The S&P 500 fell in four of five trading days this past week. Although the rebound seen Friday was very strong, it fell slightly short of regaining the losses in the previous four session and as a result the S&P500 finished 0.04% lower for the week, breaking an eight week string of increases.
Friday’s rebound broke a five day string of losses. The index has finished higher in 26 of the past 42 sessions and has risen in 139 of 236 trading days this year.
Volume rebounded rather robustly as the index saw all five trading days finish above their 13 DMA. Wednesday had the highest volume and Monday the lowest. The increase into the four day sell off is worth taking note of, but the daily price drops on the index were small indicating there were nearly as many buyers as sellers.
Economic news during the week gave reason to remain bullish, some of the highlights include:
Monday saw construction spending increase by 0.8% in October and above consensus estimates of 0.3% growth.
Wednesday the ADP employment change showed 215,000 new jobs in November and above the estimates for 175,000. Wednesday also saw good housing numbers as the October new home sales beat consensus estimates, coming in at 444,000 as compared to the expected 410,000.
Thursday the Bureau of Economic Analysis estimated third quarter growth at 3.6% and up from its earlier estimate of 2.8% GDP growth in the third quarter. Also on Thursday the initial claims for unemployment during the November 30 period came in much lower than expected at 298,000 as compared to the 335,000 consensus estimate.
Friday the US Department of Labor released November non-farm payrolls and the 203.000 new jobs reported beat estimates for 185,000 jobs added. The DOL also reported Friday that the unemployment rate fell to 7.0% and below expectations of a 7.2% rate.
Some continue to worry that Federal Reserve easing will come to an earlier end due to the good economic data and the market sold into early news.
Major Stock Market Indexes
The major index charts of the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, showed most had somewhat bearish pullback durations and other slightly bearish indications in their recent downturns. Even so at this point the pullback appeared to be a round of profit taking that greatly relieved overbought conditions. Most rebounded strongly Friday at or near likely turning points, and most are not far from new highs.
The Dow Jones saw five straight days of losses. It also fell to a low lower than that seen prior to the five day run that preceded the recent drop. It fell through the 13 EMA and finished below both it and the 16,000 level for three sessions before the strong rebound Friday carried it back above both levels.
Even though some of the other indexes showed a bit of bearishness, the NASDAQ chart showed none. The NASDAQ broke a six day string of increases with a bullish two day drop, and then rebounded off the 13 EMA Wednesday to finish that session higher. It slipped somewhat off that close Thursday, and then pushed to a new 52 week intraday high before slipping to close slightly off a new 52 week high Friday.
The S&P 500 also saw five straight days of losses, but turned higher before reaching a lower low. It finished two sessions below the 13 EMA and three below 1800 before turning higher Friday to finish above both levels. Friday’s intraday highs were enough to add to an eight week string of gains, but the index finished slightly lower than that high and also slightly lower than the previous week to break the string of weekly gains. The rebound came from above the lower bandwidth of the 100 L, indicating a continued support at this level.
The New York Stock Exchange began the week with four straight losses, and the rebound came from a lower low than that seen in the previous cycle. It also finished three sessions below the 13 EMA before Friday’s rebound carried it back above this level.
The Russell 2000 broke a six session streak with higher closes when it started the week with a somewhat bearish three straight losses. Even so the drop rebounded at a bullish higher low. The drop carried it below the 13 EMA and below the upper resistance at the 100 L at 1125 for three straight finishes before rebounding back above both on Friday.
The short durations the indexes held below the 13 EMA before rebounding back above it are generally bullish. The drops brought most indexes well out of overbought conditions. Economic news was very good in the past week, but it helped to slow the rally’s progress as worries continued about the nearing end of Federal Reserve stimulus. Although there were some bearish traits seen in the recent pullback on several of the indexes, all showed some bullishness too. It looks possible the indexes could continue to rebound from this round of profit taking in the week ahead.
