Trading Facebook IPO — Don’t Risk more than 4% from its open price


I am trying to analyze how much amount should I risk trading Facebook from its open price.

I analyzed 150 of the recent IPO’s and here are the conclusions

Out of 150 recent IPOs I analyzed, 116 IPOs traded more than 1 million shares on their first day.

56 IPO closed above Open
15 IPO closed at Open
45 IPO closed below Open

Of the 56 IPO which closed above open,
14 IPO closed more than 10% above open
8 IPO closed between 5% to 10% above open
34 IPO made less than 5% from its open

Of the 14 best performing IPO’s, YNDX was the only one with the difference between Open to Low = -12.71%. Remaining best performing IPO’s did not go below -3.5%
Of the 8 moderate performing IPO’s, 3 IPOs went below -4% from Open but none went below -5%.

I separately analyzed Google and its first few days performance is really not stellar.

The conclusion is if an IPO goes below 4% from its open on its first day, then highly likely the IPO will not have a higher close.

Here are the best performing IPO’s based on their Day 1 performance of more than +10% close above open
CZR
GWAY
FRAN
WHZ
PRLB
BNNY
CARB
LNKD
MPO
YELP
DNKN
AWAY
YNDX
SPLK

Worst performing IPO’s which closed more than -10% down from their open
PRSS
BCEI
VCRA
P
SKUL
ZNGA
DDMG
PFPT
FFN
Z

Technically still a bear Market


Market turned this time using the same parameters which I used earlier. It made a monthly 2B(confirmed on Mar 1st) and made a bear engulfing pattern on Feb 29.

I did some more research on the long term view of the market and reread DOW theories before coming to the conclusion that we are technically in a Bear market which started last Oct as per DOW Theory.

Why Bear?
DOW theory has a concept of Average Confirmation. A bull market starts when both averages make a new intermediate high close and a bear market starts when both average make a new intermediate low close.
stockcharts.com/school/doku.php?id=chart_school:market_analysis:dow_theory

At 2011 Oct, both INDU (Dow Industrials) and TRAN(Dow Transport) made a new low intermediate(6 month to a Year close) close confirming a bear market. I also use SPY and IWM and the result is the same.
On 2012 Feb, INDU and SPY both made a intermediate high above 2011 July highs but both TRAN and IWM didn’t make a new high thereby not confirming the bull move.

Which means that the move from Oct to Feb was a bear market correction rather than a bull market move.

If now, SPY goes and make a new intermediate high close and IWM also do so (INDU/TRAN pair also works) we move higher to new high close it will confirm a bull market.

What next?
DOW theory are very lagging indicator but does stand the test of time. I use DOW information to find the overall direction but use different tools to time the market.
Also I showed you all in one of the meeting that exodus of funds from Treasuries is the precursor of all recent Market rallies, I don’t see bonds folks migrating to Stock market till now.
Crude Oil and Stocks rallies together and Crude in general leads the rally. Well Crude pulled back but the uptrend is intact.

Currently,
SPY is holding its long term trend line which started in Oct 2011. IWM have already broken below its Oct 2011 trendline.

I like this quote I read recently “Bull Market climbs the wall of worry” and “Bear market slides the slope of hope”. I think it is applicable in short term too. I don’t see any worry now with Greece or any of the PIGS. Everyone is now hoping for new higher highs and a bull market.
-Partha

Proof is in the Pudding — 18.5% in 2011

This year market remained virtually unchanged so most of the folks using buy and hold on 401Ks will be flat at best.

I was moving my 401k in and out of market as I thought the overall market trend is moving and I made 18.5% . Isn’t that nice.

Here are the pics
The trend

Sliced Monthly

Sliced Quarterly

Santa leaves by Jan 1st week

Always know when to exit.

This Santa rally historically ends in first week of Jan.

Capturing profit by Jan 4th is highly advisable.

DOW Industrials (the gang of 30 $INDU) broke out on the upside so expect S&P500 (SPY) and Russell 2000 (IWM) to break out in upside too.

