Stock Market Tip of The Day? Facebook!
US stock markets fell today with the Dow Jones Industrial Average dropping half a percent, the S&P 500 down 0.55% and the Nasdaq down 0.58%. The losses came even after some strong gains in Asia and Europe and were largely the result of economists predictions that the Fed will start to reduce stimulus as soon as soon as September. This would be a lot earlier than many traders had calculated and could cause traders to ditch equities running up to the date in question.
Energy producers were particularly badly hit today with Exxon and Chevron both down nearly a percent. Meanwhile, Salesforce.com Inc fell as much as 7.9% on news that the company is to buy ExactTarget Inc and Dollar General sank over 9% after reducing its top end earnings forecast.
Markets appear to be uneasy at the thought of Fed ‘tapering’ off stimulus which has now caused the S&P 500 index to alternate between gains and losses in the last seven trading sessions. The volatility has been further heightened by a larger than normal amount of volume on the exchanges, with the number of shares traded shown to have increased over 7% on the month.
The S&P 500 index is one of the most traded instruments in the world and is a key barometer of the health of not only the US economy but the global economy as a whole. From looking at the chart over the past few years then, the index would appear to indicate that the world has been in 4 years of great prosperity. Of course, this has not been the case so it bears significance that the rally has coincided with the largest period of monetary easing by a central bank on record. As such, stock markets are extremely vulnerable to any change in policy as it runs the risk of throwing the economy back into turmoil. There is little value to be had buying US stocks at these levels – we would need a much larger correction before being able to confidently enter longs into this market.
S&P 500. 1 hour chart. Charts supplied by IG Index.
Facebook has struggled since coming to market in what was one of the biggest IPO’s in history yet, for a while back in January, it looked like the company might have turned a corner. The stock moved past the $30 mark for the first time and there was a lot of speculation about Facebook unveiling some interesting new products. However, those unveilings have failed to win over investors and so far there has been little announced that has caused excitement. Because of this Facebook looks to be sliding and is moving steadily downwards on an hourly and daily chart. Traders should position themselves short and consider bringing their stops down as the stock moves lower. Due to the rich valuation of the company, Facebook could still have a lot to fall, especially if recent trends (that show interest in Facebook is plateauing in many parts of the world) continues.
Facebook Inc, 1 hour chart. Charts supplied by IG Index.