How To Trade The Facebook (FB) IPO
With the Facebook (FB) IPO expected to begin trading on Friday as the one of the most hyped, talked about and biggest internet IPO in history, I thought it would be a good time to review IPO trading strategies which not only applies to the Facebook IPO, but to all IPO’s. It’s a strategy I’ve been discussing for awhile now, first posting about the strategy in 2006 and then again during the Visa IPO in 2008. It’s a time tested strategy that works very well, taking the emotion out of an IPO trade and increasing your chances of success.
The big money has already been made in Facebook by executives and early investors. By the time the IPO hits the public market Friday morning opening up with a big gap off the offer price, the risk will be considerably higher with diminished reward potential. Having said that though, let’s remember that stocks can soar based on hype and potential alone. The fundamental guys can make valuation comparisons, but let’s also remember that young growth companies can trade at extreme valuations in the early years before settling out to more reasonable valuations. Sure, from an expected valuation standpoint, from a slowing revenue standpoint, from a recent large acquisition of Instagram standpoint, from a…. You get the picture. I agree. Based on these reasons and several more, I flat out would not put on a large position in Facebook and hold it for a number of years. I do however believe Facebook (FB) will provide for a great shorter term trading stock (a few weeks to months).
That’s where my technical strategy comes into play. The key is focusing on nothing more than supply and demand which is revealed in the chart. Take the emotion and hype out of the Facebook IPO trade completely. There will be a tendency for the novice trader/investor to want to jump into FB in the opening minutes believing they will make a fortune. Avoid this!
There are a few important chart patterns to look out for and the hottest IPO’s typically carve out patterns with fairly short consolidation patterns. I like to see at least 10 trading days of consolidation. One pattern I look for is a flat base type of pattern where the stock runs up in the first few days then trades in a tight range sideways for a couple of weeks. The more likely chart pattern for Facebook (FB) is some kind of triangle pattern or flag pattern where the stock runs up quickly over 1-3 days then consolidates in a more volatile pattern up and down to form a triangle, or consolidates downward in a tighter range to form a flag type pattern. Take a look at the chart below which highlights a bullish flag pattern. Here’s a hint: the IPO debuted in 2004 and the company starts with a “G”. Yeah, OK that’s the chart of Google’s IPO back in 2004 and it highlights perfectly a big run up in the first 3 days followed by a consolidation period (in this case 10 trading days) to form a flag pattern, before breaking out and never looking back. The stock is up 600% since.
I’m not saying Facebook (FB) is going to mimic the chart of Google, I just thought I’d compare it since everyone seems to want to compare the two AND it illustrates a pattern that Facebook may resemble (at least initially). While you can get lucky by jumping into the FB IPO at the beginning of trading Friday morning and scoring a quick gain, the safer bet is to wait a few weeks for that first base formation to form and get in on the breakout. That’s the gist. I’ll be taking a look at the chart of the Facebook (FB) IPO once again after several days of trading and certainly highlight it here again should it breakout from an important base. At any rate, it should be a fun stock to watch particularly as it reacts to news events.
Yelp Inc (Ticker: YELP) On Verge Of Technical Breakout
The headline says it all. Shares of Yelp Inc (YELP) may be on the verge of a technical breakout from a bullish triangle formation. More on that in a bit. First let me be clear that from a fundamentals and business model standpoint I flat out don’t like Yelp in the least bit. For one, I like companies that aren’t burning through cash. Yelp continues to grow and as they grow, the losses pile up. When that trend changes is anyone’s guess, but I would not bet that it’s anytime soon.
====> Get Your Daily YELP Trend Analysis Here
I don’t claim to be an expert on Yelp, but as a marketing director for a growing ecommerce business I’ve had experience with it in the form of customer reviews. The problem with Yelp is their automated filter which tends to remove reviews from users who don’t have a history of reviews even if they are 100% legit. It’s something that happens often and it’s pissed off a lot of small business owners. We actually make it a point to our customers that if they would like to review us they don’t do so on Yelp, but at Google. I’d imagine other companies are figuring this out and doing the same.
