It was a bad beat for swing trading Facebook stock this week. After surviving a shakeout on China trade war headlines, it faced a more formidable obstacle with a possible Federal Trade Commission injunction. The goal switches from making money to ensuring your losses stay small.
XHolding Through China Trade War Fears
China tariff headlines influenced a lot of trades this year. Of course, you never knew when they would hit. Facebook (FB) joined SwingTrader on Nov. 18 as it broke out above a recent area of resistance around 195 (1). This corresponded to the stock market reaching new highs after the summer's whippy correction.
As strong as the stock market was, Facebook stock was even stronger. The relative strength line for Facebook reached new highs (2) before the stock price, a key indicator of a stock's leadership potential. In less than a couple of weeks, we had a 3% profit when Facebook reversed (3) and started to pull back.
Join IBD experts as they analyze winning stocks on IBD Live every morning. Take a free trial!
After a phase-one deal in the China trade war looked like it might get delayed, the selling in stocks intensified. Facebook dropped quickly but came off its lows just as fast (4). By the end of the day, it recovered the bulk of its losses and closed near the top of its trading range with a pickup in trading volume. The trade was still positive and looked like a classic reversal. That would usually intrigue us for a swing trading initial purchase. While it was down below the shorter-term moving average lines, it never threatened our stop loss of 191.44, so we held through the turmoil.
Headlines Strike Facebook Stock Again
After a week's time Facebook stock was nearly back at new highs (5). After consolidating a few days the stock look poised to at least hit our 5% goal. But, it wasn't meant to be.
Just a short time later, selling started in earnest (6). Reports came out that the FTC may file an injunction against Facebook for anticompetitive policies. Treating the prior shakeout as a reversal sets an expectation of where a stock should find support. As Facebook stock fell to that level, and below, it made the stock look broken and prompted its removal. Also, while China trade war news can turn optimistic with a tweet, an FTC injunction doesn't necessarily have a quick resolution.
While a positive trade is always preferred, if you are going to lose money, it's best to lose small.
More details on Past Trades are accessible to subscribers and trialists to SwingTrader. Free trials are available.
YOU MIGHT ALSO LIKE:
China Trade War News And A Nvidia Sell
Roku Stock Offered Multiple Chances For Profit