US Treasury Charts
The price on the 20 year US Treasury note broke back below the 13 EMA on Monday and has not rebounded above this level since. It retested previous lows on Thursday before rebounding on Friday. The turn higher Thursday was at a slightly higher low than the previous retest, but since this chart is not fully oversold, that might not have been the low, as it continues to seem fairly likely the low could be broken in this downturn. The very good economic news this past week is probably reason enough for rates to slip off their current levels. The gap between the 13 EMA and 50 EMA widened during the week, reaching its highest disparity between the two so far in the recent down trend. Overall this chart continues to look bearish and it seems possible treasuries could resume their longer term downtrend.
The US Treasury price charts continue to exhibit bearish traits, which is generally bullish for stocks.
The 10 year US Treasury Note interest rate has pushed higher in six of the past seven sessions. The rate finished Friday at the highest close since Sept 13 and is not far from a 52 week high. The current run is set firmly above the 13 EMA. Although the chart is nearing overbought conditions, it seems fairly likely it could hold in or near this level in an overall bullish move higher. Economic data continues to point to a probable nearer term end to QE, and it doesn’t seem too unlikely that could send rates back towards the 4% level on the 10 year in the first half of next year. This chart continues to show bullish traits.
Gold began falling off Friday’s New York Spot close of 1252.00 shortly after the Sidney open late Sunday night and continued lower in all open markets Monday before reaching a low of about 1218 late in the New York open. It traded rather flatly Tuesday between a high of about 1225 and low of about 1217, but then broke lower in the early morning Wednesday late in the Hong Kong open with the fall continuing into the London open reaching a low of about 1211. It turned sharply higher in New York trading to reach 1250, but slipped from these highs in the Aussie and Asian opens to finish the day at about 1240. The drop continued Thursday morning during the late Hong Kong open, London open and midway through the New York open falling to about 1218 in the process. It again rebounded sharply to about 1234 and later bounced to a high of about 1236, before falling again to finish the day at about 1225. It trended slowly higher Friday to reach about 1235 in the early New York open, spiked sharply lower to about 1216, then rebounded sharply higher to about 1243 with the fall and rebound taking less than an hour. It fell back to about 1235 in the next hour and trended slowly lower into the close. The New York Spot closed Friday at 1229.20 and lower than the previous week’s close of 1252.00.
Although the gold bugs continue to point to Asian market demand increases, as with most cases over the past month or so, the charts continue to appear to show that the Asians, along with most of the rest of the world, are selling into American market pushes higher.
Gold is seeing increased volatility, not only with the increasing frequency of large quick moves, but this past week the London PM Fix has seen four of the ten largest daily price changes of the year. Increases in volatility are generally bearish.
S&P 500 Constituent Charts
The five day decline on the index brought many of the constituent stocks into fully oversold conditions, while others that began to rebound out of fully oversold conditions earlier continued higher. Many others have fallen the nearest to oversold levels seen in months, while many of those that have been running in or near overbought continued to do so.
Many of the indicator stocks fell with the overall market in the past week, but many began to rebound earlier than the overall market. Most maintained trend.
Many of the stocks that were in bullish moves higher continued to move higher into the pullback, while most of those that did turn lower maintained within the established uptrend and fell to or near likely rebound points.
There are quite a few stocks near resistance that fell into fully oversold conditions, giving an increased potential of resistance breaks in the near term.
Some stocks that were in downtrends made very bullish moves back above the 13 EMA and have since maintained a move higher above it. Although they have not yet established uptrends, some have not been above the 13 EMA for quite some time. Of course this is not always the case, but moves like this often indicate sustained runs higher have begun in these stocks.
Overall the index stocks have maintained a very bullish appearance into the resent downturn. The numbers of stocks in or near fully oversold conditions makes a continued rebound seem likely.
The +/(-) 90 D, (-)/+ 90 D and 100 L indicators are currently active. See a more detailed description of the indicators developed through research here.
Although a new indicator became active, the overall reduction of active indicators seen during the past month or so generally shows a reducing likelihood of volatility. Most other indicators suggest that volatility could remain calm and low volatility is most often bullish.