From a competition standpoint, I believe Yelp will continue to lose market share to Google in the business review market and to Google and many other companies in the Daily Deal market. Yelp does generate revenue from paid listings as well, but we weren’t impressed with the pricing they offered and didn’t stick with it. All in all, due to competition and poor business decisions, I don’t believe Yelp survives in the long run. Since Yelp declined Google’s offer of $500 million a couple years ago, Google has been aggressive in the review market with a purchase of Zagat. That will continue. Perhaps Yelp become the MySpace and Friendster of the review industry.. we will see.
With all that said, I do believe that shares of YELP are setting up to potentially offer a great trade (not a long term hold)! After surging on the day of the IPO, the stock gave much of it back and in recent weeks has been carving out a bullish triangle formation with the daily price fluctuation getting squeezed to a point. Soon, something has to give and the odds indicate that move will be up. Should YELP break out of the formation as highlighted below, I believe the stock could run and offer a nice swing trade.
====> Get Your Daily YELP Trend Analysis Here
Disclaimer: I have no position in YELP.
UPDATE (3:07PM EST): Just as I published this piece YELP signaled an entry point with a break from this bullish pattern.
UPDATE (4:13 PM EST): A failed intraday breakout attempt puts YELP back into the base with no breakout confirmation on the daily chart. Tomorrow’s trading should be interesting.
Amazon (AMZN) Makes Biggest Purchase Since Zappos.com, Breaks Out
The trading action in shares of Amazon (AMZN) was quite bullish today following news the company made its largest acquisition since the billion dollar acquisition of Zappos.com in 2009. Amazon acquired Kiva Systems for $775 million which is perhaps one of the most interesting purchases because it wasn’t just another internet retailer. Kiva Systems makes robots that increase warehouse efficiency and these robots had been used by companies like Diapers.com and Soap.com both of which Amazon acquired last year. Considering Amazon’s largest expense is its warehouses, the move is a good one and could help get products to customers faster while padding the bottom line by helping bring products to employees with R-O-B-O-T-S. Interesting company.. Fast Company named them one of 50 of the most innovative companies of 2012.
====> Get Your Daily AMZN Trend Analysis Here
“Amazon has long used automation in its fulfillment centers, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow,” said Dave Clark, vice president, global customer fulfillment, Amazon.com. “Kiva shares our passion for invention, and we look forward to supporting their continued growth.”
It looks like the Street feels Amazon didn’t pay too much, because shares broke out from a bottoming pattern today with good volume. A move like this indicates a strong likelihood that a bottom in shares of AMZN may be in. Have a look at the chart..
Commerce Department Imposes Tiny Tariffs On China Solar; YGE, STP, TSL Rallying
News broke not too long ago that the US Department of Commerce has in fact agreed that China is unfairly subsidizing China solar companies which is creating unfair competition and hurting US solar companies. The reaction? Tiny tariffs! I mean these duties are negligible and the reason some of these China solar stocks are rallying in particular Yingli Green Energy (YGE) up over 13%, Suntech Power (STP) up over 7% and Trina Solar (TSL) up over 5%. US solar stocks are down led by Sunpower (SPWRA) which is down by over 8%.
While these numbers have not been made official, Greentech Media is reporting the following tariffs:
- Trina 4.73 %
- Suntech 2.9 %
- All others are 3.59%
When you consider that tariffs had been expected to come in around the 20 – 30% range, you see the reason for the sharp rally in some of these China solar stocks.
====> Get Your Daily STP Trend Analysis Here
====> Get Your Daily YGE Trend Analysis Here
====> Get Your Daily TSL Trend Analysis Here
Apple (AAPL) Touches $600 Again On Strong iPad Sales, Dividend, Buyback
Apple (AAPL) continues its flirtation with the $600 level this morning on more bullish news in the form of a dividend announcement and stock buyback program. Add to that the robust iPad sales & strong technical action and you have the recipe for a surge above the $600 level. With a test and fail at that level last Thursday and again this morning, it appears the stock may just need to rest for awhile before that happens.
