Judy: I hope this helps.
BigKNY3
The History of the Peabody Model (Updated 7/18/98)
As a long-term investor of over 25 years, BigKNY3 noted the cyclical nature of both PFE and the general market, the various relationships among PFE, the market and other pharm companies. In the summer of 1997, BigKNY3 asked Mr. Peabody to use his incredible Wayback Machine to study these pricing patterns and correlations. Mr. Peabody took the challenge, cranked up the Wayback Machine, applied principles discussed in the PFEr Board and developed the ever-changing Peabody Model. The Model has been shown to be most useful for long-term PFE investors who have a "buy, hold, and buy more on dips" investing strategy.
The Peabody Model (Updated: 7/18/98)
The major findings of the Model are as follows:
1. Since 1990, there has been a cyclical nature to PFE prices related to intermediate high PFE prices (Peabody Peaks) and intermediate low PFE prices (Peabody Valleys). For those engineers and math teachers out in cyberland, it looks like a sine curve that is consistently moving higher.
Since 1990, the average increase from a Valley to Peak has been +30.7%. The average decline from Peak to Valley has been -14.6%.... the average risk when you purchase PFE at an all-time high.
The volatility of declines from Peaks has substantially been reduced since 1994. However, a record # of Peabody Peaks and Valleys will probably occur in 1998...reflecting the record launch and phenomenal media attention associated with Viagra.
.......................................#...............%
..................................Peabody......Average
....................................Valleys........Decline
........................1990..........2............-20.3%
.......................1991..........0................ -
.......................1992..........3...........-15.8%
........................1993.........4...........-20.7%
........................1994.........1............-24.5%
........................1995.........2............-10.2%
........................1996.........6...........-12.1%
.........................1997.........5...........-14.2%
.........................1998........6........... -10.2%
......................................29...........-14.6%
........................................#.................%
..................................Peabody........Average
.....................................Peaks.........Increases
.........................1990.........2...........+39.4%
.........................1991.........1..........+168.8%
.........................1992.........3..........+16.1%
.........................1993.........4..........+23.3%
.........................1994.........0.............------
.........................1995........3............+47.1%
.........................1996........5............+21.0%
.........................1997........5............+32.3%
.........................1998........7 ...........+18.9%
.......................................30...........+30.7%
2. On Peabody Peak and Valley trading days, daily PFE volume is usually significantly higher than the average daily moving average. This volume effect usually lasts for 1-7 days.
Moreover, there is a significant difference between the intraday PFE highs and lows for Peabody Peaks and Valleys as compared to average trading days. Note, there is more profit-taking at Peaks as compared to selling at Valleys. Here's the stats
...........................................................Average Difference
..............................................................Between Intraday...........Average
.............................................................PFE High and Low.........% Difference
...............Average PFE trading day ............1.60...........................2.8%
...............Average Peabody Valley..............3.71...........................5.7%
...............Average Peabody Peak ...............4.63 ..........................4.6%
3. There is a direct relationship (correlation) between PFE and the general market (r=.55). As the market goes, so goes the direction of PFE. The minute by minute PFE price movement versus the Dow Jones almost always matches.
4. Only 20% of PFE's price movement is related to the PFundamentals of Pfizer. Approximately 50% is related to the Big Pharma environment (r=.76) and 30% is related to the general market direction. Since Big Pharma is also correlated to the general market, 80% of PFE movement results from pfundamentals that are not even related to the company.
However, price momentum and breaking PFE news (ie Viagra) could change this formula from 80%/20% to 65%/35%. For example, on 7/17/98, PFE had a growth rate of 55.2% as compared to 35.7% for Big Pharma. Accordingly, the anticipated approval of Viagra may have had an incremental 15-20% positive effect on PFE.
5. Major pharm companies move together. Regression analysis has confirmed this group movement. PFE moves with SGP, BMY, JNJ LLY, MRK and ABT (all r>.40) and least like SBH, WLA, its Lipitor partner, AMGN, AHP,GLX and PU (r<.40).
Since the approval of Viagra on March 27, 1998, the correlation relationships are rapidly changing as PFE sprints ahead of the field.
As of 4/24/98, the major correlation relationships are as follows (greater relationships are indicated by higher positive numbers):
...................PFE ..................................PFE
...................Correlation......................Correlation
...................Factors...............................Factors.....
Big Pharma...66...........................BMY......52
S&P 500.......48 ..........................SGP.......60
Dow Jones....48...........................MRK......51
NASDAQ..... 36............................LLY........46
....................................................ABT........42
...................................................JNJ ........41
...................................................AHP........35
..................................................SBH........13
.................................................. GLX.......15
..................................................WLA ......31
...................................................PNU......14
...................................................AMGN .19
Other Model Correlations
DJ versus S&P................93
DJ versus NASDAQ .........75
DJ versus Big Pharma ......75
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