Shares of FB closed at an all time low on Thursday just as AAPL and the DOW closed at an all time closing high. If you are chasing after an ugly down trending stock like FB you are trading exactly backwards. Why buy in a downtrend based on your opinion of a stock being a good value when you can avoid these nasty drawdowns of 20-30-50% by timing your entries using the charts as your guide.
The question is how do we know when a stock like FB is oversold and near the bottom of its selloff? The answer is still not clear at this stage with multi billions of shares hitting the market now that the restriction lockup is expiring.
What we do know is many downtrends come to a horrific end and we know what it looks like when we see it. Typically trend reversals come as a stock hits a new low and breaks free of all support. One will then see a massive volume spike like the one we got on Thursday and Friday but this volume spike needs to be followed by panic selling.
Once this panic hits the stock it will go into a free fall as the weak and even some of the more sturdy hands simply puke up their stock. The stocks daily range will expand to 3 or more times the normal average true range(ATR) as the panic occurs and stops get taken out.
Once this range extension occurs and the burns itself out the market makers/specialists will start inching their bids back up as buyers slowly start creeping back into the statistically overdone selloff.
The problem today with FB is twe are seeing a major volume spike but no panic selling. The volume is massive but still very orderly. This tells us the bottom is not in yet and the weaker hands who are already down 50% from the IPO price are still holding on. They also may be willing to go down with the ship like GRPN and ZNGA holders are doing.
Here is an example of what a panic bottom looks like in AKAM. FB is clearly not at this stage yet.
Once AKAM bottomed out it ran 37% in the next 2 months.
When we see the bottoming action we are looking for in FB we will send out a report.
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Thanks,
The Better Stock Entries Stock Report
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