Facebook Could Be Flashing 'Buy'

Facebook tends to rally sharply after meeting up with its 80-day moving average

Managing Editor
Oct 26, 2017 at 2:56 PM
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Social media powerhouse Facebook Inc (NASDAQ:FB) stock has been in a long-term uptrend, touching a record high of $176.74 just last week. However, the stock recently pulled back to a key trendline that has had bullish implications in the past. If history repeats itself, FB stock could be screaming "buy" ahead of earnings next week.

According to Schaeffer's Senior Quantitative Analyst Rocky White, the stock is now trading within one standard deviation of its 80-day moving average after a lengthy stint above this trendline. Following the last nine pullbacks to this moving average, FB was up 4.36%, on average, one month later, and was higher 89% of the time. A similar 4.36% rally from the stock's current perch around $170.50 would place FB around $178 -- north of its mid-October highs.

Daily Chart of FB Since Jan With 80MA

Most of Wall Street is already in Facebook's corner. Of the 24 analysts following the stock, all but one carry "buy" or "strong buy" recommendations. Furthermore, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Facebook stock with a 10-day call/put volume ratio of 2.20, ranking in the 85th percentile of its annual range. This suggests a heavier-than-usual preference of calls over puts from options buyers during the past two weeks.

Today, FB stock could be getting a halo lift from fellow social media stock Twitter (TWTR), which reported stronger-than-expected earnings. FB could stay in the spotlight, too, with fellow FAANG stocks Amazon (AMZN) and Alphabet (GOOGL) reporting after the close. Next week, not only will Facebook report earnings on Wednesday, but the company's general counsel will testify before Congress regarding Russian interference with the 2016 election.


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