The weekly chart for Facebook is showing some classic anomalies in terms of volume price analysis and for investors in this stock the warning flags are now flying.
Volume price analysis is a methodology that is founded on considering whether price and volume are in agreement or disagreement, in other words, a single candle and its related volume. However, the principles are then applied to groups of candles and this is where we can see weakness developing for this stock. When prices rise particularly after a move lower, we should expect to see volume rising in tandem, since for any market to develop a bullish trend it takes effort, in other words, volume. So rising prices and rising volumes confirm one another. Here however we have a clear anomaly as over the last few weeks with the rally of late September and into the first two weeks of October, the price action has been accompanied with falling volume, a sure sign the rally is weak and therefore unlikely to result in a continuation of the primary bullish trend. This weakness was duly confirmed last week with the candle closing with a deep wick to the upper body on high volume.
At the time of writing the stock is trading at $263 per share, but with a low volume node now in sight on the volume point of control histogram (on the y-axis) at $250 per share, the price here may move swiftly through this area and on towards the $230 per share area where deeper volume awaits on the histogram and therefore likely to provide some support. So in the short term and ahead of the US election expect to see some short-term weakness for this stock.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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