The +/(-) 90 D indicator that became activate on Oct 7, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+7.82% / -1.23% / +7.69%
The (-)/+ 90 D indicator that became active on Nov 25, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+0.26% / -0.97% / +0.14%
The 100 L continued to influence the S&P 500 with continued activity around the 1800 midline of this resistance level. After dropping through the midline support Monday and rebounding from support near the midline at 1798.60 the index finished Monday above support at 1800.90. The midline then began to turn back into resistance; Tuesday’s high turned lower at 1800.10 and Wednesday’s high was turned back at 1799.80. Although Thursday finished lower than Wednesday, Wednesday’s intraday low was the lower and it rebounded at 1779.09, a fair distance above the lower bandwidth of this resistance seen at 1775. The run higher Friday took the index back above the 1800 level, being the third break and close above this resistance level. The break back above the midline makes it seem possible the resistance seen there could turn back into support.
The pullback the index had taken in the 100 L this past week has begun to reduce tensions that seemed likely would remain at higher levels once the index reached the midrange resistance. It seems possible the midrange resistance at 1850 to 1865 could still be formidable, but the drop potentially was weakened and it now seems possible the pullback might not be as deep as it appeared earlier. These tensions could rebuild, although it seems somewhat unlikely, and as a result the projected drop range has been adjusted to 3% to 7%.
Some of the indexes gave somewhat bearish indications during the past week; however they have countered them with bullish indications Friday. The drop was into economic news that was very good overall, with Friday’s rebound credited to a good jobs report. It seems possible the pullback was a combination of profit taking and worries that the good economic data would speed the end of Federal Reserve easing policies. Selloffs on easing worries are usually temporary as equities are more likely to do well in a strong economy, and the end of Fed easing would indicate the Fed agrees the economy can continue to grow without stimulus. The pullback brought the indexes and most stocks out of fully overbought conditions, so profit taking could be reduced. Therefore it doesn’t seem unlikely that Friday’s strong rebound could continue.
The index continued to struggle with the 100 L, although it appears to be weakening the resistance in this level.
There continues to be a potential for a significant drop within the 100 L, however due to the time of year the resistance within the 100 L might not be strong enough to cause a significant pullback. It seems most likely that if a significant pullback is seen within the 100 L it would be seen in the upper portion of this resistance level, possibly falling from near the upper boundary. If a significant drop is seen, it does not seem likely it would exceed the 3% level by much.
Although there is reason to be cautious as the S&P 500 moves through this resistance, it appears the index is maintaining an overall bullish posture. It continues to find and rebound off support near recently broken resistances.
Rebounds in volume made this week were highest into the selloff, a somewhat bearish indication; however the five day drop on the index was fairly shallow, with a good portion recovered in the first day of the rebound on Friday. These higher volumes and downward price move would indicate an increased rate of selling, but the relatively small price drop over the five days could indicate buyers were adding quickly into the decrease in prices.
An overall reduction in active indicators over the past month or so generally shows a decreasing chance of volatility with times of decreased volatility generally bullish.
There appears to be only one midrange resistance level between the 100 L’s once the index breaks above 1800. That resistance is likely to be seen from 1850 to 1865. Although it is still too early to tell for certain, it seems fairly likely this resistance could cause a significant pullback. If this resistance should cause a significant pullback, the timing that the index reaches this resistance could be a determining factor in the depth of this drop. Tensions likely to be seen as the index reaches this level reduced somewhat and as a result probably weakened this resistance level. At this time it looks possible this resistance could cause a 3% to 7% pullback. This resistance level potentially fits the earlier projections of the Oct 7, 2013 90D. When used in these projections the depth of this drop was projected with timing providing maximum resistance.
Not all data needed to determine how the index might react at this resistance level is available at this time and any projections about this resistance are preliminary. The projections made about this resistance level could change over time as this data becomes available.
Please note there is no established resistance at the MRL levels; the index has not reached these levels before. They are the most likely levels that resistance will be seen based on research. Back tests of the data used to project these resistance levels work well, but they are not allows exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.
