Stocks & Commodities V. 29:9 (38-41): Stocks With Problems Falling Off A Cliff by Theresa Fernandez

Stocks & Commodities V. 29:9 (38-41): Stocks With Problems Falling Off A Cliff by Theresa Fernandez
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Stocks With Problems Falling Off A Cliff by Theresa Fernandez

For an investor, there is nothing worse than holding on to a stock and watching its price just keep going down. The news may be good, revenues may be growing, and the company’ s profitability may be encouraging. So what is going on? Not too long ago, investors could hold on through bull and bear markets to stocks that rewarded their loyalty by returning to their bull market highs once the bear got tired. They could hold on to those glamour or blue-chip stocks because those tradables would always come back. And as they waited patiently for their stocks to come back, investors would always count on those dividends. One way or another, they couldn’t lose.


American International Group (AIG) was such a stock. From 1984 the stock exploded to a high of $157.19 in July 1997 after splits. Aig has paid dividends from 1992 to 2008, with yields averaging 8.9% from 2000 to 2006.

Then there was Citigroup (C). The merger between Citicorp, the holding company of Citibank, and Travelers Group in 1998 created a $140 billion firm with assets of almost $700 billion. Although C had not displayed spectacular performance through the years, investors could rely on their dividends, which were paid every year from 1988 to 2007, with an average yield of 1.4% over the 1988–2007 period.

And what about General Motors (GM)? Since its founding in 1908, GM grew to the world’s second-largest automobile manufacturer in terms of sales. While its stock price was so-so over the 1962–2007 period, investors could always rely on dividends; GM has been paying them since 1985 to 2007, with yields averaging 5.0%. For decades, GM was secure that their investment had nowhere to go but up. Investors were unmoving in their belief that “as goes GM, so goes the stock market.”


All three stocks had in common a “falling off a cliff” pattern that became apparent in their charts months before their troubles became public. The pattern has the look of a mountain that rises ever higher, then slopes lower, and suddenly drops over a period of one to eight weeks. Price action just before the cliff is on average volume, drops off on significantly higher volume, sometimes displaying the heaviest volume at the bottom of the cliff.

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