====> Get Your Daily Apple Trend Analysis Here
This morning Apple announced it was putting its hoard of cash to work with a dividend payout of $2.65/share beginning July 1st of this year. The company will also implement a $10 billion dollar stock buyback program beginning in September which will last three years. News of buyback programs are almost always bullish for a stock and that alone may be enough to keep the stock at lofty levels.
As for the latest iPad, sales have far exceeded expectations. Some of the reviews I read were ho-hum and there were questions about whether people would shell out the cash for the next gen iPad. Those questions have been answered as iPad demand continues to be record breaking. Tim Cook said this morning that the company saw record sales over the weekend although exact numbers weren’t provided.
While AAPL stock still looks very strong up here and there is no reason to believe it can’t go higher, there is just so much positive news already built in and there is resistance at that $600 level. It’s probably best to wait and see how that resistance plays out. The new support level is at $550. A return to that level offers an attractive entry.
Bullish Alert: Tesla Motors (TSLA) Breaks Out Of Cup With Handle Base
Tesla Motors (TSLA) has finally made the move I have been looking for… a breakout to a new 52 week high and within a stone’s throw of a new all time high. Technically, the stock actually broke out of a cup with handle base yesterday and today it added to that gain confirming the breakout from this bullish base. What does this mean? Well, it greatly increases the odds of a significant move in shares of Tesla over the coming weeks and months. How much is anyone’s guess and depends entirely on the overall market, but typically you’ll see at least a 20% move over the course of a few weeks which places my next target somewhere around the $43 range.
==> Click Here For Your FREE Daily Tesla Analysis
In my last report on Tesla on Feb 16th, I said, ”Technically, I stand by my prediction from my last article that Tesla will soon retest the highs around $35 – $36 and likely break through before the year is out in anticipation of the Model S and Model X releases.” I sure didn’t expect it to happen quite this quick, but the bullish event is here and in my opinion offering a nice entry point as long as it doesn’t gap up tomorrow. Here’s the chart showing the breakout from the handle formation yesterday..
Disclaimer: I have no position in Tesla at this time. I will be adding it should it return closer to the 34 level. That is a much lower risk entry and I’m willing to be patient for it.
Conergy Indicates More Pain Ahead For Solar
Just when you think the news in the solar industry can’t get any worse, the negative headlines continue to flow. Today, several solar stocks were hit again as the big German solar company Conergy indicated that selling prices will continue to fall (below production costs in many cases) as price wars heat up in the face of declining demand and further cuts in German subsidies. These comments really don’t come as a surprise and aren’t anything new. Solar companies have been cutting estimates and warning of steep losses for several weeks now.
The Guggenheim Solar ETF (TAN) finished off about 2% today and remains in a steady downtrend after reaching a multi month high back in early February. Most solar stocks have fallen back into their bases and while they are getting oversold, it’s highly likely that some will need to retest all time lows in the coming weeks. I just don’t see any catalysts that are going to lead to sustained runs over the next several months. It’s probably best to put money to work elsewhere in the green energy space. The LED stocks are increasingly compelling, but frankly I’m not a fan of being long stocks in general at these levels. Nothing wrong with cash!
Piper Jaffray: Cree Inc (CREE) Remains LED Leader In China
According to Benzinga, Piper Jaffray published a bullish research report on Cree Inc (CREE) saying the company remains the LED leader in China and that China based LED companies are still 2-3 years behind on technology. As a result, the firm believes CREE will be a big beneficiary of the ongoing demand for LED street lamps which is a market they believe will grow another 80% this year. CREE currently owns a 70% share of the outdoor lighting market in China. Piper maintains its Overweight rating and $30 price target.
==> Click Here For Your FREE Daily Cree Inc Analysis
Shares of CREE have been on a tear in the past few months, rising 50% and are currently trading above resistance of the important 200 day moving average. I do believe the $20 level is THE long term bottom. Any pull backs off this surge would provide a great long term entry point in this LED leader.