Santa is coming

The jump of Nov 29th destroyed the bears. There is not much to be bearish after that. I informed my clients immediately as
“On 11/30/2011 12:43 PM, Partha S Mukherjee wrote:
> Market changed its bearish tone to atleast non-bearish today after central banks assured that none of the banks will go down due to European Debt.
>
> This means banks will not suffer MF global demise and we can now cruise higher.
>
> -Partha “

With European hangover gone this week and market holding on to its gains, the next most logical thing is institutions drive the market down to scare of the weak hands with PR of some downgrade and then drive the market up by end of the week starting the Santa Rally.

Let see how this week turns out

Downtrend continues

The selloff continues. After testing of Head and Shoulder neckline, expect a throwback greater than 20% here.

It means that SPY and IWM to fall below their September lows

Market at inflection point

These are the places where market decides which direction it wants to go.

Below are SPY and IWM’s chart.

On Daily chart both of the ETF’s are in waiting mode as evident by the symmetric triangle.

On Weekly chart both the ETF’s are showing a classic pullback to neckline after a Head and Shoulder breakdown. So the odds of market going down from here is high.

The previous inflection point was on October 3rd when I wrote this email to all my clients but couldn’t update this blog as I was on vacation
From: strategytrades@yahoogroups.com [mailto:strategytrades@yahoogroups.com] On Behalf Of Partha S Mukherjee
Sent: Tuesday, October 04, 2011 8:08 PM
To: Removed the company email
Subject: [strategytrades] Market Twisted on Fed’s tune

Hi,
I wrote about my understanding of operation twist on my blog a week
earlier http://blog.strategytrades.com/?p=233

Yesterday we had the first auction based on operation twist and I
was eager to see its impact. Thou I was fundamentally expecting a trend
change and reasoned so in our Skype chat but I wanted price action to
tell me when.

Today, market indicated its desire to scale up. Time will tell if
this is a bear correction or a bull action. At this present moment, it
is wise to get long in the market.

If market makes a new low then we lose around 4% otherwise we make
atleast 10%. With starting of 4th Quarter I think we have the tail wind
for the market to go higher.
Thanks
Partha

PS: I am in sabbatical and have no access to company’s email.

Bulls are weak


Bulls tried hard for first 3 days of last week to move the market up but it became evident that Bulls had hard time holding the line.
So now the question is what is market telling us.
I see a typical head and shoulder pattern, a neckline breach and then the test of the neckline followed by throwback. This is classical stock chart pattern.
The conclusion is to expect more downside.
Targets
DOW 10,250, TRAN 3892 and SPY 106.37

Here are the charts showing the Head and Shoulder Pattern

Bulls held their end


Thou we saw massive selloff and huge negative PR’s, both Dow Industrials and Dow transport held their previous lows.

Fed’s new Operation Twist will flood the investment banks with cheap long term cash after 2 weeks. Those cash has no better outlet than stock market . We saw this in 2 earlier QE’s and the uptrend it produced. We also saw that it takes sometime before QE’s money hit the market. Two weeks from now Fed will hold their auction and in a week or so after that it will be available to the traders.
Money is the only fuel for the stock market and in-spite of all the negative PR’s, it is highly likely that market will reverse its course to upside in October.

Operation Twist was first implemented by Feds in 1960 (started in early 1961) based on the popular dance at that time. If you see the chart from 1961, the market did go up in a steady trend from 1961.
Since fed is jacking up short term interest rate and lowering the long term interest rates, we need to keep an close eye for the dreaded inverted yield curve in future which is a pretty accurate indicator of an impending recession.

This became evident on this week’s move when market had trouble breaking below previous lows.

Here are the charts

Market Rose to a level where Bear loves hunting


Last week VIX was very high(very high put buying), suggested that Market Makers can run the market on the upside so that option profits are chewed upon. That is exactly what the market makers did by rallying for all the 5 days and bringing the Market to the top of the range.

This Market Maker action served many purpose
1. Market Makers are able to cover their option underwritings at much lower costs.
2. Got many people to believe that we are going up and take bull positions.
3. Made shorts to cover their positions.

But this is exactly the range where Bears loved hunting in past occasions. Next week I expect the bears to come back in full force.

We have the FOMC on Wednesday (Sept 21st) and there is lot of expectation on Fed to start QE3. If Fed starts QE3 or any other money pumping mechanism, we can go back to bull mode again.

Here is the DOW movement

Here is the Transport movement