Tighter monetary policy, average growth and the S&P 500 at record highs, means that something had to break with the U.S. economy not generating an average of 250k new jobs a month. Well, with several momentum technology plays excessively overbought and options expiration, technology stocks got pummeled. Today would normally be a day that the focus would be on the jobs report which happened to come within in expectations, with the average pace still below 200k news jobs a month, but the key move on Wall Street was the significant selloff in the Nasdaq.
Facebook has been a favorite momentum stock for many and today’s selloff could very stabilize over the next couple of trading days. The recent headlines of the acquisition of Whatsapp may prove to be helpful in Facebook’s expansion into Asia. About 50% of Whatsapp user base are in Asia and currently facebook revenues are only about 15% from that area.
While a significant correction is overdue, price may possibly find key support near the psychological $50 level which also coincides with a bullish Gartley pattern shown on the 12-month chart above. If downward pressure takes out the $40 level, the next level of support would be the $35 area.
The trade: Buy Facebook $50.50 with a stop loss at $43 and a take profit at $65.50 The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading