Yesterday we put out a Short-Sale Set-Up report on FB indicating that its breach of the 20-day moving average put it in a shortable position. Generally, in a late-stage failed-base (LSFB) situation, the first clue of a failure will be a breach of the 20-day line. We would suggest reading our last book, Short-Selling with the O'Neil Disciples (Wiley 2015) for more details on the LSFB set-up. Volume did not pick up sharply on that breach yesterday, and the stock has managed to move less than 1% past the 20-day line.
If one put a short out on the stock yesterday, one could cover if one intended to maintain such a tight stop. Otherwise, one would look for a reversal back through the 20-day line as confirmation of a failure. Thus there is always the option of covering and then looking to return IF the stock breaches the 20-day line, or giving the stock another 1-3% beyond the 20-day line before stopping out a short put out yesterday.
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