The Facebook IPO and The Oversold Condition

The market is extremely oversold as the chart below shows. The last time the market was more oversold was in August when S&P downgraded the US credit rating. We will be dropping negative readings for 8 out of the next 10 days and 5 out of the next 6. We are dropping a small negative reading today so its possible for us to get a little more oversold but this is extreme.



Facebook has raised its IPO size and its now possible it will be over $18 billion. That is a huge cash drain on the market and it is possible that this has been contributing to the weakness.

 

 

2 comments:

Chad_Mel said...

Great point on the FB IPO being a cash drain on the market, haven't really heard that being mentioned.

Tsachy Mishal said...

Thanks. I initially didnt think it would be that great of a cash drain because it was originally $10 billion and I figured it would create external demand. Now that its being upsized to $18 billion, they are likely allocating shares to anybody who wants them. Stock likely has to be sold to make room for these shares. On a side note, I would not be surprised if the FB shares trade lower.