Update 3: April 24, 2014 – Trade Closed 62.20 AH (1.27% Gain)

Facebook again beat on earnings estimates, but given the recent numbers it is apparent that their growth is slowing.  For example, European users increased last quarter, but European revenues decreased in the same time period.  Those in the know likely anticipated this which is why the stock sold off from previous $70 highs.  In after-hours trading last night the stock traded in a $10 range from $55 to $65 and our 62.20 stop (profit taker) was hit.  FB is currently trading at $64.45 in pre-market.   At least covering analysts downgraded the stock this morning, so some volatility is expected.  We will continue to watch the algorithms and may alert to another entry based on the strong historical patterns we are seeing.

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Update 2:  April 23, 2014

Facebook is currently down 2% from the Sell signal yesterday.  The stock is now trading at thin volumes in anticipation of the conference call this evening.  The short trade is still Open and we do expect further downside, however we have applied stop loss order (profit taker) to be triggered after market hours with a trigger price of  $62.20 – this is due to the extreme after-hours trading volatility we have seen on past conference calls.    If your broker does not allow after hours trades, it is advisable to exit the trade now.

Further commentary to follow after the call.

April 22, 2014 – Short FB

NOTE: FB EARNINGS CONFERENCE CALL AFTER CLOSE TODAY – HIGH RISK TRADE – READ BELOW

In our quantitative analysis we seek liquid stocks with clean historical trading patterns which can be extrapolated to predict the next move.  For some time, Facebook was one of those stocks, and it was predictable enough for us to launch the Facebook Stock Predictor.  After awhile, those patterns shifted as the stock became subject to some High Frequency Trading shenanigans.  Recently however we have discovered a different long term trading pattern which continues to be in place today which indicates that the trend should continue to be down.

Yesterday’s signal game on a second algorithm running on a shorter 60 minute time frame, when it triggered the Sell right near the $63 level.

Yesterday Facebook closed at $63.  After the close we Tweeted “HFTs should run this up to 64 pre-market tomorrow” – and run it up they did, but $63.80 is all they could muster before FB tanked at the open this morning (currently at $62.21).

Manipulation by HFT algorithms is not a bad thing when you can predict it and use it to your advantage, such as like we did with Facebook.

NOTE:  Facebook’s earnings conference call is after the close today.  For the past 4 FB earnings releases, if the stock traded down on the day of earnings, the earnings impressed with the stock trading higher the next day.     If by 3:30 PM today it appears that Facebook will close down, we will likely exit this trade.  Stay tuned for the alert.

We do consider this a High Reward/Risk trade, so it is currently being tracked in the appropriate portfolio.