On Friday, shares of LinkedIn (LNKD) hit an all-time high of $122.85. Finally, the stock was able to top the $122.6991 level briefly enjoyed on the company's magical IPO day. However, the gains quickly faded as the stock finished not only off 3% from its intraday high, but below the $120 level which has proven to be significant resistance in the nearly 16 months the company has traded publicly.
Overall, the latest step towards a recurring theme that should encourage investors to cash out now.
After all, much of the recent rise in shares has had little to do with the company itself. In fact, shares have soared in spite of the bad publicity the company received over three months ago when approximately 6.4 million passwords were reportedly compromised.
Then, there remains the lingering astronomical valuation which logic simply can not explain. A PE ratio of over 1,000 would be difficult for even a conglomerate such as Apple (AAPL) to defend. It becomes even more mind-boggling for a company that just reported second quarter earnings of a mere $0.16.
So why have shares risen?
Part of it initially had to with investors taking advantage of the fallout left behind by Facebook's (FB) disastrous IPO. Within two weeks of the controversial opening day, LinkedIn had fallen $10 and off over $30 from their late April high.
Following the more reasonable price tag with an earnings report in early August that showed growth was still on track and investors saw a ride back to the $120 range as possible, if not imminent.
With that occurring, now is time to take a step back and look at more of the fundamentals and less at the chart pattern, despite how impressive it may appear. After all, the fundamentals prove the greatest enemy of shares.
Some problems for shares in the near term center around not only valuation, but historical volatility as well as the lack of a clear cut catalyst to propel shares further. Although LinkedIn was upgraded by Jefferies to a buy last week, further upgrades seem unlikely until the company can prove more able to justify its own valuation.
The company also will not be able to depend on an earnings report in the near term as a catalyst to justify current valuations. Although such reports have historically propelled shares, third quarter earnings aren't due out for about another two months. As a result, shareholders likely will not be greeted by much in the way of positive headline news. Compare that with the rapid deceleration possible with the slightest hint of bad news and investors appear best suited to either stay on the sidelines or take their money and run.
For those still willing to take a chance on shares propelling higher, stop loss orders at $110 should be considered paramount.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.