I’ve been asked to comment on the Facebook IPO and the issues with the Nasdaq.  I’ll have a market update below.

First of all, the Facebook IPO was released in a very bearish market environment.  The market moves based on liquidity.  When the market is going down, money is coming out of the market.  Thta being the case, there generally isn’t enough demand to fuel stocks, nevertheless new IPOs.

Second, The IPO was loaded with stock.  This wasn’t LinkedIn, which issued only a small amount of its float.  Facebook has even more shares coming on the market at the 3 and 6 month point where it will have 2.2B shares outstanding…

I’d avoid Facebook for 6 months.

As for Nasdaq, they are not liable for trading losses.  If you bought FB and it went lower, welcome to the stock market.  This is a scenario I discuss in my trading courses and it happens all the time.

However, if you bought facebook, but Nasdaq didn’t facilitate the order entering your account for several hours after you made the trade – and ONCE you became aware of the price you entered at, and the price it was trading at – AND you sold your position, you may have a chance.  But as soon as the loss manifests to you, and YOU make the decision to hold the position (which most people will do because that’s simply how our brains are wired) then you accept responsibility for the loss.

It reminds me of Enron – although not as severe – a stock that went to zero and holders (all the way down) complained they never had a chance to get out.  Well, that’s not true at all.  They had numerous chances to get out.  It was their human nature that kept them long the stock.  All the way down to zero.  It’s the way we’re wired.

So if you’re upset that you bought FaceBook (FB) and you’re holding a losing position, welcome to the stock market.  However, if you bought, but never received confirmation or received confirmation so late that it caused you losses, then by all means – make a claim with the Nasdaq.

As for a market update, we’ve recently issued 50 options recommendations, 5 stock recommendations and a major call on the market.  To see our recommendations, click here.

Why is it important  that the Facebook FB options begin trading today?

Options are bets on price movement.  They represent a sophisticated sentiment survey on the opinion of the future direction of a stock.

For example, there are 2 sentiment survey’s that are popular for investors to follow.  One being the Investor’s Intelligence bull bear survey.  And the other being conducted by the Americal Association of individual investors.  The former is a group of newsletter writers (like me) and the other is a group of individual investors (members of the AAII).

Both of these move similarly, but at different rates.  The AAII is more of a short term volatile indicator, whereas the II survey is slower.  Each has their advantages and disadvantages from us computer trading folks.

But the best survey on the market is from options activity.  Options activity is so powerful in the market, i can create floors and ceilings in price, and pinning of price action ahead of options expiration.

Generally on a stock there are more call options than put options, because people like to sell call options to generate revenue for their holdings.  But these signals, and the correponding implied volatility, can be very telling when it reaches an extreme.  Extremes in either direction can and often signal a reverse.

Point is, if people load up on Put Options on FB to protect their position, this can result in a large upward price move – as the crowd (no matter how sophisticated) gets it wrong more often that right…

The market moves on liquidity and sentiment there are many measures of this.  If you’re interested in learning more, click here to sign up and access all our wealth research.

Regards,

Stock Barometer

Investment Research Group, Inc.

Here are My Thoughts On The Stock Market And Facebook IPO:

As the stock market comes to a close this Friday, we are looking at our 5th day of sideways movement, in fact, the past 3 days have drawn the exact same price action on the futures, remaining in a range.

Normally this action would be very bearish, but here’s a bit of data that might make you think otherwise.

This is a chart I’ve been sharing with my clients.  As most are expecting the markets to fall off a fiscal cliff here, I’m in the other camp.  The above shows that MANY are betting on a decline – and historically, whenever that happens, markets tend to travel upward.

Throw in the fact that the markets have had every excuse to sell off this week, a rising bond, a rising dollar, scary news in Europe, and the markets held up.

Now we have the Facebook IPO coming out next Friday.  I’m advising my clients that the markets are more likely to rise into next Friday, than they are to move lower.

That doesn’t mean I’m overly bullish.  The fed actually controls the strings on the market here.  Not saying I believe in market manipulation, but the fed will stop buying bonds in June.  And when bonds go down, stocks will go up.  Generally speaking.  So whatever damage the markets face in the short term, I do see longer term, they have tremendous energy to rally.  All controlled by the fed.   So when the fed says they have tools, trust me, they still do.

And I have the research to prove it. CLICK HERE and you can sign up here and access my market research for only $1, for one month.  Make smarter financial decisions.  Enjoy more of your money.  While the government is still printing it.

Here is a word of caution on the Face Book IPO, from a market timer.

I’m a technical and sentiment trader.  There are many things that influence market movement, I try to focus only on things I can verify.  Most the other things people spout are basically usless noise.  But when one of my indicators aligns with an important market event, then it’s worth paying attention to.

 

If you’ve perused my site, you’ve noticed several tools that I have developed to understand and predict market movement.  Here’s another one:

face book ipo

The above chart represents a popular trading cycle chart, the 35 and 105 day trading cycle.  Periodically it lines up well with the markets.  When things work, they’re worth paying attention to.  We’ll be on the look out for how it plays in with the Face Book IPO next week.

Why?  Because we have a significant reversal date coming up, it is both a 35 day and a 105 day trading cycle date.  So we are now in the window for a trading cycle top.  Just in time for the face book ipo.  There is no official facebook ipo date.  And they have not determined the facebook ipo price.

What about the facebook valuation?  I am a big believer that valuations, even the facebook valuation has very little implications with how something trades.  Think about it, all the best stocks in history had very high valuations during their biggest runs.

What’s different with Facebook, versus other IPOs is that, let’s take Microsoft for example.  When Microsoft came out, there was no real understanding of who they are and what they did.  There was no movie.  And very few people had a computer, nevertheless one that was running microsoft windows.

In addition, you couldn’t get shares in microsoft before the IPO.  Now, through new pre-IPO markets like second market facebook, you can get shares in facebook and participate in the face book IPO – unlike ever before…

That being said, here’s how I would play the face book ipo when facebook is publicly traded.

I’ve traded IPOs over the past decade and patterns imerge.  The best pattern is to let the stock trade for several weeks or months.  You’ll see a pattern were the weak hands wioll eventually get out of the stock.  Once this pattern breaks, that is your signal to jump in.

And I bet if you follow the same pattern with the facebook IPO you will be able to eventualy get in at a much better price that the face book ipo comes out with.

If you’re interested in following along, visit www.stockbarometer.com and sign up for our explosive stock alert service.  We’ll follow this as it comes out.

Regards,

Stock Barometer

Investment Research Group, Inc.