Facebook price predictions by market makers hit resistance (NASDAQ:FB)

This is an update on the very limited data available so far on price predictions for Facebook. (NASDAQ:FB) shares resulting from self-protective hedging operations necessary for market makers.

These observations are simply a report of what other knowledgeable and highly motivated investment professionals are apparently thinking now versus what they have been thinking daily for the past month. This report is not intended to advocate a long-term value position, it simply indicates how the thinking is developing among the stock’s influential players.

This chart plots the predicted price ranges implied by their hedge actions as vertical bars, with end-of-day market quotes as thick dots within the bars.

Click on images to enlarge

The forecast ranges have tended to move in sympathy with market quotes, maintaining a rough balance of roughly twice as much upside outlook as potential downside exposure. This reflects the newness of FB to organized markets.

More seasoned actions, as illustrated by Apple (NASDAQ:AAPL) In our previous article Facebook Future Price Behavioral Analysis, price range expectations tend to move more slowly than market quotes, so the upside and downside outlook changes over time.

These imbalances between potential risk and reward are often useful indications of future short-term price trends. But for FB, there is not yet enough evidence to warrant meaningful comments.

The metric we use to track these imbalances is the Range Index, which in percentage terms indicates how much of the forecast range is between the bottom of the range and the current market quote.

By the end of the day on Thursday, 6/28/12, the price of $31.36 was 31% above the range of $27.80 to $37.02. These prices are contained in a small chart in the upper right corner of the chart above.

The resulting reach index of 31 happens to be the lowest seen to date in the 23 days of history available for FB. The high was 40 on 06/18/12 when, coincidentally, the price was almost the same as today at $31.41. But so far, these differences have yet to provide any useful meaning.

What is perhaps more interesting (but perhaps not very significant) is that the forecast ranges have stopped rising and are coming back down a bit. FB price continued to remain slightly lower today (off 7/10 percent to date) in a market atmosphere where the Nasdaq 100 Index (NDX) is up 2 1/2 percent.

Technical analysts (and I’m not one) like to look at history and infer “resistance points” from similar behavior. The big difference in what we offer is that the analysis we provide every day is a review of market participants‘ actions in anticipation of what they think is to come.

In short, it’s a look forward, not a look back. If there is any use in contemplating the trends, historically, of these forward-looking price ranges, then they may sense a weakening of recent optimism for FB. We just see that the uptrend, for now, has come to a halt.

To put Facebook’s current expectations into perspective, we offer the same current valuations for other internet-centric stocks, in terms of prospects for price up or down, as perceived by market makers through their blanket. FB is on point [26].

Disclosure: I have no positions in the stocks mentioned and do not plan to initiate any positions in the next 72 hours.

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