| Stock splits are one of the most powerful | | | | stock. The news was exciting, and tons of shares |
| stock-moving mechanisms. They became rather | | | | were purchased in a short period of time. |
| sparse when the market bubble burst, but when the | | | | As the split execution nears, buying volume starts |
| DOW and NASDAQ moves much higher, more splits | | | | picking up and the share price rises. We call this the |
| are announced. | | | | beginning of the "split run." Why does volume |
| Many analysts say that stock splits don't mean | | | | increase? For number of reasons, but the main one is |
| anything. BALONEY! What they mean is that the | | | | the excitement returns to the stock. Some people |
| "values stay the same." That is true. For instance, if | | | | want to own that stock before the "date of record" |
| you own 100 shares of XYZ at 100 dollars per share | | | | and buy into it for any dividends that might be |
| and the company does a 2-for-1 split, the next day | | | | disbursed. Others want it because they know they |
| you will have 200 shares at 50 dollars per share. The | | | | will have twice as much stock after the split. |
| "value" is the same because you had 100 X100 which | | | | We buy it because history shows that more times |
| equals 10,000 and now you have 200 X 50 which | | | | than not a great company will indeed run into its split! |
| equals 10,000. | | | | If you look at hundreds of charts from hundreds of |
| But the analysts don't take into account the | | | | companies you will see the pattern over and over. |
| profound psychological element of a stock split. That | | | | Unless the market is very weak, the stock chart will |
| is the part that analysts cannot measure and | | | | show a definite move to the upside right before the |
| therefore rarely mention. At InvestYourself, | | | | split execution. |
| however, we understand the power of the stock | | | | Sometimes a split runner will run right up to the |
| split and bring winning split plays to you every week. | | | | execution day and other times it sells off ahead of |
| When a split is announced, you often see that stock | | | | the execution. With this in mind, you should consider |
| rocket up on the news. More times than not it falls | | | | taking out your profits the day before the execution |
| back after a few days and wanders around fairly | | | | day. What do you do with a runner with huge |
| aimlessly for a while. Many people call this the "flat' | | | | momentum that looks like it could get more the next |
| period or "dormant" phase. | | | | day? Use your stop loss to lock in profits without too |
| Then something interesting takes place. A good | | | | much worry of it reversing and falling |
| company's stock will begin a rally about 10 days to | | | | Naturally there is never a rule that works every time, |
| two weeks before the date of the actual split | | | | but for the most part getting in about three weeks |
| execution. Why is that? Remember when the split | | | | (15 trading days) before a split executes and selling |
| was announced the stock popped and then fell back, | | | | out the day before or the morning of the split still |
| often to BELOW where it was when they announced | | | | has a winning rate of about 80%. Those are good |
| the split? On that first run-up, VOLUME came into the | | | | odds in any venture. |