All posts by jimmybob

Facebook (FB) – the 1% win again

How is it that the most hyped IPO in recent memory closed just in the green instead of up 50% on it's first day? Was it from the constant upward pricing of the offering in the weeks prior to the IPO on the so-called pent up retail demand(THE SHEEP). Possibly, but maybe it because folks on the inside were getting a bit nervous about holding their shares longer then 1 day causing more selling pressure:

Even as outsiders line up to get a piece of Facebook, the social media giant’s latest filing shows that early individual and institutional investors will be selling nearly 84 million more shares than originally planned. And even as the frenzy surrounding the offering builds – or perhaps because of it – Facebook is facing renewed scrutiny over its business model and the risks it faces.

The company revised its S-1 filing with the Securities and Exchange Commission twice in two days this week, with the latest document reflecting new plans to sell more than 421 million shares, up from 337.4 million, as early investors look to cash out more of their holdings. Those investors would face a lockup period of at least 91 days during which they could not sell once the stock is publicly traded.

 

But maybe the better questions to answer is, "Why didn't Facebook(FB) close in the red?". That is a good question, considering the issues that delayed Facebooks(FB) opening on the Nasdaq were related to traders abilities to cancel orders. Thats right folks... canceling orders and not buying stock. So if the stock closed green and retail wasn't keeping her green, who was? Who would have the most at stake for having the largest IPO in recent memory finish green? Well that would be it's lead underwiter Morgan Stanley (MS). I can just picture the meetings that went on over the past few months... "Yes Mr. Zuckerberg, your companies stock will soar on the first day of trading as we pump it to every investor we can find"

How do they get away with this? How are they allowed to manipulate the stock price to ensure they save face??? Take a look at the 1 minute chart of Facebook, and you can see someone with deep pockets was keeping her above $38 with ferocious buying volume.

 

 

A clip from the Wall Street Journal tonight that makes my blood boil:

After the problems began on Friday, Morgan Stanley, which led a group of 11 Wall Street banks, stepped in to buoy the share price, according to people familiar with the matter. In its role as the deal's so-called stabilization agent, Morgan Stanley could continue to support the shares through a pool known as an overallotment. But people familiar with the matter say the bank has no plans to use its own capital to prop up the shares in the days ahead.

 

So lets get the facts straight as I see them: 1. Morgan Stanley and the other underwriters hyped the IPO and continued to raise the IPO price right down to the last day on the supposed increased demand(which there was not). 2. Morgan Stanley provided bid support on the stock to ensure it didn't fall under the $38 mark. 3. The amount of shares to be sold increased millions right up to the day of the IPO.

Let me put this in a phrase most will understand... This was an orchestrated Pump and Dump!

Not only that, it was stock manipulation at it's finest. Here is the definition from the SEC website:

Manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security. Manipulation can involve a number of techniques to affect the supply of, or demand for, a stock. They include: spreading false or misleading information about a company; improperly limiting the number of publicly-available shares; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for a security. Those who engage in manipulation are subject to various civil and criminal sanctions.

Once again the 99% are left holding the bag, while the 1% are laughing to the bank. Take a look at those who made out on Facebooks(FB) first trading day:

 

We shall see where Facebook (FB) trades on the coming days and weeks. I have an odd feeling it wont be much higher then it's close on friday. But who knows, when the 'Free market" is not really that free.

Ross Stores, Inc (ROST)

It seems every week there is a stock in the retail sector moving 15%+. Fossil (FOSL), Deckers Outdoor Corp (DECK), and JC Penney (JCP) all saw their shares ripped to shreds on disappointing earnings and lower outlooks. Is the economy really starting to show signs of cracking? Maybe analysts had the bar set to high? I am sure its some of those reasons and more, but there are companies that should continue to buck the trend. Ross Stores, Inc (ROST) looks like one of them. Yes, the stock is up nearly 100% yoy, but who cares. Follow the momentum.

The market speaks, sometimes you just need to listen. Take a look at the open interest on the calls and puts expiring in 2 days:

Open Interest on ROST May calls and puts : CALLS : 33,500 PUTS: 13,847

We are betting on the upside tomorrow as Ross Stores, Inc (ROST) reports earnings before the opening.

 

Disclosure: We currently hold $65 May calls.

 

Abercrombie & Fitch Co. (ANF)

 

Abercrombie & Fitch Co.(ANF) reported earnings this morning that missed estimates. The stock is currently off 11.61% at $40.10. Folks selling and shorting the stock on fundamentals, will soon learn a powerful lesson. Abercrombie & Fitch Co. (ANF) has more going for it then just it's recent earnings and we think a bounce is in the cards here intra-day.

Disclosure: We are holding $42/$43/$44/$45 May calls.

5-16 Watchlist ANF, SINA, LNKD, NFLX

It is Mid-week, and my favorite time of the month is coming. Option Expiration! The last few weeks have been very challenging times trading options. Take a look at UPB’s video from last night: https://www.optionmillionaires.com/2012/upb-may-15th-market-recap-outlook-spy-aapl-fosl-sina-jcp-sp-futures/

 

He made some great points around trading options in this environment. Also, sometimes its better to sit on your hands then force a trade. There is ALWAYS money to be made in any type of market, but you have to make sure you have money to play it!

 

Looks like the market is ramping pre-market. USD up 12 straight trading sessions and is still Green as I write this. There is always a pullback, and one on the USD is overdue. We shall see.

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SINA Corporation (SINA)

Sina Corporation (SINA) has been an Optionmillionaires favorite over the past few months.There is nothing that an option trader likes more than a volatile stock, and SINA Corporation (SINA) sure fits the bill. SINA Corporation (SINA) reported earnings after hours, and the stock rose nearly 7%. Folks were expecting a loss, which they got, but revenue was above expectations. With all the bad press as of late, it was almost a relief that SINA Corporation (SINA) expects to still generate revenues with the China censorship crackdown.

It's one of the reasons we think there will be some serious upside upgrades tomorrow. SINA Corporation (SINA) pulled in just over $100 mil in revenues for the past quarter, yet has over 300 million users of its twitter like service. If they are able to just pull in $.50-$1 per user, they will experience some SERIOUS growth. Smart "Growth Companies" sacrifice short term profits, for long term growth. Looks like Sina CEO Charles Chao is continuing to do that, which is great news in our opinion:

Sina CEO Charles Chao said: "China's macroeconomic weakness in the first quarter the Company's brand advertising business growth moderate. We expect the macroeconomic aspects of the resistance will continue until the second quarter, however, we have begun to test the water micro- Bo brand advertising business. this advertising product recommendation engine driven by the map-based social interest, is expected to be in the second half of the year for our brand advertising business real impact. the current the microblogging advertisers preliminary feedback is encouraging, we believe that to continue major investment is necessary for social media and related projects. "

 

Of course there are the folks looking at the news release tonight seeing this headline:

Sina Corp could see further losses due to Weibo: CEO

The market is forward looking, and think this view is very short sighted. With the penetration they have, in a market with few competitors, I think SINA has much more upside then folks are giving her.I guess we will see tomorrow. Here is what we were saying on our watchlist this morning and monday:

SINA – 60 calls before the close for me, think earnings will not be too good, but the outlook and china restrictions will be the key.

SINA – reports this week as well, with RENN. Hard to figure, but I still like SINA. Not sure of the strikes yet and may wait till Tuesday AM.

 

Happy Trading!!

 

Disclosure: we hold $57.50 and $60 MAY calls