Those who have been following our Facebook posts know that our projections have been correct, and our Facebook Stock Predictor has stayed with the trend since June. The algorithm’s long position did not get shaken out on those price drops along the way to today’s levels, including a $5 plummet we experienced last October 8th and 9th which has nearly been erased, climbing back up to the $50 level as of this morning.

We have said before that we don’t usually like shorting a stock as this is statistically the most ineffective way to profit from a trade, and this week’s price action on Facebook is a perfect example of that as a typical bear trap was methodically set up using 4 simple steps:

Step 1: Make sure that the chart paints a lower high at any cost – this was quite easy for a lot of the large institutions and hedge funds as it was both month-end and quarter-end – this means they had some inventory to unload so they could lock in gains and boost their performance, perhaps collect a nice bonus along the way (among other incentives).

Step 2: As swing traders realize the lower high is in place, initiate panic selling. The bearish news out of Washington made it easier for the trap-setters to do this.

Step 3: Keep up the selling pressure and ensure that fear and panic is well entrenched.

Step 4: Buy back in at a 10% discount…

 

Click image to enlarge

Click image to enlarge

As the large players were painting that lower high (Step 1), we posted a warning not to buy new positions at these prices, as we expected the price to drop further.

Some of our intraday algorithms running for private clients actually generated a sell signal at the top of that panic (Step 2), but we also advised our subscribers{.broken_link} not to take this high-risk short trade. The Stock Predictor, suitable for position traders and longer term investors, stayed in the trade and was not shaken.

Then, on October 10th when Facebook was trading at $46/share, the situation seemed hopeless, but we tweeted:

We are seeing a 4:1 sell ratio at $46 but price did not break down.. large holders will protect it here

This marked the bottom of that bear trap and the stock continued it’s up trend from there to settle at the prominent $50 level today.

Where we go from here:

Our algorithm has been right since February and we have no reason to doubt it now. As Facebook re-tests that $50 level, that perfect storm of buying we posted about previously is still in play. Given the manipulative buying and selling we are seeing in the intraday data, we believe that the large stock holders are not finished pushing Facebook as high as it can go, possibly initiating another squeeze and making all those shorts pay for being lured into their trap. As well, many sell-side analysts have price targets from $55 to $65, and we fully expect their trading desks to support these targets.

In the end our opinion is heavily biased toward the analysis of our cold-hearted computer algorithm… and what it is saying now is simply “it ain’t over till it’s over”.

Read our latest Facebook commentary here: http://intellikon.com/category/facebook/

 To receive free Facebook Buy/Sell signal alerts, subscribe to our FB email list: [contact-form-7 id=”1026″ title=”FB List”]