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The splits create volatility because of the divisor. there used to be a 2 point
move in a stock to create a 1 point move in the dow. The various splits in the
Dow stocks have created a situation where it takes less then 1/2 a point move in
a stock to create a 1 point move in the index. If a 1 point move in IBM will
cause a 1 point move in the Dow, then split IBM 2/1 it will take a 1/2 point
move in IBM to create the same move. How do you think we got to 10,000 from a
1,000 so rapidly? Outside of the funny book keeping. The splits are one of the
reasons that you can have a down 200 point day and the majority of stocks move a
point or 2 at the most.
"Dorothy K. Carter" wrote:
> Well, I don't know I'd go so far as to say that splits made the market
> rally.... there was a period where people were chasing stocks that announced
> a split so I guess you could say that.....I would say that anytime a
> security goes up it is because there are more buyers than sellers......
> splits are a form of distribution.. so that insiders can sell their stock
> to the masses at lower prices that are affordable....It is true that each
> time one of the DJIA stocks has split the volatility has increased as the
> DOW Divisor became smaller .. I doubt that many of the DJIA large cap stocks
> will do reverse splits.. My point was that once some of these once high
> flyers go below $5 and are no longer marginable that the potential exists
> for reverse splits so they can maintain that status... also re NAZDAQ
> listing.. many of the other stocks we may also see reverse splits so they
> can maintain their listing requirement trading above $1 I believe .... just
> a comment... time will tell
> ----- Original Message -----
> From: "Ira Tunik" <irat@xxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Saturday, September 08, 2001 2:01 PM
> Subject: Re: [RT] s&p .. Where did that cat go?
>
> > It is the splits that made the markets rally and fall with increased
> > volatility. Reverse splits will remove some of the volatility and reduce
> profit
> > potential from the indexes.
> >
> > "Dorothy K. Carter" wrote:
> >
> > > Bloomberg TV showed a chart of S & P and current P/E's based on lowered
> > > earnings expectations vs P/E's at March 2000 high.. P/E's were higher
> now
> > > even though stocks have collapsed giving further proof that stocks are
> > > still grossly overvalued and nowhere near a low of significance.. The
> next
> > > thing we'll see is a number of the companies that have had several stock
> > > splits will have to do reverse stock splits.. I can't wait to see stocks
> > > like ORCl & CSCO do reverse stock splits .. this will be part of the
> > > undwinding of the excesses seen during the bubble IMO
> > > ----- Original Message -----
> > > From: "Don Ewers" <dbewers@xxxxxxxxxxxxx>
> > > To: <realtraders@xxxxxxxxxxxxxxx>
> > > Sent: Saturday, September 08, 2001 10:48 AM
> > > Subject: Re: [RT] s&p .. Where did that cat go?
> > >
> > > > IRA,
> > > > I remember those PE's, as I recall banks were at more like 4?
> > > >
> > > > However, in this current market environment (of excess valuation)
> aren't
> > > we
> > > > "initially" likely to see rising PE's as earning fall even more
> > > dramatically
> > > > than the stock prices? Then after time the stock prices catch up and
> the
> > > > lower PE's materialize. My point is PE ratio's at this time may not
> tell
> > > us
> > > > as much as price to book, price to sales ect?
> > > >
> > > > ----- Original Message -----
> > > > From: "Ira Tunik" <irat@xxxxxxxxx>
> > > > To: <realtraders@xxxxxxxxxxxxxxx>
> > > > Sent: Saturday, September 08, 2001 9:00 AM
> > > > Subject: Re: [RT] s&p .. Where did that cat go?
> > > >
> > > >
> > > > > At the last market bottom, after a bear rampage, the PE ratios were
> down
> > > > around
> > > > > 6. There is still a long way to go to reach these levels. Also the
> > > > majority of
> > > > > the mutual funds closed their doors during that period. We haven't
> seen
> > > > the
> > > > > massive redemptions yet or the collapse of confidence. Those that
> > > > increased
> > > > > their mortgage amounts to buy stocks haven't paid the piper yet, but
> the
> > > > number
> > > > > of bankruptcies are on the rise. There are two ways to reduce PE
> > > ratios.
> > > > One
> > > > > is to reduce the price of the stock and the other is to increase
> > > earnings.
> > > > Let
> > > > > us see how this works out. Ira.
> > > > >
> > > > > Earl Adamy wrote:
> > > > >
> > > > > > 1) The stock market gambling was in no way limited to the 30
> > > > something's, it
> > > > > > deeply infected the baby boomers, near-retired, and retired. These
> > > > people
> > > > > > talked of nothing but stocks at every gathering. Now they shut
> their
> > > > eyes to
> > > > > > what is happening in the market, don't want to talk about stocks,
> and
> > > > fully
> > > > > > expect that their winnings will be restored with a bit of
> patience.
> > > > > >
> > > > > > 2) The bubble was in no way limited to the NASDAQ, it was just
> most
> > > > evident
> > > > > > in the NASDAQ. The blue chips were and very much remain part of
> the
> > > > bubble.
> > > > > > By any gauge of valuation, the blue chips remain valued at
> > > historically
> > > > high
> > > > > > levels. We are now learning that much of the productivity and
> earnings
> > > > of
> > > > > > the past 5 years were fictional as extraordinary charges wipe away
> > > years
> > > > of
> > > > > > "profits".
> > > > > >
> > > > > > Attached find PE and Yield statistics from this week's Barron's
> Market
> > > > Lab
> > > > > > which suggest that the Dow Jones blue chips remain at lofty levels
> > > with
> > > > big
> > > > > > haircuts ahead in prices, earnings, and (especially) dividends:
> > > > > >
> > > > > > a) Market to Book on DJIA remains at nearly 8x
> > > > > > b) DJIA PE ratio is still 24+
> > > > > > c) PE ratio on DJTA is 348
> > > > > > d) DJTA dividends are nearly 5x earnings
> > > > > > e) DJUA PE ratio is 48
> > > > > > f) DJUA dividends are nearly 2x earnings
> > > > > >
> > > > > > Yes, the pendulum will swing far to the other extreme ... very
> far. I
> > > > expect
> > > > > > that when the smoke clears some years from now that sustainable
> > > dividend
> > > > > > yields on blue chip stocks will once again exceed the yields on
> long
> > > > term
> > > > > > treasuries.
> > > > > >
> > > > > > Earl
> > > > > >
> > > > > > --
> > > > >
> > > > >
> > > > >
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> > > > >
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