Last year, I suggested not buying Facebook on the IPO, because it seemed expensive, but with some suggestions as to how to trade it on the first day depending on what it did. My suggestion was valid, the stock went down and after the first day of trading, I suggested FB was likely dead money until it managed to go again above the IPO price of US$ 38 and I presented this suggestion of possible paths:
Then last November, I suggested you may start trading it, as the base had been formed and it was likely to give opportunities for making money without the price collapsing again. If you were dying to own shares, November was the time to get in.
Then last week, Facebook reported that 41% of its revenues came from ads on smartphones, surprising lots of people as the stock was languishing around $26. The stock soared and in the last four days it has inched up closer to the magic $38 price of the IPO:
Magic, because a lot of people bought stock that first day at $38 and ever since May 2012, 16 months ago, they have been sitting on a loss hoping the shares will pop back so they can sell. Tomorrow they may get their wish.
Indeed, as you can see, volume today in $FB was even higher than yesterday, with the stock attempting to break through the $38 barrier a couple of times, without success. The grapg reflects the fact that institutions were under invested in $FB.
This is a texbook case of resistance. in stock technical analysis. From $38 to around $41.7 there are a lot of people still holding a losing position in $FB shares ,in what they thought was the best investment in their lives. Fourteen months later they are still losing money and they have been thinking that if it gets to their price, they will sell and move on.
They should be doing precisely the opposite. Because once the buying power that is present in the market buying $FB shares sweeps them all up, it is no man lands above $41.7. The sky is the limit, no resistance above. And if this happens (A big if still, but given the volume today, I think it will happen) then $FB shares could soar in parabolic fashion and I don’t want to be left out of this move. It may take a few days, or even weeks, but if and when $FB closes above $41.7, it should become the darling of momentum traders and show quite a move up.
This is exactly what I suggested last May, I just did not think it would take that long for $FB shares to recover.
And I will like to show the same two examples I did then from two very famous IPO’s. First the Netscape IPO:
On the first day of trading in 1995, NSCP shares opened at $60 and rose as high as $80, only to lose most of the ground that same day. The IPO was at $28. The stock spent a couple of months consolidating, but as you can see, it was only once those that bought the first day between $60 and $80 were absorbed during a few weeks, that the stock went up and soared reaching a value of around $170 in a very short time, once it went past $80.
GOOG was a similar story:
It came out near $100 with a lot of negative press about its valuation, rose to $118 in a few days only to fall back to $100. Then it began rising and once it cleared off all the buyers between $100 and $118 the first day, it proceeded to double in short order.
Well, I contend that $FB has done the same thing but in a much slower time frame and if the market manages to clear off all the buyers between $38 and $41.6, there is no resistance after that and we may see a parabolic move after that.
Here is the band between the two blue lines where the sellers have to be swept. Above that, there is NO resistance:
With that, we would have finally have found closure on the $FB IPO and we can finally move on.