We haven’t posted much commentary on Facebook recently, but this is mainly because we are awestruck on the stock’s levitation and our algorithm’s ability to stay with it.

When we first launched the Facebook Stock Price Predictor we wanted to showcase our technology to potential clients, and hopefully help out a few investors along the way. We were hoping that FB would trade in a range that would trigger buy and sell signals on our algorithm that we could publish in real time… but the stock has climbed nearly straight up since June and we haven’t seen any opportunity to post a Sell signal in months. Instead, we just watched our algorithm ride the rocket, posting our opinion at key price levels along the way which, in the end, turned out to be correct each time.

But FB is now oscillating in and around the $50 level, which equates to double the price since June and a good place for a lot of investors to lock in some gains. So the question of the day is: Does FB have more room to run, or could this be the top?

FB stock seems to be experiencing a perfect storm of upside factors:

1. As we’ve said before, Facebook has captured the imaginations of a lot of investors, most who are anticipating Facebook to be larger than Google. Anecdotally speaking, we know many people including our own friends and family who just have to have a piece of this stock.

2. Facebook has a very short history of price discovery (it’s only been a year and a half since the IPO). The stock has successfully probed a bottom, but is still in search of a meaningful top.

3. Many large institutions have accumulated the stock in anticipation of public demand (and perhaps counting on the average investor’s continued tendency to buy at market tops).

4. As a result of #3, there have been very few significant pull-backs in the stock during this run. We saw an 8% pull back in the first 2 weeks of August, then a 7% pull back to start the week of September 15. In between, the stock rose 27 and 22% respectively, but the pullbacks and the legs up continue to be smaller in size…

click image to enlarge

click image to enlarge

There are 3 main things that should make longs capitulate and reverse the current trend:

1. Extended period of sideways movement in price (stock trades in a range with no significant price increase): When this happens, longs get impatient and can become less bullish in the process.

2. A significant price drop (possibly preceded by an equally significant spike up): When this happens, longs are reminded of what fear of losing money feels like and could start taking profits.

3. A combination of the above.

We are confident that our Facebook Stock Predictor will identify the point at which these factors take hold and sellers start taking over, and if you were one of the lucky ones to invest last June then it would be wise to follow our algorithmic signals before choosing when to lock in your gain.

However, to enter into a new position now is like jumping onto a fast moving train.. it doesn’t make sense to take on that much risk relative to upside. Many, many opportunities await in the market today… companies at good valuations that can be purchased at a good price. A gut check should be performed and all other stock alternatives examined before considering entering into any new position… and even then, it would be wise to wait for that pull back, even if it never comes.

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