There continues to be many reasons to be bullish at the current time. Any pullbacks in stock prices seen along the way are probably a good opportunity to add.
One of my readers questioned a statement made about stock splits in the An alternate investment strategy article during a conversation we had. He doubted that stocks that did not split at high prices had volumes that fell and that they generally did not appreciate in value as fast.
The initial study on this was long ago, probably in 2003 or 2004. It seemed to prove that stocks that split generally appreciate in value faster, increased dividends faster, and saw volumes increase. It also seemed to prove that stocks that did not split show volumes fall off greatly and tended to trade at lower valuations than similar peer stocks. This file has not been found to date. It is possible it was lost in an earlier computer crash or this data was not reloaded from backups after one of those crashes since it was not used regularly.
The source used to collect the long term earnings data used in this study is no longer available, which makes reconstructing this comparison even more difficult than it was when it was done. To duplicate it fully will take considerable time, so the search for this file will continue.
Since this data is not available at this time, a study of the current stocks in the S&P 500 that have reached these levels will be used in its place. None of these stocks were part of the original study, so it will help to show if the conclusions drawn earlier are valid. It will also give a chance to look more closely at a couple of the stocks brought up in this conversation that I could not give detailed answers for at the time.
Given the short time frame the data collected and given in this article will be nowhere near as comprehensive as the original study. It is also important to note that none of the stocks used in this comparison made the time duration of going without a split needed to make the original study, but many are showing the same signs seen in the stocks that did make that study. This data was gathered and analyzed as time allowed during the week, so these samples will have varying ending dates.
The volume data is fairly easily to replicate so let’s take a look at the data in detail of one of the stocks that has run to a high price and has failed to split: Apple Inc. (AAPL). It was also one of the stocks mentioned as reason for disbelief along with Google (GOOG) and data, although not as detailed, is also included for Google below.
Apple last split on Feb 28, 2005, so the data discussed below is split into two data sets, the split data and the non-split data. First let’s look at the non-split data. Apple’s volumes were calculated for all occurrences of prices in $100 increments based on closing prices, and these volumes are as follows:
From the lowest closing price on May 12, 2005 of $34.13 to the highest closing price under $100 on April 27, 2007 of $99.92 there were a total of 649 occurrences with an average daily volume of 29,147,813 shares traded.
From the lowest closing price equal to or greater than $100 on Dec 9, 2008 of $100.06 to the highest closing price under $200 on Nov 20, 2009 of $199.92 there were a total of 561 occurrences with an average daily volume of 31,608,815 shares traded. Please notice that volume peaked during this price range.
From the lowest closing price equal to or greater than $200 on Dec 22, 2009 of $200.36 to the highest closing price under $300 on Oct 12, 2010 of $298.54 there were a total of 207 occurrences with an average daily volume of 22,089,971 shares traded.
From the lowest closing price equal to or greater than $300 on Oct 13, 2013 of $300.14 to the highest closing price under $400 on Nov 11, 2011 of $399.73 there were a total of 287 occurrences with an average daily volume of 17,133,952 shares traded.
From the lowest closing price equal to or greater than $400 on Nov 4, 2011 of $400.24 to the highest closing price under $500 on Sept 4, 2013 of $498.69 there were a total of 227 occurrences with an average daily volume of 15,409,989 shares traded.
From the lowest closing price equal to or greater than $500 on Jan 18, 2013 of $500 to the highest closing price under $600 on March 30, 2012 of $599.55 there were a total of 178 occurrences with an average daily volume of 18,161,774 shares traded.
From the lowest closing price equal to or greater than $600 on July 24, 2012 of $600.92 to the highest closing price under $700 on Sept 17, 2012 of $699.78 there were a total of 94 occurrences with an average daily volume of 18,454,041 shares traded.
From the lowest closing price equal to or greater than $700 on Sept 21, 2012 of $700.09 to the highest closing price under $800 on Sept 19, 2012 of $702.10 there were a total of 3 occurrences with an average daily volume of 15,142,467 shares traded.
