Facebook Selling Climax Monday?

George Brooks |

facebook ipoInvestor’s first read - Brooksie’s edge before the open
Friday July 27, 2012 9:15 a.m.
DJIA: 12,887.93
S&P 500: 1360.02
Nasdaq Comp.: 2893.25
Russell 2000: 777.11

TODAY: Facebook (FB) looks like it is headed for a classic selling climax, possibly Monday during the first 10 minutes of trading and below $20 a share. (See below). Yesterday’s spike in prices was a smidge more than I projected, but I am still wary that a sustained surge now has enough momentum to follow through. Market action during the next two weeks will be critical in determining whether we get a “push,” or a slide. I think there enough uncertainties overhead to prevent a big move up. The two biggies are the November election and the “Fiscal Cliff.”

The unsettling chatter about the “cliff” will intensify in coming months as debate about tax increases and spending cuts is hyped by the press and political spinners. I am not a bear, but think lower prices are likely before a fall recovery. The housing market is improving. Its 2007 – 2008 demise dragged the economy and stock market lower, so its recovery stands to bump it back up. What’s more, the European crisis appears to have limits with assurances that the euro will be saved.

Yesterday, I warned not to buy the open, that I expected a “spike” in early trading. The risk in chasing a strong open is that an investor stands to “pay-up” for stocks, possibly catching the high for the day, even for days following.

It looks like the Street is banking on the Fed to introduce a dynamic stimulus for a sagging economy. Otherwise we would be seeing lower prices.

The estimate for the annual rate of growth for Q2’s GDP this morning was a plus 1.5% vs. an increase of 1.0% in Q1. I was always told not to “fight the Fed.” If they want to goose the economy or stop it in its track, don’t go contrary. I don’t always do as I am expected to do. I don’t see where more money circulating at lower interest rates will help. After the worst economic slump since the 1930s, I think an economic recovery simply needs more time to recover.

Not only have low interest rates not prompted lending and spending. They have deprived fixed income seekers of a vital source of income.

Recoveries after a severe economic/stock market slump TAKE TIME – don’t fight it !

Facebook (FB) No change here. Obviously, FB needs to work off sellers who got bagged by the IPO and collapse of the stock before it can mount any sustainable upmove. Currently it is in the kind of tailspin that can produce a selling climax, possibly a smidge below $20, most likely in the low 20s.
Let’s face it. FB shareholders are most likely becoming more scared that there is no end to this carnage. As fear mounts, selling accelerates leading to a washout where investors simply dump their stock at any price, ergo lower prices. As this happens, new investors, institutions and the BIG money take an interest waiting for the big flush, or for investors to say, “I can’t stand it anymore” and sell en mass. I see that happening here – a big selling climax.

With FB’s price off close to $4 a share prior to the open, the climax may come today or Monday

I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I did start covering FB after the IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. There are cases where a company offers a great product/service, but its stock isn’t a good investment. I saw FB as one of those situations, but think at “a price” FB will be a “BUY.” .

George Brooks

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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MADHF Maiden Holdings Ltd 7.5% Mandatory Convertible Pfd n/a n/a n/a 0
SNY Sanofi American Depositary Shares (Each repstg one 40.03 0.31 0.78 774,416
REGN Regeneron Pharmaceuticals Inc. 373.42 -2.14 -0.57 399,611

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