Friday, September 28, 2012

Do Stocks Turn on a Dime at the End of the Quarter?

There is a lot of discussion on how the end of a calendar quarter impacts stock prices.  Can you use history to determine how prices are going to move at the end of March, June, September, and December?

I used the SPDR S&P 500 (SPY) as a proxy for the market and looked at the performance for the last 10 years (40 quarters) ending June 30, 2012, using Yahoo! Finance.  My thesis was to determine whether prices gained or lost on the first day of the quarter, and additionally, whether the move was dependent on what happened the previous trading day.  That is, if the market went down on the last day of the quarter, was there a pendulum swing back up on the next day, or was there a continuation of the trend in the new quarter.

Results of the Analysis

What I found was that no matter what happened in the last day of the quarter, the SPY generally moved up on the first day of the new quarter. 

The SPY gained a total of 19.85 points for those 40 quarters, an average of just short of 50 cents per date.  The price of the SPY fluctuated from 73 to 140 during that period.   28 of the 40 (70%) first days were positive, and only 12 negative.

I tried to break it down to see if I could explain the down days as a function of the previous trading day, (the pendulum effect) but the results were inconclusive.
On days the market was down in the last day of the quarter, the market was up a total of 6.09 points, but when it was up, the market resumed going higher by 13.76 points.  I concluded it doesn’t matter much; the trend is generally up on the first day no matte what the market did on the last day.

There are no doubt many reason for this phenomena, possibly general enthusiasm for a new quarter,  new money flowing into the market, or something options related.  The why isn’t as important as the ability to predict the general trend.  It is not foolproof, but traders looking for an advantage often play the percentages, and 70% is a pretty good percentage.

Thursday, September 27, 2012

Large Cap Power Rankings

I heard Ken Fisher yesterday on CNBC Fast Money.  The point he drove home the whole time he was on was that the bull market is half over, and historically, in the second half of bull markets, large cap stocks outperform.  If you choose a basket of the 30 largest stocks, you will outperform the market.

Now, most investors can't afford to buy 30 stocks. You could probably find an ETF that did this, but most people are going to buy at most three stocks and hope.  Even though Fisher is not a proponent of this at this time.

That said, below is a list of the US stocks with the largest market cap and a few comments.

1. Apple (AAPL) of course.  Huge, growing very fast and the stock maintaining a low Price/Earnings ratio.  Just dropped a quick five percent in price.  What's not to like?

2. Exxon (XOM)  - just a cash machine.  The price of oil goes up and down, but XOM continues to make money.   Up 25% on the year, with a good dividend.

3. Microsoft (MSFT) - a boring stock that is up only 17% in a really good year.  Solid, though, and it's not likely you are going to lose money on it. Decent dividend just raised.

4. WalMart (WMT) - hated by critics, loved by consumers, ignored by investors.  Just keeps selling stuff and making money.  It has a 15 P/E that it may have to grow into.

5. General Electric (GE) is up 40% this year.  They do everything, including make money. Nice dividend but pretty high P/E.  Like WalMart, it make take some time for this to start going up.

6. IBM is only up 14% this year.  It continues to generate big bucks from its services business.  You really can't go wrong with it.  It's not a high flyer, but it won't crash either.

I would rank them 1, 6, 2, 3, 4, 5 as of now.   But, they didn't get to be this big by being bad companies, so they are still all buys.

Saturday, September 22, 2012

Megacap Stocks - Week Ending 9/21/12

Today we look at the largest stocks on US exchanges and look at how they did in the last week.  These are known as Megacaps, the biggest of the large caps (caps standing for market capitalization).  For this ranking, I looked at the performance of the 10 largest market cap stocks

There are any number of ways to rank a list of stocks.  For today's list, I chose relative performance over the last week.

  1. The best performing stock of the week on this list was General Electric (GE), with an increase of 2.69%.  GE hit a new high on Friday and still carries a nice 3% dividend. 
  2. Also having a great week is China Mobile (CHL) with a 2.25% gain.  It's even more impressive considering how beaten down the Chinese stock market is overall.  
  3. Right behind is PetroChina Company (PTR) at 1.39%.  US oil companies were down this week, but the China machine had a good upside. 
  4. You knew Apple (AAPL) had to be in here, right?  Only (he he) a 1.2% gain.  But that is on top of almost non-stop gains over the last three years. It would certainly make number one on most any other list. 
  5. Chevron (CVX) pulled in a 0.47% gain.  Not shabby, as this would be a solid annualized 25% gain.  
  6. Microsoft (MSFT) had a small (0.06%) loss for the week.  Mr. Softie is still hanging around a 52-week high, although it hasn't made huge strides lately.  Carries a nice 2.6% dividend.  Is this really a tech stock?
  7. WalMart (WMT) dropped a paltry 0.07%.  The market can't decide is a good economy is good for WalMart because people spend more or bad because it pushes people to spend money at other places considered to a little classier. 
  8. IBM lost 0.40%,   Still near its high, many people think this should be bought on any dip.  
  9. Exxon Mobil (XOM) dropped 0.41%, no doubt related to the sudden drop in crude later in the week. 
  10. And rounding out the top 10 is Royal Dutch Shell (RDS-A) with a significant drop of 1.34%, triggered by a large gap down on Thursday following crude oil.  It actually recovered some on Friday to mitigate the losses. 
An interesting week for the big boys.  Proving that you can't just buy or avoid a sector, or you will miss out on profits.