Facebook at almost 50% drop

Facebook is almost at the $19 per share border that will mark a 50% loss compared with the start-price at the IPO. Yesterday the company has fallen below $22 with overall loss since the IPO of 42%. The general trend and influencing factors are negative so there is no potential for a bullish reverse. So it is a matter of time the 50% loss level to be reached soon.

The process of devaluation of Facebook develops some faster than my previous prediction that was for $19 level in September. Anyway the prognosis may be fulfilled due to resistance strategy of company and its investors that are trying to slow the fall in attempt to limit losses.

The most interesting question is what will be after that. Economically, based on real business model, I think the share price must be $2-3. Everything over that level is the mystic bonus of market magic. So no one can predict which spell will prevail and for how long time. Anyway I think at least another 25% drop will occur in a quarter after the price reaches $19. This means $14 in December.

It is possible some strategic market factors to influence Facebook positively. For instance an new round of quantitative easing from FED will kick all markets in up direction due to inflation of assets process. But especially for Facebook I don't think a money print will help much. Facebook shares are very much overvaluated, so the money-print can only make the fall slower. The money print adds artificial value to the real value of shares and not to the bubbled value. When the bubbled value is much higher than the real value, the inflation pump can not stop the fall. It can just delay it, or fix some higher final level (for instance $4 instead of $3).

So my advice is to stay short on Facebook with an expectation to collect profits at $14.

August 1st 2012

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