Chart of the Day $FB: Partying Like It’s December 1999

by Dan December 16, 2013 1:27 pm • Commentary

Last Wednesday, Standard & Poors announced that FB was going to be added to the S&P 100 & 500 index on this Friday’s close when the index does their annual year end re-weighting.   The shares are up almost 9% since the announcement, and very nearly touched the previous all time high of $54.82 this morning.

As traders consider the potential buying pressure that will result from indexers having to purchase billions of dollars worth of FB shares (much by Friday’s close), some are fairly keyed in on the developing double top technical formation dating back to the October highs:

FB 6 month chart from Bloomberg
FB 6 month chart from Bloomberg

Once FB broke out to an all-time high above $45, which was the intraday high on the day of the IPO, the stock has found buyers near that area.  In late November, the stock briefly breached that level, but quickly recovered, and has been rising strongly ever since (a sign of likely selling capitulation below $45).

On the upside though, FB has a limited history, trading between 45 and 55 for only the past 3 months. As a result, we’re a bit reluctant to draw major conclusions from the stock’s prior October high.  Yet, with the addition to the S&P 500, and the huge order flow for which traders have been preparing since last week, the $55 level is likely the most important level to watch, above which it’s anybody’s guess how high the stock can go.

I would add one more thing, I can’t help to draw comparisons to YHOO’s addition to the S&P 500 in December of 1999 (from purely a sentiment standpoint.) At the time it most certainly rose the antennae of those who thought that the internet bubble was close to bursting.  From the Nov. 30th, 1999 announcement YHOO’s inclusion to the actual addition, the stock rose about 65%, adding tens of billions in market cap.  What was fascinating at the time was that the stock wasn’t done, and went on to gain more than 40% from there in the next month before it made its all time top in the first week of January 2000.

YHOO Nov 1999 thru Jan 2000 (split adjusted) from Bloomberg
YHOO Nov 1999 thru Jan 2000 (split adjusted) from Bloomberg

Facebook is a real company, with real earnings (certainly not YHOO circa 1999/2000) but the stock is likely far ahead of where it should be at this point, and as a long term story there’s always the chance that the stock price might not be that much higher years from now.