Feeling Queasy Over Latest ‘Pole’ Results
When Travelers Group and Citicorp announced their surprise merger plans April 6, elation over the deal helped push Citicorp shares from $143 to $180.50 in that single session, while Travelers shares rocketed from $61.69 to $73.
But that was as good as it got: Travelers has since drifted back to $60.75, as of Thursday, dragging Citicorp down as well, to $149.
On a stock chart, Citicorp’s surge April 6 now looks like a “high pole top,” in the vernacular of technical market analysts.
Michael Burke, veteran technician with Chartcraft Inc. in New Rochelle, N.Y., describes a high pole top as a situation wherein a stock “pretty much goes straight up” in a single session or over a series of sessions, then quickly falls back.
The rapid descent from the “pole top” means that “a lot of people are left holding the bag,” having paid often extraordinary prices to get into the stock, only to face immediate paper losses, Burke said.
“It’s a very, very dangerous” pattern for a stock to exhibit, Burke notes, because it strongly suggests that bullishness over the shares has peaked.
What concerns Burke isn’t just Citicorp’s trend, but that “we’re seeing [high pole tops] in loads and loads of stocks here.”
Other issues that have arguably traced similar patterns recently include BMC Software, Conseco, Hewlett-Packard and Ameritech. Far more dramatic “pole” patterns have been traced by many small Internet-related issues.
In some cases, the catalyst for a particular stock’s reversal from its pole high was specific bad news--as in the case of Hewlett-Packard on Thursday, as it dove $11.31 to $70.31 after the company warned that quarterly earnings will fall short of estimates.
Ameritech, however, peaked at $49.69 on April 3, after rising 14% in the prior three weeks. The stock’s peak preceded by five weeks SBC Communications’ bid for Ameritech this week--a bid that continues to fall in value with SBC’s flagging stock. Ameritech’s close on Thursday: $43.25.
Of course, some of the buying that pushed these stocks way up may have been “short covering,” meaning buying by traders who had previously sold borrowed shares, betting prices would fall. When a stock begins to surge, short sellers can be forced to close their positions by buying shares in the market--helping drive prices even higher.
Whatever the source of the buying, however, high pole tops aren’t comforting to chartists. One of the most famous high pole tops in recent history was Iomega Corp.’s in May 1996. The computer memory device maker’s shares rocketed from $15.50 on May 10 to $27 on May 22, then fell back to $19.44 by May 28.
The stock never fully recovered. Today it’s at $7.50.
TICKER TALK
The world’s biggest cancer conference takes place at the Los Angeles Convention Center beginning Saturday and running through Tuesday, as thousands of cancer specialists convene for the annual meeting of the American Society of Clinical Oncology. The meeting will highlight new cancer treatments--and could give a boost to biotech firms working on such treatments, says Medical Technology Stock Letter, based in Berkeley. The newsletter says companies to be represented at the meeting include Chiron Corp. (ticker symbol: CHIR), ISIS Pharmaceuticals (ISIP), Immunex (IMNX) and Ligand Pharmaceuticals (LGND).
Entremed (ENMD), which created a sensation last week when its cancer treatments got major publicity, no doubt will be a hot topic. (But talk about a high pole top: Entremed has gone from $12 to $51 to $32 in two weeks!)
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Tom Petruno can be reached by e-mail at tom.petruno@latimes.com.
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Citi Surge
Shares of Citicorp soared 26% on April 6 on news of its merger plans with Travelers Group. But the stock has since given back most of that gain. Daily closes on the New York Stock Exchange:
Thursday: $149.00
Source: Bloomberg News
