Facebook: Selling Climax to New Low, or Will Big Money Step In?

George Brooks  |

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Investor’s first read - Brooksie’s edge before the open
Tuesday, August 21, 2012 9:09 a.m.
DJIA: 13,271.64
S&P 500: 1418.13
Nasdaq Comp.: 3076.74
Russell 2000: 816.51
Buyers seem cautious since the market is up 12.4% in 11 weeks, but that period included four sharp corrections in face of concerns for the U.S. economy, the looming “fiscal cliff,” and the survival of the euro.
The scariest of the three has been the latter. If the euro melts down, some major league dominos may tumble, as well.
Orchestrated worries about the fiscal cliff have yet to reach levels that keep investors awake at night. A struggling U.S. economy is not limping enough to prompt Fed action, but the Fed is there if needed.
This presidential election is IMHO one of the most important in our time, since party platforms are at opposite extremes. I am surprised I don’t hear more debate, see more bumper stickers, see more impact on stock prices.
Is there a wild card out there ?
Syria ? Iran ?
In this business , there are always several balls up in the air, any one of which can come down suddenly to change the picture.
For some time, I have believed the best buying opportunity would be in the fall, after a correction in face of so many uncertainties.
The stabilization of Europe’s mess changed that timeline for the better, though buying should remain selective.
CONCLUSION: As long as Europe’s leaders remain committed to preserving the euro, stocks have some room to run and buyers on corrections.
Facebook (FB: $20.01) I got the day right, even the time of day, but FB did not drop to my worst case price of $16.88, stopping short at $18.75.
So, was that it ?
I’d like to say so, but have my doubts. I think it needed heavier selling to clear the deck, and that would have meant lower prices.
The stock got a boost at the open from Capstone Investments which upgraded it to a buy from a hold with a target of $26.
It appeared to me, that upgrade not only drew in buyers, but it chased some shorts – the trading was a bit panicky, as is the case with hurried short covering.
It will need to do more work in this bottom area, which means a test of yesterday’s lows.
CONCLUSION: Heavy buying is needed NOW to prevent slippage, which would quickly re-ignite fears it is going lower and trigger increased selling, especially by shareholders whose shares came out of lock up. While the sale of 20.1 million shares by an insider looks bad, that’s what early financiers do – take fat gains and move on. If this week marks FB’s low, as I have forecast, it will be because the BIG money with a long-term horizon step in. They may today. It is a matter of price. Since August 2, I have targeted $16.88 as the low.
They may not let it get there.
ECONOMIC REPORTS: Light week for economic indicators.
Chicago Fed National Activity Index (8:30): An index of 85 “national macroeconomic indicators released monthly. July’s index slipped to 0.05 from 0.02, but 49 of the 85 indicators used were positive, 36 negative.
Existing Home Sales (8:30): Dropped 5.4% in June to an annual rate of 4.37 million homes. Sports a year over year gain of 7.9% with the median price of a hous now $189,400.
Jobless Claims (8:30): Up 2,000 for the Aug. 11 week to 366,000 bringing the 4-week average down 5,500 to 363,750.
PMI Manufacturing Index (9:00): Index was 51.4 in July down from 52.9 in June. New Orders were 51.0 vs, 51.9.
New Home Sales (10:00): Dropped 8.4% in June after a gain of 6.7% in May and 1.7% in April.
FHFA House Price Index (10:00): Increased 0.8% after a 0.7% increase in April. Year over year gain is 3.7%. in May.
Durable Goods ( 8:30): Increased 1.3% in June after a 1.5% increase in May. Both defense and nondefense aircraft orders rose, motor vehicle sales declined. Ex-transportation orders dropped 1.4%

George Brooks
*Bloomberg .com
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.

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