Updated

FB target at 161 about mid-June 2022

is working on a larger-degree 5-wave move downward. Anyone who has been an investor or trader knows that the downtrend has been well-established since early September 2021.

The chart above shows a probably 5-wave move downward. Wave 2 appears to be a corrective "expanded flat" pattern or a double zigzag. In EW theory, waves 2 and 4 alternate between the corrective type of pattern. When wave 2 is sharp (e.g., a steeper zigzag pattern), wave 4 tends to be sideways (e.g., a flat or a triangle), and vice versa.

Because wave 2 is more of a sideways flat pattern, wave for should be more steep, like a zigzag. And so far, that is what wave 4 appears to be. Wave 4 could carve out a more complex corrective move. However, wave 4 may already be complete if price will only form a zigzag pattern.

If wave 4 is complete, then one can draw a Fibonacci extension from the April 5, 2022 high at 236.86 and project wave 1's length from that peak. Using that Fibonacci analytical method, a price target is 161.02 for the end of wave 5, which could be reached approximately mid-June 2022 (using symmetry in time for wave 1 and wave 5).

A good entry point is at the 21-EMA (blue) or 34-EMA (teal). With earnings approaching, selling premium (e.g., a call credit spread or a butterfly) with a bearish directional bias makes the most sense to me. Alternatively, waiting until after earnings would be a conservative approach if one wants to avoid a potential earnings bounce—however, given the action in NFLX today, waiting until after April 27 (earnings) may mean missing the bulk of the downward move.

Note

The stock has sold off nearly -13.5% since my post recommended it as a bearish short. My original downside target was 161. Now I wonder if it make end up lower, but I won't comment on that until another time after I've had a chance to re-analyze after the current selloff.

In short, I did not expect that it would take only 2 days for FB to travel halfway to the target. FB closed at 217.31 on the day of my post earlier this week. The 161 target is about 56 points lower, and half of a 56-point move is 28. The stock has now fallen about 29 points.

It makes sense to take partial profits or entire profits. The expectation was for 56 points in 2 months. We got 28 points in 2 days. In terms of profitability relative to time, taking this gift is prudent.

The position can be partially reloaded if FB makes a bounce attempt later on.

Note

A technical analyst for which I have great respect today issued a call with a downside target of 140-150 on FB. But he discussed the potential for buying dips around that level if exhaustion looks present. However, it's unclear whether he was suggesting buying the dip as a shorter-term trade or a longer-term buy-and-hold investment.

In my view, a 5-wave move downward may mean a bounce after ward. If the 5-wave move down constitutes the larger-degree Wave 1, or whether it constitutes a larger-degree Wave A, more downside is possible (many months out, possibly 2023) as either Wave 3 or Wave C of the larger degree trend. I have not done EW analysis going back on FB into the prior years leading to the peak, as that process would be very time consuming and unnecessary for trading purposes. If I see an intermediate-term 5-wave move beginning at a major low or peak, that can work for trading ideas.

Note

It appears that the EW pattern described above remains valid. Last week I posted that profits should be taken given that it took 2 days to achieve 50% of the distance toward the target. Today presents another excellent opportunity for profit taking if the prior opportunities were missed.

More downside is likely, but entering here when the stock remains oversold and quite extended to the downside may not work. This is FAANG earnings week, and the market in general is due for a bounce, even if a half-hearted one.

Ultimately, I'm looking for 150-160 for the end of the 5th wave. FB may correct higher in a multi-month ABC pattern of the same degree as the 5-wave pattern outlined in the chart above. This could likely retrace 50-61.8% of the decline, leading to a good risk-reward for a bullish play into YE.

Trade closed: target reached

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