There is no question that FB is richly valued by traditional metrics, but the counter argument is that these are not traditional times and future prospects justify said valuation. Eloquent arguments can be made from either side, however while others are fighting lets try to make some money. FB is trading around $23 at last check. In order to have smooth sailing into the 7/27/12 earnings gap, FB needs to break and respect overhead resistance. The day of the formerly mentioned earnings had a high of $24.54; we can call that level 1. The following day FB opened at $24.04; our level 2. It is interesting to note that our level 2 resisted a recent gap up because of earnings on 10/24/12; indicating a strong ceiling and a selling opportunity. It is even more interesting to note that the high on Friday, 11/16/12, was pennies below our level 2, further strengthening our thesis.
Every time FB has made it up here in the sideways channel it has only taken a day or two to be promptly rejected. This may lead one to believe that price could break either way, and quickly. The ‘at the money’ straddle is trading for about $1.25 for the weekly, or about 5.3% of the stock. Given that the pattern may fail or take time to play out weekly options could be risky, but then again it only took five trading days for FB to move from $19 to $24. This could be partially explained by the 7% short interest in the stock and the fact that it is hard to borrow.
Similar names like GRPN and ZNGA have taken advice from AA, being perpetual earnings disappointers. FB probably should not be clumped into a basket with these stocks for FB is different, but then again that is what they all say.
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