Thursday, June 09, 2011 10:15:20 PM
HOW TO SPOT DILUTION USING CHARTS
This has come up a couple of times lately, and is a common question among traders questioning whether they should invest or not. Although, a sure fire way to find out about dilution is either through company filings or the transfer agent. I tend to use a simple chart to tell me the story.
Dilution in general is when the company releases more shares of it's "outstanding" share count into circulation, causing the value of your share to go down.
Dilution isn't always a bad thing. In fact, it's how "real" companies finance revenue generating operations. So if a company dilutes a chunk today, but buys a new business or expands their inventory to create more revenue, then the dilution is GOOD. In a case like the below chart, it appears that the dilution is regular and over time. Thus causing a downward PPS trend, and an upward volume trend to achieve the same PPS.
The chart tells the whole story to me, and although this chart still has great volatility for a day trader to make in and out trades, I don't recommend parking your dough in there and hoping it's gonna hit a 52 week high.
Dilution in Charts:
Peak/High days are progressively achieving a lower PPS
Dip/Low days are progressively achieving a lower PPS
Volume shows a progressive trend upwards to achieve the same PPS as it did with significantly less volume earlier.
EXAMPLE CHART:
This has come up a couple of times lately, and is a common question among traders questioning whether they should invest or not. Although, a sure fire way to find out about dilution is either through company filings or the transfer agent. I tend to use a simple chart to tell me the story.
Dilution in general is when the company releases more shares of it's "outstanding" share count into circulation, causing the value of your share to go down.
Dilution isn't always a bad thing. In fact, it's how "real" companies finance revenue generating operations. So if a company dilutes a chunk today, but buys a new business or expands their inventory to create more revenue, then the dilution is GOOD. In a case like the below chart, it appears that the dilution is regular and over time. Thus causing a downward PPS trend, and an upward volume trend to achieve the same PPS.
The chart tells the whole story to me, and although this chart still has great volatility for a day trader to make in and out trades, I don't recommend parking your dough in there and hoping it's gonna hit a 52 week high.
Dilution in Charts:
Peak/High days are progressively achieving a lower PPS
Dip/Low days are progressively achieving a lower PPS
Volume shows a progressive trend upwards to achieve the same PPS as it did with significantly less volume earlier.
EXAMPLE CHART:
EL JEFE'S TRADING FOR PROFITS
"I LAY IT OUT FOR YOU TO PLAY IT OUT"
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