The Call Station

So the European central bank has taken a bold step by committing to an open ended bond purchasing program, in hopes to combat high borrowing costs for certain European countries. That’s an unlimited amount of money in the hole ready to be injected, everyone should take a moment to understand the magnitude of this commitment.

What does this mean for Europe going forward?

The ECB has ensured no European country will default on its debts and will be able to continue borrowing at artificially low rates. This should spur governments to take on more debt and find ways to reinvigorate and jump start their economies. But what does this all mean for now? Not a whole lot.

Aside from subsiding fears of a Euro zone collapse, this monetary action will do little for the current situation in which Europe finds itself. Countries like Greece, Portugal and Spain are in recession and are faced with high levels of unemployment that are not about to disappear over night.

The social media IPO of the century came to fruition today, but that was about it. One of the most anticipated IPOs of all time stepped onto wall street with a lackluster performance to put it mildly. Facebook (FB) hit the street at a price of $42.05 a share, made its merry little way up to $45 then headed south from there taking with it other companies closely related to the social networking giant.

Granted the expectations were high for facebooks big release, and yes markets have been roiled by the European debacle currently taking place; but for Facebook not to register a pop or to outperform the likes of Linkedin (LNKD) and its blockbuster IPO? People have to ask themselves, what’s going on here? 

Facebook’s (FB) underwhelming performance on its inaugural walk on the street is the result of a number of reasons.

First of which, as mentioned earlier, world markets have been selling off as investors leave equities and riskier assets and move towards ones considered more safe and less volatile as the Euro Crisis continues to unfold. So yes, market conditions were not ideal but one would expect Facebook and its grand stature in the social media world to overcome the noise and generate a buying frenzy.

Secondly, it was no secret that smart money was taking flight from the stock and closing positions. Despite the large volume of shares changing hands, there was still a glut of sellers. Goldman Sachs (GS) alone dumped half of its position, cashing out early and flooding the market.

Finally, it may simply be the result of good old fashioned pessimism about the stocks actual value and future growth. At a price of $38 a share FB is trading at a P/E ratio of 107. One may think that warrants some caution buying into the stock, and it does, but all you have to do is look at LinkedIn (LNKD) trading at a staggering 618 P/E ratio and ask what is so different about these two and their IPOs.  

Whatever the reason, Facebook will undoubtedly be on the watch list of many investors. Mark Zuckerbergs every move will be monitored very closely and scrutinized as he takes his private company, focused on its founders idea of connecting the world, to a profit driven public company responsible to its share holders.

As markets try to maintain momentum and continue higher, it is inevitable to have minor and periodical corrections. The DOW has recently come back to test it’s new level of support and could be on the precipice of falling back below its hard earned milestone level of 13,000. Aside from the DOW, other big board markets around the world are approaching psychological hurdles of their own and whether markets charge higher or break down and fall back, a trader should be ready to profit from either scenario. It’s important to look for stocks that are poised to take off as well as collapse through the floor. Here are a few examples that have caught my eye:

Let’s begin with a short prospect, one that needs no introduction, General Motors (GM). The price has recently fallen below its 50 day moving average and has found support around the 200. The chart has also formed a classic bearish H&S pattern, and is presenting a great entry point as it comes down from the second shoulder. If you’re playing this one, keep your shorts fairly close around the 26 dollar range.

On the long side, Devon Energy Corporation (DVN). This company has just exploded above a long-term level of resistance and is now establishing a new base around the 70 dollar range. The stock ripped up to 75 dollars and has come back to form the new base. Its 50 day moving average has just crossed above the 200 and is still rising towards the stocks new level of support. Volume has been steady which is a good indication that the stock is being accumulated at these levels. Not much else to say other than it’s at a great entry price and stops should be placed below the 70 dollar mark to avoid being shaken out too soon. 

Never forget to have your stops in place to minimize your risk. Cut your losses quickly and let your winners run.

Catching my attention with an improving chart formation and being actively involved in the social media scene, the China based internet company SINA (pronounced See-na, if you were wondering about the tittle) is this weeks featured play. 

Here’s a quick little summary of what this company is. SINA is a provider of a broad base of internet services such as: blogs, audio and visual streaming, online games, e-mail, classifieds, searches, e-commerce and micro-blogging. SINA’s micro-blogging site weibo.com is simply a knock off mirror website of its North American counterpart Twitter. 

China based companies carry a bit of a stigma for being relatively opaque to investors and SINA is no exception to that, many question how many active users the website actually has. Traders however, don’t need to worry about that as much, although it is important to understand the inherent risks of investing or trading overseas companies that are not subject to the same standards and practices as those in North America. 

From a traders perspective the stock is at a decent entry price. The stock has been making higher highs and higher lows and is nearing the bottom of its uptrending support levels. It’s currently being squeezed between it’s newly formed uptrend and its longterm line of resistance. In the past week, the stock broke above the level of resistance briefly but has come back finding new support in the high 60 dollar range. This level of support also coincides with the 50 SMA that has been steadily rising towards the 200 SMA, if the 50 crosses the 200 it is considered a bullish sign. My first target would be around the 80 dollar range as that is where the 200 day SMA is as well as recent high. If it were to make it to this level, be sure to move your stops up to secure some of your gains.

As with all trades, this one could encounter some radical swings as it gets squeezed. A proper stop needs to be in place that will keep you in the play as well as keep you in the game. Take a look at the most recent lows and prepare to test them. For those who are risk adverse or have a smaller appetite for it, scaling your stops or simply entering with a pilot position are strategies worth practicing. 

Manage your risk.