For most of this year, it has been one-way traffic for Meta Platforms (META).

The social media and data mining giant’s peak in late July represented a massive 270% gain from its November lows.

And it went a long way to erasing huge losses from last year.

However, when we checked in on it last month (red arrow), that rally was being tested. META pulled back from those highs and was about to test a key level.

Today, I want to see how things have played out since then and what we can expect from here.

Consolidating Pattern

The chart below shows a classic uptrend in action.

After bottoming out in November, META steadily climbed. This led to a series of higher lows and higher highs without any major retracement through to July.

Meta Platforms (META)

Source: eSignal

Those gaps you can see in META’s higher overall uptrend correspond to its series of earnings beats announced in February, April, and July.

META’s uptrend was also defined by the action of two key technical signals…

The 10-day moving average (MA, red line) crossed above the 50-day MA (blue line) with both MAs trending higher.

And our momentum indicator, the Relative Strength Index (RSI), also bullishly broke into its upper range (above the green line) where it remained throughout META’s rally.

When we looked at META on August 16, we saw it was the RSI reversing and tracking lower that had locked in its peak on July 28.

Since then, META has been converging in a triangular sideways pattern (orange lines).

Take another look:

Meta Platforms (META)

Source: eSignal

This is where I want to focus today.

When you see a converging pattern like this, it means that both buyers and sellers are losing their conviction.

They increasingly abandon their positions earlier as each successive trade fails to take off. This leads to smaller overall moves in the stock in either direction.

The upshot is that when the price does finally break out of this range it can make a big move in either direction…

And provide the set-up for a potential trade.

The closer those two lines move together, the closer that breakout is likely to be.

The thing we need to watch to help determine direction is momentum. That’s why the recent action in the RSI (red circle) has caught my eye.

As you can see, since the start of the month (September), the RSI has been bouncing along support.

So, what am I looking for next?

Need to Watch Momentum

If the RSI can continue to hold support, that will increase the likelihood that META’s potential breakout will be higher.

Always remember, though, that there are no guarantees.

The longer the RSI can stay in its upper band, the bigger that move could be. The next test for META’s rally would be to take out its July 28 high ($326.20).

We’d also look for the 10-day MA to start accelerating above the 50-day MA as confirmation of META’s longer-term rally reemerging.

As I mentioned, though, the action around RSI will be key.

Any prolonged move into the RSI’s lower band would cause META to break to the downside instead.

From there, META would need to break below its August 18 low ($274.38) for confirmation of any emerging downtrend.

Larry Benedict
Editor, Trading With Larry Benedict

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