BLBG: U.S. Stocks Swing Between Gain, Loss as Facebook Opens
.S. stocks swung between gains and losses, as benchmark indexes headed for their biggest weekly declines since November, after Facebook (FB) Inc.’s debut failed to inspire optimism after its initial public offering.
Facebook rallied 8.3 percent. The shares pared a surge of as much as 18 percent and traded near its IPO price of $38. Zynga Inc. (ZNGA) tumbled 5.7 percent after a 50-minute halt.
The Standard & Poor’s 500 Index advanced less than 0.1 percent to 1,303.59 at 1:08 p.m. New York time, after earlier rising as much as 0.6 percent and falling 0.5 percent. The Dow Jones Industrial Average dropped 14.42 points, or 0.1 percent, to 12,428.07. The Nasdaq Composite Index fell 0.3 percent to 2,804.86. Trading in S&P 500 companies was 30 percent above the 30-day average at this time of day.
“The fact that Facebook got a pop and lost steam is disappointing for investors who wanted to see a stronger reaction,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland.
Stocks rose earlier after Facebook’s record IPO made the social network more costly than almost every company in the S&P 500. Nasdaq OMX Group Inc. had said it would start quoting Facebook at 10:45 a.m. New York time and begin trading of Facebook at about 11 a.m. It then delayed the open by five minutes before sending a notice that there was a problem. The shares started trading at 11:30 a.m.
Execution Messages
Nasdaq said that it’s having a problem delivering trade execution messages related to Facebook’s initial public offering, according to a statement on its website. “Nasdaq is working to deliver these executions back to customers as soon as possible,” according to the notice.
Facebook sold 421.2 million shares at $38 each to raise $16 billion. That values the Menlo Park, California-based company at $104.2 billion, or 107 times trailing 12-month earnings, more than every S&P 500 member except Amazon.com Inc. and Equity Residential.
That valuation also makes Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the U.S. Now the 28-year-old billionaire has to reward investors by squeezing more profit out of advertising, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
Zynga tumbled 5.7 percent to $7.80. The shares paused for a volatility circuit breaker that was supposed to last five minutes, and failed to resume until about 50 minutes later. Another halt also lasted too long.
Halted Again
The stock was paused at 11:37 a.m. New York time after dropping as much as 14 percent from yesterday’s close to $7.08. The circuit breaker is triggered when a company rises or falls 10 percent within five minutes. It resumed at 12:27 p.m. and was halted again two minutes later because of volatility. Trades hadn’t commenced as of 12:56 p.m.
Autodesk Inc. (ADSK) tumbled 14 percent, the most in the S&P 500, to $29.87. The maker of architectural and engineering software provided a second-quarter earnings forecast that trailed some analysts’ estimates.
Yahoo! Inc. (YHOO) rallied 5.4 percent to $15.67. The company is in talks to sell about 20 percent of Alibaba Group Holding Ltd. back to the Chinese Internet company for about $7 billion, according to a person with knowledge of the matter. Dana Lengkeek, a spokeswoman for Yahoo, and John Spelich, a spokesman for Alibaba declined to comment.
The slump in U.S. stocks has pushed a gauge of market momentum to levels last seen in August, a sign to some traders that the S&P 500 fell too far, too fast.
Relative Strength
The benchmark gauge for U.S. equities dropped 8.1 percent through yesterday from a four-year high on April 2, sending the 14-day relative strength index for the S&P 500 to 25.1, the lowest level in nine months. The RSI (SPX), which measures the degree to which gains and losses outpace each other, has been below 30 for two consecutive days. Readings that low are considered signs to buy by some analysts who use charts to make forecasts.
“RSI is like a rubber band,” Josh Dollinger, chief quantitative and technical strategist at BTIG LLC in New York, wrote in an e-mail. “The further back it’s pulled, the faster and harder the snap back is. It’s difficult to time perfectly but over the long term, buyers are often rewarded when stepping in during these rare, extreme circumstances.”
The momentum indicator sank to 16.5 on Aug. 8 after S&P cut the U.S. government’s credit rating from AAA. The S&P 500 then slumped 1.8 percent through Oct. 3 before surging 29 percent by April 2.
About $1 trillion has been erased from American equity values this month after speculation Greece will leave the euro region reversed the biggest first-quarter rally since 1998, according to data compiled by Bloomberg. The S&P 500 fell for the fifth time in a row yesterday, sending the benchmark index to the lowest level since January, amid disappointing economic data and concern about Europe’s debt crisis.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
