Have you ever wondered what’s the significance of a stock price reaching its 52-week high?
On their paper, Volume and Price Patterns Around a Stock’s 52-Week Highs and Lows: Theory and Evidence; Huddart, Lang, and Yetman explained the rationale or I would say, the irrationality, behind the increased interests within these price ranges. They sampled 2,000 firms drawn from the Center for Research in Security Prices (CRSP) universe of common stocks listed on the NYSE, Amex, or NASDAQ exchanges at some point in the period from Nov1982 – December 2006.
Their noteworthy conclusions were;
-Volume is strikingly higher, in both economic and statistical terms, when the stock price crosses either the upper or lower limit of its past trading range.
-The increase in volume is more pronounced the longer the time since the stock price last achieved the price extreme, the smaller the firm, the higher the individual investor interest in the stock, and the greater the ambiguity regarding valuation.
-These results are striking because they are associated with an event that does not convey information about firm fundamentals.
Although the samples were taken from the US stock market, I would assume that their study is also valid for any markets, including the Philippine stocks.
The evidence were shown below. These are the Philippine stocks that I have sorted, using Financial Times’ free stocks screener. My search criteria is to find stocks which have increased above 100% of their 52 week highs. It resulted to 26 out of 262 listed firms.
From the top 10 stocks, it’s interesting to note, that once the price breaks its 52 week high, the share price continues to trend up for the next two to three months before consolidating.
Below is the complete list from the search criteria.
Although this is not a foolproof trading strategy, you may want to take heed once you see a stock price hits its 52-week high. You might want to catch your next stock of the year!