On Monday last week, Facebook (FB) shares opened sharply lower, taking out their 50 day moving average and forming a large dark candle on the daily chart. The next day they attempted to rebound but couldn’t hold their highs, and faded back to mid-range, forming a high-wick candle. On Wednesday, they were able to recover and closed near the high of the day and back above the 50 day average.
The three-day price action last week looks like a rudimentary morningstar candle pattern. A morningstar pattern is a bullish reversal pattern that represents a transition from bearishness-to-bullishness.
The positive momentum in Facebook lasted another day but then on Friday that week, a large bearish dark cloud cover candle formed. It reflects a failure to hold opening highs and closes back down into the previous day’s range.
The inference could be that traders who were holding long positions through the drop two weeks ago and then the morningstar reversal last week, were happy to see the stock recover but not confident it would continue higher, and they took profits.
This week the overall daily range of trading in Facebook is lower and momentum is weaker. On Monday a small doji candle formed with the real body, or opening and closing range, positioned near the low of the session. Not a confident candle.
At this point in today’s session, the low was just above an important intersection of support delineated by the horizontal trend line drawn off the October high and lows in November, and the 50 day moving average.
A break below this level would potentially retest the morningstar low and if that were to occur there would no doubt, be some speculation that a triple top was in place on the Facebook chart.