By Eric Rosenbaum 02/01/10 – 01:43 PM EST
OMAHA, Neb. (TheStreet) — At least for a day, the run-up in shares of Berkshire Hathaway(BRK.B Quote) has run into resistance.
The Warren Buffett investment company B shares were down 1.7% at midday Monday, after closing at a new high last Friday. What’s more, in marked contrast to last week, when Berkshire Hathaway stock was trading up on several days when the broad markets were down, on Monday Berkshire Hathaway’s shares were declining amidst gains in the major market indexes.
More retail investors than ever before are paying mind to Warren Buffett’s Berkshire Hathaway stock. This big news of January was the 50-to-1 stock split in the B shares, bringing the Berkshire Hathaway price to the range of $70 — as well as leading to inclusion in the S&P 500 Index. Both of these events compounded the trading frenzy in Berkshire Hathaway shares, and led to an increase in share price of just over $5 last week.
Last Friday, Berkshire Hathaway closed at $76.43, a new 52-week high. Of course, Berkshire Hathaway set a new 52-week high three times in January, and one of the questions for the masses of retail investors now is whether the Warren Buffett stock is already fairly valued, or still has room to move up.
It is really a brand new world of trading in Berkshire Hathaway, with its post-stock split level of liquidity — it had already surpassed its new average daily volume of 4.5 million shares traded by midday Monday, with more than 7 million shares traded.
Therefore, many technical traders are watching the Berkshire trading dynamics closely to learn how Berkshire shares will trade long-term with their new liquidity. Staying above the $70 mark was viewed as a key indicator by technical traders, as Berkshire Hathaway hadn’t been able to sustain that price target for more than a few days any time in recent months.
Elliott Turner, a trader at T3 Capital, said that long-term charts dated back to 2000 for Berkshire Hathaway indicate that a $75 price target has been a base point for the stock before moving higher. Therefore, after closing above $76 on Friday, it would not be surprising for Berkshire Hathaway shares to pull back. “Getting above $75 and staying there would be a pretty big deal,” Turner noted, adding that, in the long-term charts, the next major congestion point for Berkshire Hathaway has been in the $87 range.
T3’s Turner said Berkshire Hathaway could still pull back to the low 70s, but staying above the $70 threshold is still the more important indicator of the Berkshire Hathaway trading dynamic.
What’s more, when comparing Berkshire’s recent stock performance versus the S&P, the Warren Buffet stock still has a ways to go before it pulls into equilibrium with the benchmark.
T3’s Turner has charted both the S&P 500 and Berkshire since March lows, and the broad equity market index is still up by more than 5% over Berkshire. Turner thinks that for investors trying to understand how Berkshire will trade, it will be important to wait until it pulls into equilibrium with the S&P 500.
Before the recent run-up in Berkshire Hathaway shares, the S&P was up 60% from its March 2009 low, while Berkshire was only up 30%.
Berkshire’s underperformance versus the S&P 500 in 2009 was widely reported. However, during the recent rally in Berkshire Hathaway, the outperformance since March lows is 52% in the S&P 500, and 47% in Berkshire Hathaway shares, pulling Berkshire to within 5% of equilibrium.
This 5% gap means that even if Berkshire is down on Monday, it could still have some room to move up. More importantly, though, the disequilibrium between the S&P 500 and Berkshire Hathaway B shares, while narrowing, will need to be closed before a firm read can be achieved on the trading dynamic in the Warren Buffett stock.
So what’s the takeaway message to investors whose interest in Berkshire Hathaway as been sparked by the recent stock split and S&P 500 news? Berkshire Hathaway is moving more and quicker than ever before, so keep your eye on the Oracle of Omaha.
— Reported by Eric Rosenbaum in New York.
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