On Nov. 30, 1999, It was announced that Yahoo! would be the second internet company, after America Online, to join the S&P 500. The stock soared 24% as it gained $63.18 to $348. During the week following the news, Yahoo! gained a total of 64%.
The great bull market of 1999-2000 still had several more months to run but this event was an illustration of the hysteria that had taken hold of the market as one of the biggest bubbles in market history took place.
Last night it was announced that Twitter (TWTR) will join the S&P 500 effective June 7 to replace Monsanto (MON) , which is merging with Bayer after a long legal review. In addition, Netflix (NFLX) is being added to the S&P 100 which isn't as significant but is boosting the stock this morning.
Twitter is trading up 4.7% or $1.80 and is unlikely to ignite the sort of frenzy that Yahoo! did back during the bubble but it is the sort of thing that will provide us with some insight into the emotional state of the market. Technically being added to the S&P 500 doesn't change the value of the stock but it does create additional demand as Twitter must now be added to the massive index funds like the S&P 500 Trust ETF (SPY) .
The timing of this addition couldn't be better for a market that saw a return to large-cap technology names and a surge in the FAANG names. The BMO REX MicroSectors FANG Index 3x Leveraged ETN has traded up 13.26% in the last two days as the big money comes back to the big names that drove the market higher for most of this long-running bull market.
What was most notable about the action Monday was that there was a rotation back into the bigger cap names and out of the small-caps that have been leading for the past month. This has been a good trading market for stock-pickers as the bearish market timers have stayed focused on trading range action in the major indices.
The S&P 500 broke out of its trading range with conviction on Monday. Stocks of retailers led the charge, but technology names were not far behind. Breadth was around 4,300 gainers to 2,650 decliners, which isn't great but there were more than 500 stocks making new 12-month highs. By any measure it is an uptrend and it is the bulls that have the momentum.
The action in Twitter today will be a good test case of how frothy this market action might be. The atmosphere now is very different than it was in 1999-2000 but the similarity we need to study is the level of bullish conviction that exists. This past January we saw an extremely strong uptrend take place with each and every dip being bought aggressively. It was a frenzy but it illustrated how a strong bull market can operate.
The bears will scoff at this action and tell us that it is a contrary indication. Their argument is that when the market ignores major events like the bond crisis in Italy and trade wars with China and Europe and celebrates meaningless news like index additions then it is an indication that the end is near.
Perhaps but for a very long time now the smart move has been to stay with the trend and the trend is still quite positive.
