Facebook stock seems to be the whipping boy on Wall Street since it’s less than stellar IPO. There was much hype leading up to the IPO with the media stating the stock was oversubscribed. A situation where there are more buyers than shares available at the moment. It seemed that everyone wanted a piece of the action. This often pushes the price up. Well at least it was supposed to go up on IPO day. To the dismay of investors who had the connections and money to get shares, things didn’t work out as planned. – Looks like the Wall Street Boys are up to their old tricks again. Morgan Stanley gets sued by the state of Massachusetts for the Facebook IPO. (article)
Once again Facebook stock is in the spotlight as the lockup period has ended. Early investors can now sell out shares into the open market. While some expected a wave of selling, the stock has remained stable for the most part. No heavy blocks on the sell side when looking at raw time/sales data. It is important to note relative volume to its average to define “heavy selling”. The proof is in the price action. No selling. For now. Which is a good sign. Analysts have upgraded the stock noting that there is in increase in revenue growth. (article)
Where Facebook Makes Money
Ad revenue is the issue. What makes facebook stock so appealing is the “potential” to make huge money here. The internet is the future of advertising. Google as an example, is an advertising giant that has made investors very wealthy. Now trading around $720 a share, just imagine if you bought at $30. The question is if Facebook can do the same thing. Many are confident this may happen. It’s a gamble at this point, but scared money never wins. Facebook has huge traffic and its a matter of harnessing that traffic to drive revenue growth. They have made major changes to their interface to increase revenue. The monetization of like pages, inline news feed ads, and improvements to their self-serve ad platform. If they continue to develop their ad platform to the sophistication of Google’s Adwords platform, serious money can be made for investors down the line.
Trading Facebook Stock
Taking a technical perspective buy points include breakouts to the $30 zone under high volume. Looking for a consolidation of price action with low relative volatility on the ATR indicator. Ideally, the safest way to invest in face book is to buy the all time high of $45. That may take some time. The moving averages are showing signs of bullish action as the 10 day has moved above the 50 day and now crossing the 200 day moving averages. Currently momentum should be building up at this point. Short positions and price levels to watch for are at the low $17 range. If the stock trades below this level, things may get ugly very quick. We see an opportunity at the $30 level as the stock consolidates there and is also identified as a crititcal price level in which the stock gapped back in July 26 & 27.