I’m a huge fan of stocks that go up.
I’m an even bigger fan of companies like Facebook Inc. (NasdaqGS:FB) whose stock goes up, and keeps going up, for all the right reasons.
That is, until it drops like a stone.
A lot of investors admittedly missed FB on the way up. But a lot of investors who owned it rode it up and smartly got stopped out because they used trailing stops.
If you’re either one of those investors or neither, you probably don’t want to miss FB’s next move up, but don’t want to see the stock tumble more.
Volatility, like we’ve been seeing, can be scary. But with the method I’m about to share with you, the levels to watch and when to buy and when to exit, has been a staple in my Zenith Trading Circle research service.
Since the beginning of 2018, I’ve shown my Zenith readers opportunities to snag 11 double-digit, 12 triple-digit, and two quadruple-digit winners – the first in Money Map Press history, I might add. That’s total winning gains of over 4,000%.
And if you haven’t had the chance at gains like that this year… Well, that’s pretty sad, to say the least.
But if you’re interested in learning how exactly we do what we do at Zenith, just click here for more information.
There are so many ways to play the market, to play a stock, that it can be dizzying – to say the least.
It’s a good thing, one way of playing always works. The “Keep It Simple Stupid” (or KISS) method of trading and investing works every time. And the beauty of it is that it really is simple.
Facebook’s the perfect example.
It would be easy, but time-consuming, to get into all the reasons and metrics that drove FB’s stock higher and analyze each moving part, what it did, and how the stock reacted.
But that’s not simple.
What is simple, because we know it’s true and because it’s after the fact, is that FB made money figuring out how to attract advertisers and how to transition its success attracting advertisers onto mobile devices.
And, with over two billion users, FB has a huge audience coveted by advertisers.
That’s not rocket science.
But, FB going from $25 in 2012 to $218.62 this year is a rocket ride. That’s a massive 774.48% gain.
Then the rocket began to tumble out of its orbit.
On July 26, 2018, FB’s stock fell 19%, closing at $179.26 after the company missed expectations on Q2 revenue and showed slowing user growth. To make matters worse, during FB’s earnings call management warned about future growth.
The company lost $120 billion in market capitalization that day, the worst one-day drop in the history of the stock market.
FB’s market value the day before, on July 25, was $630 billion. At the close of trading on Thursday, it was worth $510 billion. Ouch!
And that wasn’t the end of FB’s slide.
The stock got to $150, where it had considerable support. It hung there once, twice, and then broke down. The stock bottomed out at $139.03. Over this past week, the stock popped back above $150.
Here’s what all that action means to the pros, and how you should view the stock right here.
The FAANG Gang
First, in the larger context of “the market” – which has been volatile, to say the least – with some benchmarks falling 10% from their highs, which is the classic definition of a “correction,” no one knows if the downdraft is over or not.
Analysts are split, but the weight of investor nervousness has a slight majority leaning towards more near-term selling.
But, we could just as easily go higher.
The problem investors face when looking at FB is will it rise with the market if the worst is over and will we head back to new highs? Or will FB, which has been the weakest of the former tech darling FAANG gang, crumble if the market tumbles?
This is how I’d play FB right now:
I’d buy some right here around $150. That would be my starting point, because I’d only allocate one-quarter of what I want to spend on an FB position.
If the stock goes up, great. If the market steadies and we get past the mid-term election volatility unscathed and bullish signals start sprouting (one solid signal would be if the FAANG stocks were all moving higher), I’d buy more stock at $160.
From there, if I think we’re clear to take off again, I’d buy more as the stock recovers.
I don’t mind buying more stock at higher prices in a rising market. That’s fine with me.
What I’d do, because I’m paying up and increasing my average cost, is use trailing stops.
If FB slips back after I take an initial position, I’d look to average down. That means I’d buy more stock on the way down.
For me, the $139 level the stock got down to will be telling. I’ll look to that level to see if the stock gets back there and how it reacts. If it holds there and the market’s not doing much, but is acting like it’s going to go higher, I’d buy another 25% of my allocation around $140.
The problem, which will be scary for some people, is if the market has further down to go. If the market retests its lows and breaks them, we could go a lot lower.
How much lower is anybody’s guess.
That would probably cause FB to tumble, quickly.
Why? Because a lot of investors who are buying at $150 and will buy at $139-$140 will get spooked and sellout.
Not me. I would have allocated half my position capital, and I’d be waiting for what I think is FB’s next support level.
That’s $120. I’d buy more stock there.
Then I’d see where we’re at in terms of the market and FB.
That will be a scary place. I’m not guessing now what it will look like if we get there.
What I will do is be writing, right here, about what’s happening, what things look like, and where we could go next.
I’d be looking to buy my last piece of FB on a further dump.
Once any panic that happens is over, and we look good, I’d buy my last piece as the market and FB tick up.
The real deal with FB is it’s a must-own stock. The company is gigantic and going to be one of the mega-companies of the future, even more so than it is today.
FB’s got so many ways to monetize its more than 2 billion users, it’s frightening.
Frightening to not be in the stock, that is.
That’s how I’d play FB now, because in the future I’d be glad I did.