Is Facebook's Ride Over?
I'm sorry if I am not overly excited and counting the hours until Facebook spills the beans, but this isn't my first rodeo. In fact, if I recall correctly, original initial public offering investors are still down 20% from the IPO price. Maybe the stock has gained enough from the recent lows that it almost feels like winning, but Facebook has yet to show it is able to do more than sell stock.
Facebook shares many of the characteristics of Amazon (AMZN) , Pandora (P) , and LinkedIn (LNKD) . They are great from a user point of view, but these companies have not demonstrated an ability to generate a reasonable return on equity.
Granted, investors have exhibited a saint's level of patience with Amazon as a result of revenue growth, LinkedIn had early troubles, and Pandora hasn't produced a bottom-line profit. But there isn't much difference between no income and almost-zero income from a shareholder's perspective. Additionally, Pandora's growth trajectory provides hope to long-term investors.
Two days ago I wrote a column on how to short Amazon, and I believe the upcoming press event for Facebook may be the classic "buy the rumor, sell the news" type of event on which to short as well.
From a technical analysis and fundamental perspective, this is about as perfect as it gets for a short sale. Here are some of the main reasons:
- The stock is in a downtrend. Yes, I know it may feel like an uptrend for those who joined the party after the IPO, but don't be fooled into believing there are not a lot of investors who would love to get out at or near breakeven.
Facebook faces competition for a wide variety of Web sites. Any of them may "crack the code" and begin taking social media market share away. Yahoo! (YHOO) and Google (GOOG) come to mind quickly. Yahoo! has "almost" got it right for a long time and is now led by a bright new CEO. One has to expect Yahoo! to take market share or at a minimum to price it in. Google is actively working on its social product, and the company is able to motivate users to use it for search-ranking gains.
The daily chart, at its current pace, begins to become extended and ready for a retracement by the end of this week. If the share price continues higher until the press event, the chart will have already made a DeMark Combo 13 after gapping higher. I love shorting this type of pattern because the winning percentage and edge are substantial. On the weekly chart, today's closing price lines up nicely with the chart's resistance level. The price may push through, but as a technical analyst I will view the move higher as a fading (sell into) event.