The initial public offering (IPO) of King Digital Entertainment (symbol KING) debuted today at $22.50/share and then promptly plunged to an intra-day low at $18.90 before ending the day at $19.00/share, down 15.56% from its IPO price.
The KING is dead! My view is that this stock will never see its IPO price again. Best case here is that KING falls 50% before finding significant support (along the lines of the FaceBook IPO in its early stages of public trading).
Here are just a few noteworthy items from the financial landscape today:
1. Citigroup failed its "stress test". According to the Federal Reserve, “While Citigroup has made considerable progress in improving its general
risk-management and control practices over the past several years, its
2014 capital plan reflected a number of deficiencies in its capital
planning practices, including in some areas that had been previously
identified by supervisors as requiring attention, but for which there
was not sufficient improvement”. Citi's stock (symbol C) is down 5.2% in after-hours trade this afternoon.
2. The so-called "Fab Five" tech stocks (TSLA -19.62%, FB -16.82%, GOOG -7.74%, PCLN -13.78%, and NFLX -18.75%) are now down on average -15.34% from their all-time highs as posted over the past three weeks to today's NY close.
3. Almost every member of the Federal Reserve Board (both voting and non-voting members) has reaffirmed the Fed's so-called "taper" plans and they even have indicated that the current "zero interest rate policy" (ZIRP) may end as early as the spring of next year. As mentioned previously in this column, I strongly believe that most Wall Street analysts and investors have underestimated the potential negative ramifications from this apparent MAJOR change in Fed policy. I see a nasty liquidity crisis on the immediate horizon, and it may in fact have already begun!
4. Today's "inside out" trading day triggered the following daily chart sell signals within my computer trading system: SPX, SPY, OEX DIA, DJUA, OIH, BKX, TXX, SOX.
5. A daily chart buy signal was triggered today in the VIX (index option implied volatility, of course). The VIX ended today at just under 15. To me, this number is incredibly low given the potential downside risk to common stocks right now. For those of you who may not know much about the Crash of 1987 (October 19th), the implied volatility in most OEX put options exceeded 250 on that day (that's NOT a misprint, I can assure you). Could a crash like the one that unfolded in 1987 happen again? I am sure it's possible, but the Federal Reserve hasn't been shy about providing support for financial asset prices over the last five years on any meaningful correction. While I firmly believe that a 20% correction from recent high ground is almost a sure bet right now, it's not hard to imagine that the Fed will be there at that point with a strong effort to stabilize the markets. Of course, if the Ukraine situation gets out-of-hand or if China has a "Lehman" moment, then the resulting panic could slice through any Fed support actions like a hot knife through butter.
I have offered just a few very interesting charts below, all with the latest signals from my computer trading system automatically reflected as of today's close of trading:
1. Monthly Chart SELL signals in Netflix (NFLX), Toll Brothers (TOL), and Amazon (AMZN)
2. Weekly Chart SELL signals in CSX and PCAR (key transportation stocks)
3. Daily Chart SELL signals in the popular SPY and the DIA ETF's
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