Diary of a Financier

Anatomy of a momentum boom/bust: Facebook

In Idiosyncrasy on Wed 27 Nov 2013 at 06:45

Continuing my series on momentum crashes, take a look at the following charts.  Notice anything in common among them?

Momentum boom/bust analogues

FB daily (current)

Looks like they all start sliding after a tilted Head & Shoulders top is made, with a weak, shrugging right shoulder.  The patterns are all consistent with those observed by mathematicians and sociologists like Didier Sornette in his “Dragon King” studies.

Those first 4 charts are of the following, former momentum darlings, which booms all ended in massive busts:

  • Green Mountain Coffee Roasters ($GMCR)- daily chart 2011.10
  • Crude Oil ($CL_F)- daily 2008.08
  • OpenTable ($OPEN)- weekly 2011.07
  • Apple ($AAPL)- weekly 2013.01

The last, standalone chart is of Facebook ($FB), the social media maven that would appear to be in process of following its predecessors’ precedent.

Don’t take this to be fatalistic, because most of those names recovered (or are in the process of recovering) their alltime highs rather quickly.

We still own $FB with a $28 cost basis (+66.25%) after initiating a position 7/9/2013 and averaging down 9/12/13. We’d probably start selling our FB if the tilted H&S develops and sustains a breakdown beneath $45 neckline.




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