Facebook (NASDAQ:FB) supply has disappeared and demand has appeared, slowly moving price higher in an attempt to break out above $155.59 as you can see in the chart below. FB is already in our paper model portfolio and was placed there at a lower price when there was supply creating our buy on weakness signal. You can read all about our fundamental buy signals in our previous article on Facebook. The fundamental implied return buy signal is shown at the bottom of the chart along with our overall grade buy signal that includes fundamental factors.
Why swing trade?
Now we will examine the possibility of a swing trade in Facebook. We have done all our research and it is in our portfolio. We are watching it closely on a daily basis because it is in the portfolio. We might as well use all this knowledge to swing trade Facebook for some additional profits. The best swing traders are the ones who have done all their research and are following the stock on a daily basis, if not minute by minute.
We have a big advantage over the casual swing trader, because we are vitally interested in Facebook and are closely following it. We can use this advantage to swing trade stocks that are in our portfolio. Unlike portfolio managers, we don’t just have to limit ourselves to investing long term. We can make some additional income trading these stocks we know so well.
Opening a swing trade in FB
We could have opened a swing trade when we had the supply, buy on weakness signal shown on the chart below. That is the price we had when we put it in the portfolio. The problem is that it is risky because supply could continue to increase and price could go lower before it goes higher. Swing traders don’t like to feel the pain of price going lower after they open a trade. To avoid this trading problem, we wait until we see the supply break above the line into demand.
We don’t catch the bottom of the swing trade, but we do catch the rest of the move up. We have a Trigger report that identifies such stocks. Facebook is on today’s Trigger report. The price is higher than the price we put it into the portfolio. If we do a swing trade, we have missed the lower price that we put it into the portfolio. However, supply has now switched to demand, and we have a signal that indicates price may breakout above the old high.
How much can we make on a swing trade in FB?
FB is trading at $155.59 as I write. Supply has just improved to demand and our red bars of supply shown on the Trigger report have just turned to green bars of demand. I expect demand to continue higher and I expect price to go up and it could even breakout above the old high. Could I be wrong? Of course and that is the risk of swing trading.
Is it worth doing to make just one point or a few points? Day traders are happy to make 20 cents on a trade, but swing traders want to make dollars, not pennies.
Will the swing trade in FB be successful?
The swing trader is looking at the market. Will the market help FB going forward? Will there be another selloff in technology stocks short term? What is my sell discipline?
I think July 26 earnings for FB will help it go higher. Short term, I don’t think there will be a selloff in technology. I would put a stop loss at my purchase price to prevent losing any money. As soon as the green bars of demand peak, I would close my trade.
I think it is only a matter of time before FB has a breakout above the $155.59 high. It might happen on this demand surge or the next one. If it happens this time and there is a breakout, I may make a few points. Worst case, my stop loss fails to work and I have some more FB in my portfolio.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Most of this article was previously published to my SA Marketplace subscribers. The chart is new.