Schaeffer's Trading Floor Blog

Charts to Watch: Is Facebook Inc (FB) Ready to Bounce?

FB encounters support and enters oversold territory

by 3/25/2014 8:32 AM
Stocks quoted in this article:

Amid widespread weakness in the tech sector after Turkey instituted a ban on Twitter Inc (NYSE:TWTR), Facebook Inc (NASDAQ:FB) shares moved into the red on Monday, closing at $64.10. The good news for FB bulls -- other than that the stock is still up roughly 155% during the last 12 months -- is that this consolidation took the shares to potential trendline support. During Monday's session, the stock bounced off of its 60-day moving average, which previously acted as support in late January.

Daily chart of Facebook Inc (FB) since November 2013 with 60-day Moving Average

FB shares also dipped below their lower Bollinger Band, which signifies a shift into oversold territory. In a similar vein, the equity's 9-day Relative Strength Index (RSI) dropped from 43 at Friday's close to 31.6. As such, the stock could be due for a bounce higher as this backdrop reverts to the mean.

Daily chart of Facebook Inc (FB) since January 2014 with Bollinger Bands

On the sentiment front, speculators have grown increasingly bearish, relatively speaking. During the past month, Facebook's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio has jumped from 0.33 to 0.47. What's more -- even though calls are still being purchased to open over puts at a rate of roughly 2-to-1 -- the ratio is higher than 85% of the past year's worth of readings. In other words, demand for long puts is elevated, when compared to the past year of speculative activity.

Similarly, during the past month, FB's Schaeffer's put/call open interest ratio (SOIR) has increased from 0.49 to 0.60, reflecting a shift to the put side of the fence among short-term option traders. Any capitulation by these option bears could result in contrarian tailwinds, allowing FB to keep adding to its year-over-year gains.

Facebook Inc (NASDAQ:FB) options premium may currently be a draw for bargain-minded buyers. Schaeffer's Volatility Index (SVI) of 36% is lower than 79% of all other comparable readings from the past 12 months. Short-term options are therefore affordably priced, from a volatility perspective. Meanwhile, Schaeffer's Volatility Scorecard (SVS) measure of 90 signifies that FB has historically made dramatic price moves, relative to what the options market has tended to price in.


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