Facebook may be wishing they did held their IPO a month ago, when the S&P500 was above 1,400 and the NASDAQ was at 10 year highs. Instead of Facebook being the potential catalyst to push the NASDAQ even higher, now it needs to be the saviour the tech heavy composite desperately needs. Close to key support in the 2,780-2,800 range, a successful IPO performance for Facebook should be an excuse for a technical bounce in the index, and in turn the broader market. Given the action in the VIX though, any bounce may now be used as a selling opportunity.
On Thursday, the VIX closed at its highest level while in an uptrend since September 21st, and its highest level for the year in general. The current four day winning streak for the VIX is also only its 2nd since the following week during that month of September. Given that Spanish 10 year yields remain above 6%, and Italy’s look like they want to get there, Europe is likely to remain in the headlines. With Europe remaining in the headlines and these bond yields elevated, we’re not likely to see a meaningful drop off in volatility anytime soon. Not until the yields come down will the media stop making such a big deal out of Europe.
Getting back to Facebook and the state of the NASDAQ though, our outlook isn’t that bright. While we do believe a good portion of this pullback has played itself out, the action in tech leaders like AAPL, PCLN, CSCO, INTC, & MSFT has been dismal as all of them have broken below their most recent lows. Making matters worse, AMZN, which had been a strong performer and managing to stay above the base of its post earnings gap higher, violated that support on Thursday. So not only are we seeing stocks that were strong to start the year trade weakly now, but we’re seeing stocks that were strong just 1-2 weeks ago breaking support as well.
Therein lies the techincal problem for Facebook and the NASDAQ. Even if FB performs great, it will be doing so in spite of recently poor price action amongst its peers. 1-2 months ago had FB IPO’d and performed well we would have said it was doing so along with its technology peers. These are the types of characteristics associated with a market that is struggling to find its footing after downtrend. For some of our remarks regarding how to day trade FB, watch the video we put together here.
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- SH @ the close 5/18/12: Facebook fails to get traders to “like” market
- SH @ the bell 11/8/2011: Does the market not care about Italy?
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- SH @ the close 2/29/12: Bernanke: from friend to foe
- SH @ the bell 10/21/2011: A bi-polar market place