Market-Makers' Price Forecast For New Unlocked Facebook Shares

 |  About: Facebook (FB), Includes: AAPL
by: Peter F. Way, CFA

Many interested investors have speculated about what the August 15th availability of the great increase in Facebook (NASDAQ:FB) floating shares would do to the stock's market quote.

As of the end of day on August 14th, here is what the street's prop trading desks were looking for on the morrow: A possible low of 18 ½ (-9% lower), and a potential high of 24 (+18% higher).

Graphically, here is how that outlook compares with their daily forecasts (the vertical bars) since there was a hedging market for the stock on May 29th.With barely eleven weeks of market seasoning to go on, and such a tumultuous start of life, the market pros have offered little useful guidance as to direction.

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Virtually every coming day has been greeted with a wide range of possibilities, where the upside potential was close to twice the downside. As trading day attitudes developed, that same range persisted, even during the 2-day late July drop of -19%, and its continuation in a fall worse than -31% for one week.

Pundits then saw lows of $10-$12. The worst the pros saw was just under $18, and the lowest trade was only a bit under $20. Now again they see an upside twice the drawdown prospect. It seems they are optimistic in the face of increased uncertainty.

Perhaps the best that can be said here is that without any market seasoning the pros can define some more sensible up and down bounds to future price than commenters with (who knows what) other objectives may have.

To illustrate how the market-maker consensus responds to what is regarded by them as an unwarranted price decline, please note in the picture below the green vertical bars recently for AAPL.

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When the eod price of a stock falls near the bottom of, or below, its forecast range the stock usually has odds-on chances of rising in coming weeks-to-months. Often the upper end of the forcast is a realistic sell target for buys based on that forecast.

For a more complete illustration of the recent history of AAPL forecasts by the volume market-making community, please check our earlier Seeking Alpha article Behavioral Analysis of Coming Facebook Prices.

Prospective FB buyers might be interested in what the pros currently see in an alternative, Apple (NASDAQ:AAPL): A sell target of $717 (up 13 ½%) and a possible drawdown to $616 (-2 ½%). That risk~reward tradeoff is a good deal better both qualitatively and quantitatively, since:

In the past 5 years AAPL has been this cheap in terms of professional expectations, some 70+ times, and by achieving its targets, net of time-limit losses, has reliably earned 5% average gains in six week holds for an average annual rate of +47%.

Facebook history is yet to be proven, but so far is not impressive. The stock has only had upsides 2 times its downsides, compared to Apple's present five-plus times, and yet has to have any achievement of any upside target in nearly twice the average accomplishment time of AAPL.

If what is wanted is the romance and excitement of exploring the unknown, then FB may serve. If what is wanted is good investment performance, then probably AAPL is a far better alternative.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.