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Thursday, May 3, 2012

Is Facebook IPO signalling end of S&P Bull?

Large IPOs are decidedly bearish. We just need to go back a few years in 2008, when Reliance Power IPO hit Indian markets and was overly hyped as the largest IPO ever to hit Indian markets. The 11,600 crore IPO was subscribed in under a minute! Within one day, it was oversubscribed by over 10 times. And most of this was on margin money and borrowed money that investors borrowed to cash on the hype! And what was the end result?

Reliance Power which was offered in the range of Rs 405- Rs 450 and was expected to trade at Rs 700 on launch, is now trading at a measly Rs 102 as of today. Investors or speculators who borrowed money to invest in the IPO lost money left, right and center.

This is just part of the story. The huge IPO marked the beginning of huge Bear market on Indian bourses as Investors had to sell, borrow and arrange funds for this huge IPO and hence it created a cash crunch and with deteriorating global conditions fueled a huge crash in Indian market.

Times are repeating themselves and this time Facebook IPO on American markets may face the same plight. Market operators are just holding up the market for this huge speculative IPO to hit markets on May 18th, 2012. The IPO will price Facebook at a whooping $110 Billion Dollars and Facebook is planning to raise $5 Billion with this IPO! This is the largest Internet IPO ever on US markets.

Take a look at toppish S&P chart below.

In all probability, this huge speculative social IPO will mark the end of this current Bull in S&P 500 and mark the beginning of at-least a short term bear run on US markets. 

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