Mark Zuckerberg Pencils in Market Top for May

• Posted by DynamicHedge
• on March 30th, 2012

The narrative every trader has dancing in their head right now is that the Facebook IPO will mark some sort of top in the market.  There are two key themes at work here: One, there is no value in Facebook left because it’s already been realized in the private market leaving only muppets to buy it.  Two, social is a bubble and bubbles always end in tears.  Market participants are so sensitive to bubbles these days that they fast forward every opportunity to the logical conclusion (tears) and skip the part where they appreciate in value and make money.  The ultimate Zero Hedge fantasy is that Facebook stock  implodes off the opening tick, eviscerating the wealth of anyone foolish enough to believe in social companies.  Trust me, this is not going to happen.

Bottom line is that Facebook reaches into the lives of nearly a billion people so it’s natural that they’ll attract a lot of attention when they offer stock to the public.  The media will be all over it.  This will skew perception of how important it is in the big picture leading many to false conclusions.

That said, I highly doubt the market will sell-off meaningfully before the Facebook IPO, barring some other exogenous event.  The Wall Street machine is very busy cajoling money into the market.  Clients are getting calls with the term “Facebook” and “The Next Facebook” woven with deep narratives of fortune and bliss for those that get it or an alternative reality of grief and despair for those who miss out.  Do not underestimate the power of the machine.  Unfortunately, for many of the people on the other end of these phone calls, it does end in tears.

While there are some troubling stats out there, I don’t see a new catalyst to bring about a correction (yet).  The question is, once the Facebook mania dies down, what is the next catalyst for higher prices?  Answer: lower prices.  And around and around we go.  The Facebook IPO may not top-tick the market but the absence of a new catalyst could prompt price discovery to the downside — on our way to eventual higher prices.

Here’s another chart of some huge historical IPOs for context (and to prove that they are rarely game changing events).  Remember, Facebook is not $KKR or $BX:

Source: Sundial Capital Research (www.SentimenTrader.com)

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