Market Milestones: Split Decision

This week the SPY, QQQ, RSP, DIA and gold all made new all-time highs. Bitcoin pulled back 18% after making its new all-time high, striking fear and awe in new ETF buyers. JPMorgan says bitcoin is still overbought despite the recent correction and asks everyone to “please keep selling” so they can buy at $42,000.00. That works for me, although $42,000 seems a little overdone JPMorgan. Can we call it $55,555.55 or $50,500.50 for a “normal” bitcoin bull market pullback? The largest pullback bitcoin has had since the October 2022 low was 22%, meaning for the last 500 days, bitcoin really has been number go up technology. Speaking of JPMorgan and number go up technology, have you seen the JPM chart recently? It would be easy to mistake it for a new meme coin, Just Print Money, as it has rocketed 50% higher over the last 5 months. While JPM is soaring high above all-time highs, KRE, the regional banking ETF, is struggling 40% below its all-time high.

Semiconductors, represented by SMH, did not make a new all-time high this week despite MU’s monster earnings report and 18% gap. The semiconductor stocks have been leading this market with NVDA, TSM, AVGO, AMD, LRCX, AMAT, QCOM and MU at the front of this bullish charge higher. While slightly lagging now, all of those names look like they could have another push higher before a larger retest comes in  If that is the case, it could make NVDA the 2nd biggest company in the world, especially since AAPL looks like it will remain on the struggle bus for at least a few more blocks. 

AAPL’s strong support at $180.00 broke down and became strong resistance, acting like a brick wall when price make its way back up to that level this week. The DOJ suing AAPL is just the latest in a string of bearish headlines for the company. AAPL’s chart has been warning of looming bear moves since January 2nd and it looks like AAPL is headed down to test the $166.00 support level.

In any market recap for this week, the FOMC meeting has to be mentioned. The big, giant, exciting news that the market celebrated with a buying spree, fireworks, all-time highs, and utter elation was that there was no news. The Fed is keeping interest rates the same, as was expected, and they are still planning on cutting three times in 2024. The first-rate cut is expected for June, and Jerome Powell did not seem even slightly alarmed at the uptick in inflation we have seen over the past two months.

The Chipotle board approved a rare 50-1 stock split this week. This is the first stock split ever for CMG, whose price per share is $2904.98 at the time of this writing. The split is scheduled for June 26th, and barring any massive price movement between now and then, should put the post-split price between $55.00 and $65.00 per share. A stock split does not do anything fundamentally for the stock besides making each share less expensive. However, there is a certain psychological and emotional angle to stock splits. When investors see the shockingly high $2900.00 price of CMG, they automatically think it’s an “expensive” company, no matter what the underlying fundamentals are. The opposite is also true as many investors see companies under $100 as “inexpensive” and a great deal, no matter what the fundamentals are.

The great benefit of stock splits for retail traders is the increased ability to purchase 100 shares or a “round lot.” This number of shares is important because options control 100 shares of a stock. Options can be used as hedging tools, as well as ways to collect premium with both covered calls or put sales.  Currently you would need to spend $290,000.00 to purchase 100 shares of CMG. After the split the approximately $6,000 price for 100 shares will make CMG much more fun and accessible to trade.

Walmart (WMT) is another company that recently underwent a stock split. Their split was a 3-to-1 split, bringing the stock price down to the prime $60.00 region. Now, it's up to investors to decide which stock offers a better deal at $60.00. It's worth noting that CMG has a higher P/E, forward P/E, P/S, and P/B ratios than Tesla (TSLA) does currently. Apparently, the future is not in self-driving cars and humanoid robots, but rather in simple menus and delicious burritos.