S&P Index Additions

There has been a lot of talk and speculation around the inevitable inclusion of $FB to the S&P 500 Index. It finally happened (S&P press release).

$FB and the entire social media sector have been on fire the past few months. Traders and investors are looking for more, and it’s judging by comments on Twitter and Stocktwits the announcement is clearly interpreted as hyper-bullish by the investor community.

Below are the last five additions to the S&P 500 Index (excluding the recently added $GGP). The catalyst everyone is looking for is that institutions have to buy up shares of the company for indexing purposes. Yes, significant volume gets crossed on the day of the inclusion (usually on the close), but that has nothing to do with when and at what price the shares were actually accumulated in the open market. The only thing you do know is that demand is over after the date of inclusion.

After the big volume event, there is usually significant softness. Most of these examples continued on trending higher after some time, but consider  that all of these examples occurred in a raging bull market. Do yourself a favor and look up some from 2010 and 2011.

Blue shading represents the inclusion date.

$KORS: Inclusion date represents virtually the high of the year.

kors-spx-addition-december12-2013

$RIG: Significant pullback after inclusion.

rig-spx-addition-december12-2013

$DAL: Likely one of the least anticipated additions to the S&P (given the crossing volume). Slight relief after inclusion.

dal-spx-addition-december12-2013

$NLSN: Inclusion date represents a swing high for at least a month before resuming trend.

nlsn-spx-addition-december12-2013

$NSWA continued to chop and had a meaningful pullback after inclusion (which was also the same date that the company broke into different entities.)

nwsa-spx-addition-december12-2013

 

Bottom line, if you feel like you have to chase $FB, remember that the market will be open again after Facebook is a S&P 500 constituent and you may just be able to get a better price.

 

 

 

 


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