Trading Nation

Facebook stock needs to clear this level to kick off next major rally, chart suggests

Why this investing pro says investors should pick Facebook over Twitter

Facebook has stalled this month.

Shares of the social network remain largely flat in December even as the broader market has risen nearly 2%. The stock appears to be in a holding pattern after surging 55% on the year.

It may need to clear one critical technical level before it's ready to resume its move higher, Fairlead Strategies founder Katie Stockton says.

"It's in a long-term uptrend. It still has positive momentum across time frames and has a potential bullish long-term formation called a cup and handle setting up. That would be completed on a breakout above final resistance which is just above $218," Stockton said Wednesday on CNBC's "Trading Nation."

A cup and handle technical pattern forms when a stock goes through a slump, then recovers, forming a U-shape and is then followed by a period of consolidation or a "handle." Facebook's cup was formed in the fourth quarter of last year and its recent late-summer consolidation forms its handle.

A move to $218 represents 8% upside from Wednesday's close of $203.12.

One of Facebook's major competitors does not have the same level of momentum behind it, adds Stockton.

"Twitter, on the other hand, it's more of a range-band situation on a long-term basis. If we did see Twitter get up into the gap-down that occurred in October, that would be a nice incremental positive for this stock, but as it compares to Facebook, Facebook would win," said Stockton.

John Petrides, portfolio manager at Tocqueville Asset Management, notes that social media has undergone incredible growth this decade and sees even more transformation in the next.

"Ten years ago, we were talking about MySpace, and now here we are where there's so many more platforms, where it's the easiest in the history of mankind to distribute your message across multiple platforms, and over the next 10 years we could be talking about dilution of eyeballs because there are way too many. The barriers to entry in this space are not very high. I mean look, three years ago Snap was all the rage and now you're looking at TikTok," Petrides on the same show.

He adds that it pays to be selective when picking stocks in such a competitive and fast-paced segment. The main U.S. social stocks — Twitter, Facebook, and Snap — have had wildly different years, for example. Twitter added 10% in 2019, Facebook 54% and Snap a whopping 174%.