 high.

Facebook (FB), 1/26/18 – 6/27/18. Facebook (FB) price chart. Facebook rally.

Source: OptionsHouse

Facebook’s next earnings release is due on July 25. Until then, there are reasons some traders may continue to see buying opportunities in FB pullbacks like the one that bottomed on Monday: Facebook’s continued dominance in digital advertising,1 a resurgent (until the past few days) tech sector with FAANGs leading the way, favorable Street outlooks (TipRanks average analyst target: $221), and, if the bulls are lucky, more “bad news” in the rear-view mirror than on the near-term horizon. Which should help the company focus more on business initiatives, such as its promising Messenger platform,2 instead of damage control.

But to keep the outlook intact, the stock should keep up the current pattern of not violating its most recent short-term swing low—in this case, the June 25 low of $193.11. That pullback, by the way, represented a test of the breakout above the February and June highs.

Market Mover Update: In the aftermath of last Friday’s Vienna OPEC summit that hammered out an agreement to increase crude oil output by as many as one million barrels a day—the rumor of which had helped knock down crude prices more than $9/barrel (12%) between May 22 and June 18—August WTI crude oil futures (CLQ8) probably caught many traders off guard by jumping some 10% from their pre-announcement close.

Although the market may have rallied because the output increase is likely to be closer to 600,000–700,000 barrels a day (because of some OPEC members’ capacity limitations), the recent move nonetheless put the market right back where it was before the production increases were publicly floated.

August crude oil futures (CLQ8), 12/5/17 – 6/27/18. Crude oil, futures, OPEC

Source: OptionsHouse

The chart above shows that as of yesterday the explosive rally had topped out right around the May high, which may lead some traders to anticipate at least some profit-taking, if not a larger downturn and potential “double top.”

Finally, many housing related stocks, including LGI Homes (LGIH), pulled back yesterday after posting big gains on Tuesday. Wednesday’s Pending Home Sales number was weaker than expected—the latest in a string of soft housing numbers this month.

 

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1 SeekingAlpha. Youtube And Instagram Are About To Go To War. 6/25/18.

2 TheStreet.com. Facebook Messenger Could Bring in Billions of Dollars -- Here's How. 6/20/18.