Facebook Acts As Reliable Barometer Of Market Mood, Good For Bulls

Posted: Dec 24 2013, 12:36pm CST | by , in News

Facebook Acts As Reliable Barometer Of Market Mood, Good For Bulls
Photo Credit: Forbes

Facebook is now a component of the S&P 500 index, but it has already been acting as a bellwether stock for several months. The company now sports an entire year of consecutive earnings growth and has captured the attention of investors all over again.

Consider the following chart and notice that Facebook’s shares seem to have a tendency to move early when compared to the S&P 500 as a whole.

One simple explanation for this phenomenon is that the more eager, risk-taking investors are drawn to Facebook. These investors try to make their choices as early as possible before the market shows signs of agreeing with them. That’s hardly a surprise that such investors would flock to the shares considering that Facebook is moving through its transition from IPO issue to fixture in the financial news.

Being a component of the S&P 500, FB shares will be routinely purchased and held by many funds and private equity firms. That also means the share performance will likely become more correlated with the movements of the broad market index. However as long as investors perceive Facebook shares to harbor more risk than the average index component, opportunity seekers will also continue to consider the stock a source for outperforming gains.

Comparing smaller or more innovative companies to the larger, more established companies is one of the ways to determine the overall mood of investors. Stocks like Twitter and Tesla and even Netflix still, similarly hold the attraction of opportunistic investors. If investors in general are simply in the mood to seek opportunity, the demand for stocks is likely to continue rising further driving the prices of stocks higher. Early interest in such stocks is one of the Market Mood Score indicators, along with five others you can use to determine the overall market mood.

Indicator Current Reading
Spy Trend

Bullish +1 
The SPY Trend continues its upward trend, making new highs. We main soon have a bounce off both resistance and support.Stage: Wait
ATR Trend

Bearish -1 
The slope of the ATR has a steep up trend, It jumped up last Wednesday to high levels. It isn’t likely to continue through the holidays since volumes usually taper off.
VIX Momentum Trend

Neutral 0
The options market is signaling a neutral sentiment since the VIX momentum has a flat line. However, we must note the steep downtrend over the last 5 days. This may develop into a bullish signal next week.
High Volume days

Bullish +1
The volume over the past week shows 1 bearish and 2 bullish over average day. We are seeing very strong bullish volumes.
Index Relative Strength Bullish +1 The Nasdaq and Russell 2000 have regained top with their sharp upward movements. The S&P is still trailing up and so is the Dow.
Sector Strength

Bullish + 1
Industrials, Cyclicals, and Technology are still top. Healthcare took a sharp turn upward for a little bit when the fed announcement came out, but not high enough to reach the top three.
Complete Score: +3 Bullish The market has made a surprising flip up to bullish again very quickly with the Fed announcement. The selling is over for now. It is interesting to note that healthcare made a jump with the Fed announcement. Does the latest bullish sentiment come with a tad bit more nervousness?

Source: Forbes

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