Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: RocketMan who wrote (1704)	1/6/1999 4:25:00 PM
From: Keith Howells	Read Replies (3) \| Respond to of 41369

Rocketman, Your theory on the movement of the stock sounds logical. The only question I would have is on the share balance of the mid-cap funds versus the S&P funds. In other words, do the mid-caps have to sell less than the S&P funds have to buy? If so, I would expect the price to move up as the mid-cap selling dries up. If the mid-caps have more to sell then the price could go down. Either way, I hope the slow movement stops soon. This stock could use some real news to get it moving again. Something like a cable deal that would bring buyers in and jump start this baby.

To: RocketMan who wrote (1704)	1/6/1999 4:26:00 PM
From: Voltaire	Read Replies (2) \| Respond to of 41369

RocketMan, Let me tell you something. I have seen a lot of post on these boards and if I were to take one and carve it in stone my man, your post is it. I don't mean to be graphic but taking my shower the other night, that is exactly what ran through my mind. Excellent. Voltaire

To: RocketMan who wrote (1704)	1/6/1999 5:02:00 PM
From: Sonny McWilliams	Respond to of 41369

I have been trying to post an article but I can't get it on here. This never happened before. Anyhow, there is an article on Yahoo and on AOL news that CompuServe, owned by AOL, is being sued by a Florida abortion clinic. Check it out. This news is supposedly around since Monday but was posted around 3.07 today, I think. You have to go to Quote and then to the news. It is not on the AOL thread news or just go to Yahoo news. Sonny

To: RocketMan who wrote (1704)	1/6/1999 5:30:00 PM
From: Sonny McWilliams	Read Replies (1) \| Respond to of 41369

Here is that article. dailynews.yahoo.com

To: RocketMan who wrote (1704)	1/6/1999 6:30:00 PM
From: Tunica Albuginea	Read Replies (1) \| Respond to of 41369

RocketMan, your explanation of AOL moving from Mid-cap funds to S&P funds in an orderly fashion is very plausible. However I assume that there aren't enough AOL shares in mid cap funds to sell to S&P Funds. So sooner or later these folks have to buy.The question is when. How much time do S&P funds have to do this. I ask: don't these funds have to publicize their holdings only quarterly to their investors? So they may not have to buy all of their AOL until later; perhaps until end of Feb? Does anybody know? By the way,Liz Ann Sonders, Managing director, from Avatar Associates was just on CNBC ‘s “ Taking Stock “with Maria B and Ted David ". AOL is No1 on her list. She says there are whole lot of people who are going to have to buy AOL who haven't bought yet and will be obliged to start buying soon. TA

To: RocketMan who wrote (1704)	1/6/1999 7:27:00 PM
From: Modano	Read Replies (1) \| Respond to of 41369

I find your analysis fascinating as well. Great post. I think when I combine your analysis with the following article from The Motley Fool I have the best understanding. Maybe what you are saying is typical for stocks like AOL that have been added to the S&P 500. I think this will be a tough few weeks followed by a split announcement... followed by what I hope to be a fantastic earning report. I think January will be a period of establishing some sort of base in this regard followed by news and a fantastic February. (IMHO). Modano : ) AOL Long. Here is the bulk of that Motley Fool article: fnews.yahoo.com "Today's game is "Changing the S&P 500," and the target match features America Online (NYSE:AOL - news) , which is being added after market close today, and Venator (NYSE:Z - news) , which is being dumped. Based on research conducted by economists Anthony W. Lynch of New York University and Richard R. Mendenhall of the University of Notre Dame, for the period 1989 through 1995, stocks going into the index gain an average of 3.2% on the day after the news of the change and an additional 3.8% before the change occurs. These stocks usually spike the day of the change (that is, today) as money managers mimicking the index rush to take positions. The jilted stock drops by 6.3% the day after the announcement and another 12.7% before the actual change. As I've discussed before, the growing importance of the S&P has actually exacerbated these swings. Since December 22, when S&P announced this latest move, AOL has soared 18.1%, from $122 3/4 to $145, while Venator dipped 12.1%, from $6 13/16 to $5 7/8, before recovering to $6 3/4 today. Venator's rebound is interesting because the Lynch-Mendenhall study found that stocks deleted from the index experienced a permanent negative price effect of 14.1% to 15.7%. In other words, with a bunch of fund managers no longer obligated to own these issues, the demand curve shifted, cutting the price. However, the day after the S&P drops a stock, there's typically a recovery of several percentage points as the selling pressure ends. Given that Venator had already plunged from a 52-week high above $27 and much of the tax-loss selling had been done before the S&P news came out, the index-related selling appears to have enticed bargain hunters to bite, figuring all the bad news for the year was out and bounce was on the way. AOL investors should note, though, that the Lynch-Mendenhall study also showed that stocks joining the index typically dropped by about 0.75% the day after being added and another 1.25% over the next week, though these issues still end up trading 5% above the levels seen just prior to the S&P's announcement. Merrill Lynch tracked index newcomers during the 1990-1998 period and found that these stocks underperformed the index for up to a month after being added, with the 30-day underperformance rising to 8.5% this year, in line with greater outperformance in the week leading up to joining the index. That suggests AOL could have a tough month ahead, relatively speaking. One potentially mitigating factor, though, is that since the S&P index is market-cap weighted, and AOL is much larger than Venator, money managers may have to sell down their other index holdings to buy enough AOL. That could push the overall index down. At least, that's the speculation. It will be interesting to see if that's how the game plays out."

To: RocketMan who wrote (1704)	1/7/1999 2:26:00 AM
From: Jolie Renee	Read Replies (1) \| Respond to of 41369

>>There are some unusual trading patterns going on with AOL. I don't think this is normal consolidation<< You said it better than I could've. Enjoyed your post, RocketMan. - Jolie

To: RocketMan who wrote (1704)	1/7/1999 12:02:00 PM
From: Jon Stept	Respond to of 41369

RocketMan, Re:"Large fund families have mid-cap funds that need to sell AOL, and large and index funds that need to buy" Hi RocketMan, Enjoyed your post. I have had the same thought, that is some funds need to unload, others need to buy and how can they coordinate to minimize buy/sell costs. I am not sure if funds belonging to the same company (i.e.- a mid and a S&P fund both at, lets say, Fidelity) can coordinate among themselves... sounds kinda improper, but who knows. If there is some unspoken agreement about funds trading at some specified times to compliment their buys/sells would require too much coordination. Sounds like collusion. So I don't know about that either. Also, I think there are a lot of funds. And, those funds that decide to not participate in the little "save money" party by the others would ream them when they see them selling or buying. The last explanation seems the most plausible to me, if at all, as there as so many fund companies competing with each other that coordination seems next to impossible without a gargantuan effort. The erratic pattern you notice might just be the unconnected large buying and selling by funds as they load/unload their large volume of shares. Just my opinion. Jon :)