Monday, May 5, 2014

TechniTrader Weekly Stock Review for MetaStock Users: “Facebook” by Martha Stokes CMT

MetaStock® SPRS Series - Week 169 – May 2, 2014 - MetaStock Spatial Pattern Recognition Skills Series written by Martha Stokes CMT


“What the Stock Chart Patterns Revealed Before the Facebook Earnings Report”
Facebook reported a better than expected earnings report on April 24, 2014, yet the stock fell in price that day. As technical traders, what is in the stock chart that could have warned you that this stock was not going to run or gap up on this news?
Let’s take a look at FB to see what the stock chart patterns indicated prior to the report.
Many traders and investors still use price indicators as their primary indicators. However, due to the massive internal changes to how the giant lot and large lot institutions buy and sell stocks, using price indicators will not give you the vital information you need, especially before an earnings release date.
The stock charts will expose what is going on behind the scenes, beneath the everyday news you read on the internet.  What you will find in the candlesticks and quantity indicators, such as TechniTrader’s Volume Accumulation and Flow of Funds Indicators, are most important to study.
The giant mutual and pension funds control so much of the outstanding shares of publicly traded stocks that to ignore their presence, or lack of it, is to put your trading capital in peril.
When we use these quiet accumulation or distribution indicators, it is obvious instantly that the giant funds started quietly moving out of Facebook as early as January of this year.  


The giant funds that use Dark Pools control price in ways that can be confusing to traders.  What they do is carefully construct an automated order that slowly sells the stock over many weeks. This allows the stock to actually move up further, which is their intent as they usually plan to sell as the stock rises to its final high prior to any downtrend.
Downtrends are caused more by a lack of giant fund buying combined with giant lot selling at the same time.  Larger institutions also start selling, and then the last institutions out of the stock are the smaller funds mangers.
Long before Facebook was to report this month, back in March, the institutions were aware of a critical piece of information. FB was going to have LOWER quarter-over-quarter revenues, from 2.5 billion in December to 2.2 billion this quarter.  That is a significant decline in revenues.  The CFO was able to increase earnings, which made it appear to the average investor and most news media on the retail side that the company had a stellar earnings report.  However, the decline in revenues is a huge warning that FB’s strategy of mobile advertising is weakening and may be at risk of further decline.
A clever CFO can move expenses to the Balance Sheet, converting expenses such as software development to be an asset rather than an expense as it would normally be, as an example. When this is done, expenses are perceived to be lower by average investors.  This doesn’t fool the institutions who are well aware of this technique for making earnings look better than they actually were.
All of this is legal, which means the corporation must pay taxes on those adjusted increased earnings, which also will affect the next quarter.  What is happening for now is professional short term traders are taking some quick profits on the earnings news.
The institutions are showing a “No Confidence” vote for FB and have been for several months.
If you look at the candlesticks carefully in the chart below you will see that the sell side dominates, even without HFTs interfering much.  


HFTs were attempting to move price up periodically with huge volume to the up side; however, the dominance of the giant lots overwhelmed even the High Frequency Trader or HFT action.
Resource Information:
I invite you to learn about Relational Analysis™ which is the evolution of stock analysis and technical analysis.  It incorporates the 4 primary analyses used today by the most important Market Participant Groups, which are the Sell Side Institutions and in particular the Buy Side Institutions.  To view a no-cost video on Relational Analysis CLICK HERE.
Trade wisely,
Martha Stokes CMT
Chartered Market Technician
Member of Market Technicians Association
Master Rated Technical Analyst for Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader Stock Market Courses
For additional training visit http://technitrader.com
This Stock Discussion and Training Lesson is sponsored by TechniTrader.com
MetaStock® Partner


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