This data shows two things that are common to nearly every stock checked that fails to split and has a beginning price under $100. Volume nearly always peaks during the time period the stock is trading between $100 and $300, and volume nearly always falls to about half or less of the peak level when it is trading between $300 and $500. Most times this volume continues to fall from these levels, so why didn’t it this time?
One factor was there was a large pullback that greatly increased volume into the sale. Volume increased dramatically during the pullback from the Sept 19, 2012 high of $702.10 to the April 19. 2013 low with the 144 days seeing an average daily volume of 19,603,439 shares traded. To the Dec 2, 2013 close the 158 days in the rebound since has only seen average daily volume of 13,160,523. During this time it is trading at volumes of over 50% under the peak.
Now let’s look at the presplit data. In the year prior to Apple’s split, the split adjusted volume data showed a daily average volume of 22,119,724. In the year following the split average daily volume up ticked to 24,920,169 shares. In the past year average daily volume on Apple was 15,313,753 shares. This clearly illustrates what is normally seen; post-split volume increases and the lack of a split into higher stock prices see volumes decrease.
Some will argue that this volume decrease is due to a lack of sellers, but actually it is a lack of buyers that causes the volume decreases. Buyers push stock prices higher. Just as in a business, limiting sales will limit profit potentials, limiting sales of stock will eventually begin to limit upside potential.
The following contains volume comparisons of the highest priced stocks in the S&P 500 on Dec 4, 2013, they are listed in descending order:
The highest priced stock in the S&P 500 is priceline.com Incorporated (PCLN). Priceline has split once, 6:1 on June 16, 2003, but since that time has run to a Dec 4 close of 1181.67. The following data only considers volumes beginning on the date of the last split. The average daily volume topped in the 100 to 200 range at 1,407,016. It fell to 1,254,973 in the 200 to 300 range; to 1,140,642 in the 300 to 400 range; to 1,126,574 in the 400 to 500 range; to 1,136,671 in the 500 to 600 range; to 835,430 in the 600 to 700 range; to 956,908 in the 700 to 800 range; to 678717 in the 800 to 900 range; to 653,939 in the 900 to 1000 range; to 645,543 in the 1000 to 1100 range; and has average 550,087 shares per day since breaking above 1100. Priceline has never paid a dividend.
Priceline is a rare stock; its presplit volume was larger than its post-split volume. During the entire pre-split period Priceline had a split adjusted average daily volume of 3,195,368. This volume was over two times higher than its highest daily average found in the 100 point increments since.
Google Inc. (GOOG) had average daily volume top in the 200 to 300 range at 10,566.135. It fell to 7,922,618 in the 300 to 400 range; to 5,458,431 in the 400 to 500 range; to 3,769,447 in the 500 to 600 range; to 3,400,747 in the 600 to 700 range; to 2,933,316 in the 700 to 800 range; to 1,988,973 in the 800 to 900 range; to 2,403,717 in the 900 to 1000 range; and has average 1,849,469 shares per day since breaking above 1000. Google has never split nor paid a dividend.
MasterCard Incorporated (MA) saw average daily volume top in the 100 to 200 range at 3,469,662. It fell to 2,004,704 in the 200 to 300 range; to 1,493,847 in the 300 to 400 range; to 785,609 in the 400 to 500 range; to 639,430 in the 500 to 600 range; to 666,055 in the 600 to 700 range; and has average 474,382 shares per day since breaking above 700. MasterCard has never split and pays a $0.60 quarterly dividend. It began paying a dividend on Oct 5, 2006 at $0.09, increased on April 4, 2007 to $0.15, increased on April 4, 2012 to $0.30 and increased on April 4, 2013 to $0.60. MasterCard’s dividend yield of 0.30% is well below the average of those in its sector.
Graham Holdings Company Common (GHC) formerly The Washington Post Company (WPO). The recent name change has left some of the data used in other comparisons unavailable as many of the sources used for this data have not yet updated for the change of ownership and recent name change. However the price data was available and average daily volume topped in the 300 to 400 range at 36,019. It fell to 30,852 in the 400 to 500 range; to 13,437 in the 500 to 600 range; to 18,708 in the 600 to 700 range; to 15,399 in the 700 to 800 range; to 19,218 in the 800 to 900 range; and averaged 14,456 shares per day when trading above 900. Complete data was not found, but to the best of my knowledge and data available, Graham Holdings has never split. They have paid a dividend, but due to the recent name change full data was not available.
