As Goes Facebook (FB), So Goes The World
We’ve written before about how every market has its poster child – a single issue that becomes emblematic of the broad market’s long term trend, whether it be up or down.
For those with a memory, the dot.com bubble was symbolized by Priceline.com (though some might favour Enron or Worldcom in its place). We have the crash of 2008/09 with its loser, Lehman Bros., defining that harrowing episode of market history. And today, as we await the liftoff to our current bull market blowoff, we posit that Facebook (NYSE:FB) will come to be known as the flag-bearer of the coming move.
We have a number of reasons for thinking that this will be the case, none of which we’ll delve into at this stage for reasons of space. Suffice to say that Facebook’s fate is inextricably tied to that of the general market, and if we’re correct, it will also lead the broad market to stratospheric, oxygen-deprived heights, making a mockery of all traditional fundamental valuations on its way – and very likely not a few of our more revered technical metrics as well.
But until that occurs, we still have good use for the charting tool, and hereunder we’ve reproduced for you an annotated six months worth of Facebook action that we believe points precisely in the direction of the broad market’s next move.
Have a look –
What’s most exciting for the bulls here is that an anticipated Head and Shoulders top formation that was in the making for better than five months now looks to have been averted.
It was close, though. On April 18th trading dropped to just 50-odd cents from the formation’s neckline that, if broken, would have signalled an all-out, technically induced short signal for the stock (blue square, at top).
But it was not to be.
FB recovered and has since been moving higher, though it will have to crack current resistance at $28 (in orange) if it wants to convince technicians that it’s safe to return.
What are the chances of that occurring to FB?
We wouldn’t want to put a number on it, but it appears likely. RSI has again surfaced above its waterline, and MACD looks ready to confirm the move within a day or two (red boxes at bottom). Upon confirmation, it’s likely we’ll see more aggressive buying that pushes the stock above resistance.
We also note that from its most recent highs at $32 and change, the stock traced three distinct fan-lines lower (in black, at top) and that the third fell dead square on the final retracement low for the move, a pattern then generally speaks of a firm bottom (stop that!), giving us one more quiver in our sack that Facebook stock has turned the corner.
But it’s by no means a sure thing.
We’ll be watching closely as the bears attempt one last time to drop this mama-loosha back below $24.50, triggering stops along the way and relegating Facebook (and the indexes) to the fiery chambers of hell.
The battle is now before us. As the world’s greatest time-waster goes, so, too, goes the market.
And if you’ll indulge us just one more word on the subject – it’s important to know that when head and shoulders formations fail, they generally reverse in very strong fashion. In our case, that could mean an extraordinary rise in FB shares if the neckline continues to hold.
For those interested in investment options besides equities, we offer the following.
The commodities complex has been flagging of late, decoupling and moving in the opposite direction of the stock market for well over a year.
See here –
What’s worse for commodities is that they stand to fall if stocks rise, and fall faster if equities pull back.
In short, don’t expect a recovery in commodities prices for a while, not least until a top is close at hand for stocks.
And don’t get fooled into thinking that rising stock prices means the economy is picking up.
Economy and Stock Market are Distinct, Separate Entities
In our view, it was at that moment of decoupling (just before New Year’s, 2012) that our great bull market began. Yes, the bottom was put in back in March of 2009, but the point at which we believe growth slowed and the market began to ascend solely on the back of excess liquidity in the system is what marks this bull as different from all others.
It’s also what put a lid on commodities and what we believe will lift share prices to obscene levels before it’s all over. But that won’t come until long after everyone admits that it’s gotten downright ridiculous and general sanity levels have declined to depths we’d rather not see.
Big picture trading should be focused on strategies that are short commodities and long the big-caps.
Many happy returns,
Matt McAbby, Senior Analyst, Oakshire Financial