Gavekal Capital: When The Lead Stock Stumbles

Wednesday, January 21, 2015

When The Lead Stock Stumbles

Off the October 3, 2008 low, has outperformed the MSCI All Country World index by roughly 1,100% making it the single best performing stock in the index.  For this reason, PCLN is the leadership stock in the index.


PCLN began to underperform in March 2014 and appears to be starting to accelerate on the downside.  Using our point and figure charts, the relative strength breakdown is easier to see.  In this chart below, each X is a 2.5% relative outperformance and each O a 2.5% relative underperformance compared to the MSCI All Counrty World Index.


Should present trends persist, PCLN will break the all-important 45 degree bullish support line, suggesting that a major reversal of trend has occurred.  When leadership begins to falter, this is something to be taken seriously.  In our experience, when the lead stock stumbles in a bull market advance, this suggests a change in the overall market trend is taking place.