Like the Britney Spears song "Oops, I Did It Again," the investment banks including J.P. Morgan Chase (JPM), underwriters and majority owners (hello Mr. Mark Zuckerberg) continue to allow these stocks to needlessly fall.
At the pace Facebook is falling it becomes self-fulfilling in an endless feedback loop -- the next day it will fall further. Anytime anything demonstrates a pattern of falling prices (it only takes three days to "make a pattern" in many investors' minds), the natural tendency is to wait for better prices. (See my Facebook article How to Catch a Falling Knife.)
If it was smart to sell the shares at $38, surely it must be smart to buy some back to support the market at $26 a share? Will some of the millionaires and billionaires of the Facebook initial public offering lend price support to the stock that made them rich?LinkedIn (LNKD) also had some trouble coming out of the gate. However, LinkedIn found its footing and moved on to trade above the original IPO price. Unlike LinkedIn, though, Facebook's ability to generate higher revenue and profits is in serious doubt. That's all the more reason for participants of the Facebook IPO to put back a few dollars and at least get the media attention off of Facebook. Some analysts have written that $25 is the golden price to enter a position with Facebook. I disagree. I believe the best way to look at Facebook is that the price has no floor in a market full of emotion. Trying to pick the very bottom is a fool's errand and full of peril. (See my article Facebook's Lessons in How Not to Play the Game.) A better approach for those wanting exposure is to sell cash covered put options instead of buying the stock outright. The fear premium is sky high for options, creating a sellers' market. By selling put options you mitigate your risks, lower the volatility and put the odds into your favor. Best of all, in this falling market; you don't have to pinpoint the bottom of the move.
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