Chart of the Day – $FB : The Mother of All Gaps

by Enis July 26, 2013 11:36 am • Commentary

FB’s move yesterday was a sight to behold.  And it came on one of the biggest single stock volume days in the history of the U.S. stock market (366 million shares, or about 20% of the stock’s entire float).

What about the psychology behind such a huge gap up on enormous volume?  First, here’s the lifetime chart of FB:

Lifetime daily chart of FB, volume on lower panel, Courtesy of Bloomberg
Lifetime daily chart of FB, volume on lower panel, Courtesy of Bloomberg

The stock gapped higher than the 2012 high around $32.50 (green line), and held above that level the entire day ($32.75 was the intraday low yesterday).  So everyone who has bought FB stock in 2013 is in a winning position, a major positive for the stock going forward.

The stock also closed above its June 2012 high around $33.50 (red line), and has held above that level so far today.  So, aside from the first 2 trading days in Facebook’s history, every other transaction that has occurred in the stock has left the buyer on the winning side.  Again, another major positive going forward.

Finally, the volume on yesterday’s trading was the only second to its IPO day.  The huge gap up was one sign that buyers were extremely aggressive in wanting to purchase FB shares yesterday.  But the huge volume adds importance to the activity that occurred yesterday, as there are a lot of buyers and sellers of FB stock who will use yesterday’s transaction prices as a benchmark going forward.

In my view, $32-$32.50 should act as strong support for FB stock given the huge gap, huge volume, and prior price highs in 2013.  Obvious resistance is the IPO price at $38, where a lot of burned buyers would likely be happy to get out at flat.  In line with that view, over the next week, I might look to sell volatility in FB targeting the 32-38 range for the next few months.