FB Close

I really can't believe I have a long trade in FacePlant, but this is the market for you, extremes, things that don't make sense and more than anything in the near term... manipulation. 

Sunday night I went in to some detail about the disaster that was FB's first trading day/week. You may recall Morgan Stanley made $70 mm as an IPO fee, then I'm sure the 15% Greenshoe options. 

When we look at the considerably larger bid volume in blue vs the ask in red, I think it becomes pretty clear (while MS probably wouldn't be the only underwriter defending FB on the first day of trade) MS lost $$ on the deal. I see roughly 170 mn shares bid just at the 3 major support levels. I can't see any way MS came out of that first day of trade at a profit, all they did was save face for 1 day. However, when you can move the market, you always have a second chance.

Here's how I see it, as of Tuesday there was some apparent accumulation, in retrospect it wasn't very big. We know that Wall Street/MS would be buying in to weakness and trying to get the best / lowest price possible. If they can drive FB up on a decent move, they can probably make back some of the money they surely lost.

This first chart reminds me of the 4 stages of a market cycle: 1) Base/Accumulation 2)Breakout/Mark-up (3C confirmation) 3) Top/Distribution 4) Decline. Although it would seem accumulation started earlier than this "U" shaped bottom looking pattern, let's just assume this is stage 1, the Base/accumulation. This is usually done quietly, note volume on the decline falls off at the lowest area and we see that typical tell tale flat trade where accumulation happens so often. The next move would be to send FB from stage 1 base to Stage 2 "Mark Up", this is where the momentum traders and everyone else who is late to the party chases prices higher. Because Technical Traders are still laboring under the myth that large volume=Smart money buying, we often see large volume on the breakout from the base moving price to mark-up; this is not accumulation, smart money doesn't chase prices higher, but they do what they can between the order book and whatever they need to do to make sure there's a big volume spike that catches everyone's attention. "Oh look at FB, the volume is huge, smart money is buying!" That's the game.

 Here we have the breakout of the base, enter momentum traders, stock chasers, Greedy gamblers and the "Revenge Traders", these are the people who say, "I lost my money in FB, I'm going to make it back in FB". If you have ever held a position that went against you with the intension of selling it if it will just come back to where you bought it, you are doing the same thing, "I lost my money here, I'm going to get it back here", when in reality, that stock may not be the best place to make back the money lost, but that's just human psychology, not wanting to be wrong.

If there weren't the huge 3C divergences in place and if I had not already seen something going on in FB Tuesday, I'd be very suspicious of this move, but given the situation and 3C charts, I think it's a genuine move.

 This 1 min volume spike ( a teaser) is the largest 1 min volume since the morning of 5/22-almost 7 days and it's right where it should be, a technical breakout.

 I won't insult your intelligence or ruin these charts by drawing on them. FB 3 min

 FB 5 min

FB 30 min

Something seems to have drastically changed, maybe it was Zuckerberg falling off the biggest billionaire's list yesterday.

In any case, my calls are already up 36%. While this isn't the type of trade I would normally look for, I believe you take opportunities where you find them.