Three Lessons From “Facebook Friday”
Publisher’s note: The following article ran in Karim Rahemtulla’s Closing Bell on Friday, which is an exclusive e-letter to WSD Insiders. It’s very timely, so I decided to release it to every Wall Street Daily reader. To become a WSD Insider, click here.
There were a lot of important developments last week.
But let’s start by addressing the most talked about story of the week – the Facebook (Nasdaq: FB) IPO.
Talk about an anticlimactic open!
Investor demand for the shares was extraordinarily high… and yet most investors got filled!
That’s never a good sign if you’re considering a flip.
What gives? Well, Facebook issued a lot of shares and priced them to perfection.
Will Facebook go higher? Yes. One day it will.
But not before all of the insiders who grabbed shares for, say, $3 sell at a profit.
After all the hype, though, the Facebook IPO wasn’t even the most compelling narrative of last week.
The real stories were going on elsewhere.
Here are the three key takeaways from “Facebook Friday.”
Takeaway #1: Volatility is Up – Along With Insider Buying
As you know, the market’s been cruel to investors over the past two weeks. Every sector – from tech to financials to energy – has taken it on the chin.
First, it was Greece (and it still is).
Then it was JPMorgan’s (NYSE: JPM) disclosure (and it’s still disclosing).
And now it’s the severe decline in Apple (Nasdaq: AAPL) shares.
With all this bad news, it’s natural to expect even more in the coming days or weeks.
The VIX closed at 24.49 on Friday, which suggests that the complacency from the first part of this year is beginning to fade… and volatility (and worry) are starting to increase.
However, one of the indicators I use to gauge sentiment has actually begun to pick up.
I’m talking about insider buying.
I watch the insider log every day, and in the past two weeks, I’ve seen many more shares being bought at companies like Coca-Cola (NYSE: KO), Windstream (Nasdaq: WIN), TriQuint Semiconductor (Nasdaq: TQNT), Bank of America (NYSE: BAC) and Paramount Gold and Silver (NYSE: PZG).
Company insiders buy for one reason only: They think prices are going higher.
That’s a good sign for the medium term. But for now, keep an eye on those trailing stops.
Takeaway #2: The Greenback’s Impact
Emerging markets shares have performed miserably during this decline. Meanwhile, the dollar is trading at highs compared to many foreign currencies.
The U.S. Dollar Index – which tracks the value of the greenback against six other currencies – rose for the fourteenth straight day yesterday. That’s its longest rally since 1985.
And a stronger dollar is going to have a negative impact on foreign share prices in the short term.
However, there’s a silver lining here: Fundamentally speaking, U.S. companies are doing very well. And as stocks move lower, even better values will begin to appear.
Takeaway #3: A Long Summer…
Last week was doubly difficult because May options expired on Friday. Stocks have a way of acting irrationally on days when the final print on the ticker matters more than normal.
Additionally, problems in Europe are far from being resolved.
So unless the United States decouples from those issues, our markets will rise and fall based on headlines from economies like Greece.
What happens there will affect Spain, Portugal and Italy, creating a possible domino effect in the minds of investors.
It could be a very long summer.
In a couple of weeks I’ll be presenting at a very small, private energy conference in Monticello, Virginia.
The timing couldn’t be more important and the topics from the speakers – including former U.S. Ambassador John Bolton – are sure to be timely.
Ahead of the tape,
Karim Rahemtulla
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