Forum Archive Index - February 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

Looking at the WHS chart this morning reminded me of some paper I read a long time ago about the Psychology of Price. The paper was by some guru from Manchester University.

 

Basically the conclusion was that weekly closing price of a stock was the most important of all prices. This was based on the premise that price is the result of equilibrium, where buyers and seller agree on the value of the stock. The closing price (day or week or month) is the final aspirations of buyers and sellers realised at the end of that day or week or month. What made the weekly close important is that because a Friday is followed by two days of non-trading there are more expectations factored in.

 

That thinking is why I track longer term investments on a weekly close basis.

 

The WHS weekly closing prices says that there is some sense to this thinking, esp to the  'agreed market vakue' of  WHS,

 

For instance for the period 26/2/99 to 1/10/99 the weekly closing price of WHS was nearly always 367 +/- 12 cents. For the period 17/12/99 to 16/6/00 weekly closing price was 423 +/- 12 cents. A fairly high degree of consistency over a long period of time.

 

Even more revealing is how the WHS price has reacted over the last 4 weeks. WHS has traded between 525 and 600 - yet the last four weekly closing prices have been 564, 560, 560, 560. The final aspirations of buyers and sellers have been met on a Friday and the 'agreed market value' of WHS has been set at 560.

 

The recent volatility has provided opportunities for traders and for those who wanted a good entry point into WHS. For the long term investor there has been nothing to worry about - at the end of the week the price has come back to 560.

 

Past WHS trends suggest that the current level (on a weekly close basis) will be maintained (unless something abnormal happens) until June when speculation starts as to what the WHS result will be for the year. The market will then factor in these future expectations.

 

A load of codswallop? but maybe there is something to the efficient market theory and that pricing psychology has a lot to do with it.

 

Any other thoughts

 

Cheers

 

Peter