Apple Inc (AAPL) volume data is included above. Apple paid two dividends of $0.03 each in 1995, but not another until it began paying a quarterly dividend of $2.65 on Aug 9, 2012. The dividend was raised to $3.05 on May 9, 2013. On Dec. 2 Apple’s 2.16% yield was greater than the 1.02% sector yield.
For Chipotle Mexican Grill, Inc. (CMG) the average daily volume topped in the 200 to 300 range at 983,510. It fell to 667,010 in the 300 to 400 range; to 462,402 in the 400 to 500 range; and above 500 in has averaged 444,056. Note: discounting the record volume of over 2.4 million shares traded on Oct 18, 2013 the average shares traded above 500 are only 362,720. Chipotle has never split or paid a dividend.
AutoZone, Inc. (AZO) last split 2-1 on April 21, 1994. The following data only considers volumes beginning on the date of the last split. AutoZone saw average daily volume top in the 100 to 200 range at 851,106. It fell to 440,002 in the 200 to 300 range; to 438,656 in the 300 to 400 range; and has average 242,760 shares per day when trading above 700. AutoZone has never paid a dividend.
AutoZone’s split adjusted average daily volume during the entire pre-split period was 269,608 and the stock did not increase above $100 during that time. Post-split average daily volume during the time it was trading under 100 was 769,383. Again splits appear to increase volume in most cases.
Amazon.com Inc. (AZMN) saw average daily volume top in the 100 to 200 range at 11,388,541. It fell to 5,327,948 in the 200 to 300 range; and has average 5,470,915 shares per day since breaking above 300. Amazon has never split nor paid a dividend. Something I found interesting is Amazon’s average daily volume when it was priced at or below $10 was 7,881,069 shares a day, almost a 50% higher volume than it has now.
Intuitive Surgical, Inc. (ISRG) reverse split 1-2 on July 1. 2003. Intuitive Surgical saw average daily volume top in the 100 to 200 range at 1,131,694. It fell to 847,342 in the 200 to 300 range; to 603,981 in the 300 t0 400 range; and has average 339,033 shares per day when it was trading above 500, but has since fallen off that price. Intuitive Surgical has never paid a dividend.
Others that could potentially have seen these volume decreases due to high stock prices that were not included due to time constraints include: Netflix (NFLX), BlackRock, Inc. (BLK), Regeneron Pharmaceuticals, Inc. (REGN), Biogen Idec Inc. (BIIB), W.W. Grainger, Inc. (GWW), Precision Castparts Corp. (PCP), CF Industries Holdings, Inc. (CF), V.F. Corporation (VFC), IntercontinentalExchange Group, Inc. (ICE), and Visa Inc. (V).
Please note V.F. Corporation plans to split its stock 4-1 on Dec 23, 2013.
As mentioned in our conversation the earlier study showed stocks in the same sectors with similar market caps that split usually run to higher trailing twelve month price to earnings ratios (TTM P/E) ratios than those that do not split and run to high prices. The higher TTM P/E ratios would indicate the stocks that split are more likely to run to value, or possibly even over value than those that don’t. There are exceptions to this rule and sometimes non-splitting stocks run to high P/E ratios. These exceptions were usually due to earnings increase disparities but as these earnings increase disparities dissipated, the higher price stocks TTM P/E’s dropped below peers.
Apple is a mega cap in the Information Technologies Sector: In this comparison we will look at the top 5 Mega caps in this sector: Apple (AAPL), Google (GOOG), Microsoft (MSFT), International Business Machines (IBM) and Oracle Corporation (ORCL). We will use snapshots in time of the data that is already formatted for this comparison, although it is possible to go back further, the data is not properly formatted so it would take considerably more time. Apple and Google are stocks that have run to high prices without splitting. IBM is teetering on these levels.
