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John Petersen
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John Petersen is the executive vice president and chief financial officer of ePower Engine Systems, Inc., a Kentucky-based enterprise that has developed, built and demonstrated an engine-dominant diesel-electric hybrid drivetrain for long-haul heavy trucks that promises fuel savings of 30 to 40... More
My company:
Fefer Petersen & Co.
My blog:
ipo-law.com
  • The Importance of Peer Group Volume Comparisons 2 comments
    Dec 19, 2011 5:27 AM
    One of the many market metrics I track to evaluate relative liquidity is a peer group trading volume comparison that calculates the number of days it takes for a company to turnover its entire shareholder base. Relatively long turnover periods usually indicate a fairly illiquid market while relatively short turnover periods usually indicate an overheated market. The following table summarizes the turnover periods for the 16 companies in my current tracking list.



    I tend to view turnover periods in the 80 to 120 day range as evidence of solid liquidity. Anything under 60 days is pretty frothy and indicates a lot of in and out trading. Periods over 150 days are too long for adequate market liquidity and generally indicate either a developing market, or one that's showing signs of weakness.

    As I compare the turnover values with my 200-day tracking charts for the various companies I observe that:
    1. The drop off in volume for Valence has been relatively recent and while it bears watching, it's not necessarily alarming.
    2. The drop off in volume for Ultralife is a continuation of a long-term trend that does not bode well for future market liquidity.
    3. The long turnover period for Axion indicates a developing market that hasn't yet reached a full head of steam and over time I'd look for trading volumes to stabilize in the 750,000 to 1,000,000 share a day range.
    4. ZBB is also developing a more active market and while volume has fallen off over the last couple months, ZBB's trading volume bears watching but is not necessarily alarming.
    5. While I've included several Chinese companies in the list, they seem to follow different rules than domestic companies and I'm not sure how to evaluate their liquidity.
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  • bazooooka
    , contributor
    Comments (2432) | Send Message
     
    John, do you discount volume significance if there is a price drop?

     

    Would a company going from a slow 200 day turnover to a fast 100 day turnover have the same signaling value if also meant a 25-50% reduction in pps? I ask because I'm not sure if small investors think in dollar terms ($1000,$5000 to allocate) and/or round lot orders (i.e. "I want to buy 500 shares" etc.).
    19 Dec 2011, 08:00 AM Reply Like
  • John Petersen
    , contributor
    Comments (29663) | Send Message
     
    Author’s reply » A123 is a prime example of increasing volume and falling prices. It's not always a good thing, but it's important to understand the underlying strength of a change. By and large investors think in terms of dollar range when they buy stock, but they tend to make their buys in multiples of 100 or 1,000
    19 Dec 2011, 09:04 AM Reply Like
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