Lets take a look at FB’s 2-hour chart to determine where it might end up in the short run. Lately, Facebook has seen a strong move up from the $25 region and this is now catching the eye of investors/traders, leaving them with the question…. should they buy into this move or just sit on the sidelines?
What I want to point out is the large diagonal playing out from the start of November. If you are not familiar with diagonals, diagonals are just corrective moves in the larger trend, and can be extremely hard to trade since they can take quite a while to play out. Diagonals can play out as ‘leading’ or ‘ending’…. ‘leading’ would mean that we are in a consolidation type of pattern that is setting up for much higher levels. ‘Ending’ means that we are in a final push that would lead to much lower levels. So how do you know which one we are in? This can be a hard question to answer, but I believe there is a tell-tell sign of where we are going. The MACD is portraying negative divergence at a time that would not match a leading diagonal, but an ending diagonal. In all cases, ending diagonals are found at the termination points of larger patterns, indicating exhaustion of the larger movement. The MACD is showing that ‘exhaustion’ that we would see at a termination point…
So, where do we go from here, and how low do we go? Well, I am viewing this as wave (iii) of v or the final push in wave v (exhaustion point), which would indicate that we are going to see lower levels from this point on. I am still holding an open mind that we could see a small pullback, which would be wave (iv), and would leave us open to the final push in wave v. If we do get that push I expect us to stop up at $33.15-$34.80. Any breakdown below $28.64 would be the first signal that lower levels are going to be seen, with $25 being the nail in the coffin. Once those levels are broken I am looking for all time lows for FB. Since diagonals are corrective, and this move was up, this means that the larger trend is down since that is the impulsive direction of the social media giant.
Author: Peter Nitso
Twitter: @PeterNitso