On Oct 6, 2008 the TTM P/E of these five was as follows: Apple: 2.44; Google: 9.06; Microsoft: 9.32; IBM: 6.32; Oracle: 6.63.
On March 5, 2009 TTM P/E of these five was as follows: Apple: 2.22; Google: 7.50; Microsoft: 5.72; IBM: 5.49; Oracle: 5.28.
On April 16, 2010 TTM P/E of these five was as follows: Apple: 16.32; Google: 16.48; Microsoft: 10.86; IBM: 11.88; Oracle: 14.50.
On April 21, 2011 TTM P/E of these five was as follows: Apple: 19.58; Google: 19.90; Microsoft: 13.21; IBM: 14.53; Oracle: 16.79.
On April 4, 2012 TTM P/E of these five was as follows: Apple: 11.80; Google: 17.75; Microsoft: 11.27; IBM: 15.19; Oracle: 12.56.
On March 15, 2013 TTM P/E of these five was as follows: Apple: 10.06; Google: 20.57; Microsoft: 10.95; IBM: 14.05; Oracle: 13.92.
On Dec 4, 2013 TTM P/E of these five was as follows: Apple: 12.71; Google: 24.81; Microsoft: 13.09; IBM: 10.92; Oracle: 11.96.
This data would seem to show the earlier thesis about TTM P/E ratios incorrect, as Google has continued to trade at a higher valuation without splitting than any of its peers with Apple and IBM doing so for extended periods too. Many of the others with volume data listed above are also trading at much higher valuations than similar peers. At the same time the durations that they have held these valuations are relatively short.
It should also be noted that during this time period Google and Apple have had disproportionally higher earnings increases. When these earnings increases level out closer to their peers, mathematics say they will eventually no matter how great a company they are, it is likely they will trade undervalue to their peers if they continue to hold these high stock prices and fail to split. The previous study leaves little doubt this will be the case.
Others have run to these higher P/E valuations on investor’s hopes they might someday reach earnings potentials that justify their current stock price, some probably will, and some probably won’t. Those that don’t will eventually fall in price and never reach the durations required in the first study. During the dot com bubble many stocks ran to over $1000 without splitting, but many went bankrupt or were trading under $10 in 2003 or 2004. To keep the fad stocks out of the study a long duration of absence of splits was used, as they were intended for long duration investments if they proved to be better than lower priced stocks that split.
This information above left out the stocks that split. We’ll look at some comparison data on them another time.
Many of these sources of information were used in this article.
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Have a great day trading,
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Disclosure: I have investments in MSFT and ORCL. I do not have investments in AAPL, GOOG, PCLN, MA, GHC, CMG, AZO, AZMN, ISRG, NFLX, BLK, REGN, BIIB, GWW, PCP, CF, VFC, ICE, V, or IBM, although I have had investments in some of these in the past and would buy some of them if they split they currently do not fit my investment strategy. I am currently about 86% invested long in stocks in my trading accounts. Although my investment level remained unchanged, one issue was purchased with the cost of this purchase partially offset by dividend payments. I consider myself slightly oversold at the current time; however I have and will continue to sell stocks that reach long or short term targets. I will also continue to add stocks I feel are at a great value through a variety of buy orders. I will receive dividend payments from 21 issues in the coming week and 8 in the following week. If I make no further investment changes during this timeframe these dividend payments not change my investment level.
Some of the trades made during the past week were due to repositioning some of my investments as discussed in a previous article. My trading level may be elevated for a time until the realignment of these stock positions are complete.
Disclaimer: What I provide in the Stock Market Preview is my perception of the current conditions and what I think is the most probable outcome based on the current conditions, the data I have collected and the extensive research I have done into this data along with other variables. It is intended to provoke thought of the possible market direction in my readers, not foretell the future. I do not claim to know what the stock market will do. If the stock market performs as I expect, it only means I am applying the stock market history to the current conditions correctly. My perception of the data is not always correct.
This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.