Seventy million Facebook shares are about to go on sale. Wall Street institutions are required to buy some of them. Here's why.
By now, most people have seen this status update: "Mark Zuckerberg is selling shares of Facebook."
A total of 70 million Facebook shares are about to hit the market. The company is issuing 27.05 million shares while 41.35 million are being sold by Mark Zuckerberg himself. Zuck needs the $2.3 billion so he can pay off a tax bill once he exercises an option on 60 million shares. Another 1.6 million shares will come from board member and internet pioneer Marc Andreessen.
The timing of the sale is perhaps not as random as one might suspect at first glance.
Starting tomorrow, Facebook will join the S&P 500 index. Since the announcement of Facebook's inclusion on December 11, shares in the social media giant have jumped nearly 12%. As it is the market's benchmark index, many institutions and index tracking funds are required to hold the stocks comprising the S&P 500.
"That means there will be a lot more institutional demand," says CNBC contributor Andrew Busch, editor and publisher of The Busch Update. "If Facebook does not go up [Friday] and it starts to sink after, that is telling you the market [for Facebook] is going down. That tells you that demand from all the institutional investors is not enough to hold it up."
Meanwhile, Busch says Andreessen's sale is a very important signal. The man who helped create the first mass-market web browser is selling about one-third of his Facebook holdings. Trying to understand Zuckerberg's sale may be one thing, according to Busch, but Andreessen's sale may mean something else.
(Read more: CNBC's Marc Andreessen updates)
"It's hard to figure [Zuckerberg] out," says Busch. "But, Andreessen's a little simpler. And, 35% of his holdings is a big nut. So, I would they're telling you, as all insiders do when they sell, this is probably a good time to dump some of the stock."
Jeff Tomasulo, managing partner at Belpointe, says Facebook's charts are somewhat worrying because the stock off from its previous highs.
"That is the sign I'm a little concerned about," says Tomasulo. "If it doesn't stay above the $55 level, then that's a sign that we could get a nice correction in Facebook."
To see the rest of Busch's fundamental analysis and Tomasulo's charts on what levels are important for Facebook, watch the video above.
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