Can It Get Any Worse For First Solar (FSLR)?
I’ve been traveling in Panama, so have some earnings reports to catch up on. First Solar (FSLR) reported after the bell on Tuesday and it wasn’t pretty. The company missed badly on a non GAAP basis in addition to reporting a hefty one time loss which included $125 million for faulty panels produced a few years ago. The company reported a non GAAP EPS of $1.26/share vs the analyst estimate for $1.53 on revenue of just $660 million vs the analyst estimate for $779 million. On the bright side though that $660 million rev number was still above the year ago quarter of $610 million.
Click Here For Your FREE First Solar Analysis
“First Solar’s performance in the quarter was impacted by an aggressive competitive environment, an uncertain regulatory environment, warranty-related charges, and restructuring costs incurred to help position our business for the future,” said Mike Ahearn, Chairman and interim Chief Executive Officer of First Solar. “Despite these headwinds, we continue to make strides reducing manufacturing costs, increasing module efficiency, and successfully building out our captive project pipeline. These improvements, combined with our recent restructuring and strategic repositioning, enhance our competitive position in a very challenging environment.”
To make matters worse, the company is cutting 2012 revenue guidance and now sees revenues between $3.5 – $3.8 billion vs the previous estimate of $3.7 – $4 billion. On the bright side, EPS guidance remains intact at $3.75 – $4.25 per share.
Here are some additional notes on the quarter..
* company continues to move away from increasingly less profitable thin film solar panels and into solar plant production
* Germany proposed a measure that would significantly reduce or potentially phase out subsidies for solar panels. Ahearn believes company’s success ultimately depends on targeting markets that don’t rely on subsidies. I’d expect India to potentially be a significant market for them and other solar companies.
Technically, shares of FSLR are headed to and will retest multi year lows just below $30. It’s too early to tell if that level will hold, but given the overbought conditions in the overall market, any significant correction could help push FSLR to another multi year low and beyond. I wouldn’t touch it here.
Getting back to the question “Can it get any worse for First Solar?”.. it certainly could. The key as mentioned by Ahearn will be those unsubsidized markets with India and Africa being important wild cards. Those markets are probably a couple years off from being big contributors though. It’s looking like another tough year for solar in 2012.
A123 Systems (AONE) Will Supply Lithium Batteries For Tata Motors (TTM) Commercial Vehicles
Some much needed news this morning for a company that continues to struggle and bleed red ink- A123 Systems (AONE). Many wonder whether this company ultimately survives and that’s reflected in the stock price which plunged about 80% last year. This morning the company has announced it will be the lithium battery supplier for Tata Motors (TTM) commercial vehicles. Tata is India’s largest vehicle manufacturer so the news isn’t insignificant.
A123′s highly scalable and versatile batteries are designed to fit into a variety of powertrain architectures allowing Tata to deploy the battery packs across several styles of commercial hybrid vehicles and still meet performance, range and durability requirements. The batteries will be deployed initially on transit city buses later in the year.
===> Click Here For Your FREE A123 Systems Analysis
“The addition of Tata Motors to our growing portfolio of blue-chip customers reinforces our position as the leading provider of lithium ion battery technology for the truck and bus segment,” said Jason Forcier, vice president of the Automotive Solutions Group at A123. “We believe that this announcement further validates the performance attributes of our Nanophosphate lithium iron phosphate technology and underscores our systems integration expertise. A123 understands the value proposition for commercial fleet hybridization, and we believe we can help Tata cost-effectively expand its portfolio of hybrid electric vehicle offerings to allow its customers to take advantage of the long-term benefits of fleet electrification.”
Shares of AONE gapped up on the news this morning, fluctuating from up 10 – 15%, but on the daily chart, the stock is still technically very weak. If it can get back above the 50 day moving average with volume, it might have me interested, but for now I don’t care for this stock.
