Can Facebook Continue To Rally?

Facebook FB shares sprinted to a new all-time high ($76.74) on July 24 after it announced better than expected earnings.

The $0.10 beat ($0.42 vs. $0.32) was accompanied by a revenue beat of $100 million ($2.91 billion vs. $2.81 billion).

Post-Earnings Price Action

Shareholders that participated in that premarket session had the opportunity to sell as high as $78.44 before profit-takers came in and knocked nearly three points before the regular session commenced. After a brief pop to $76.74, the slide continued as Facebook ended the session at a new all-time closing high of $74.98.

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It was able to improve on that close the following day, reaching $75.19, but has not been able to improve on that level since.

Following the all-time high close, Facebook has traded lower in eight of the last 12 trading sessions. More importantly, it has grinded out in little more than a three-point trading range over the last nine trading sessions. This is unusual trading action for an issue that may have a three-point range in a number of consecutive sessions.

A long consolidation period after an extended move in a trading vehicle can typically provide for a good trading set-up. A move above the high of the consolidation period -- in the case of Facebook, $74.13 -- may indicate a move back to test the all-time high.

On the other hand, a breakdown below the lower end of the trading range, $71.55, may indicate that Facebook intends to fill the gap in price down to $71.33 or beyond. Savvy traders didn't seem to appear too picky about an exact gap fill and bid the shares ahead of the level, preventing a gap fill by $0.22.

Analysts' Take

The solid beat did not inspire Wall Street analysts to upgrade the issue. Across the board, the Street maintained their ratings, primarily with Buys, but raised their price targets. The Street-high price target resides with Topeka and Jefferies at $100.00. The Street-low price target comes from Bank of Montreal and Bernstein, who view the issue as Fully Valued with their $72.00 price target.

The Verge Of A Breakout

In Wednesday's session, the broad market rally has aided Facebook in revisiting the upper end of the consolidation area. It has been able to surpass that area, reaching $74.25. Those looking for further confirmation may want to wait and see if Facebook can indeed close above this level.

Traders playing the breakout may want to be cautious in case the breakout turns out to be fake out instead. Placing a stop at the appropriate price level that corresponds to a trader's own risk-reward levels may then be warranted.