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Dennis Dick & Joel Elconin

Joel’s introduction to trading was in the Standard and Poor’s 500 Index futures pit at the Chicago Mercantile Exchange. Also, during his time at the CME, he was involved in Index Arbitrage as well...

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Berkshire Hathaway - Off To A Bad Start in 2014

While the S&P 500 index is off less than one percent so far in 2014, one of its top components, Berkshire Hathaway (NYSE: BRK/B) shares have declined three percent to 114.89.

Despite a strong first half of 2013, gaining 24 percent, it continued to move higher in the second half, albeit at a slower pace by adding another six percent. Its year-end close of 118.56 was less than a point from its all-time high made in August (119.38).

However, the early price action this year is concerning. BRK/B has not even seen its year-end closing price, only being able to reach 118.50 on January 3. After losing a point on the first day of trading, it has easily shed another three points and shows no signs of staging an immediate rebound.

Now the issue is a thinly traded area all the way down to the major support support at the 113.50 area. This was the area of three consecutive lows in mid-December that provided the impetus for the move back into the 118 handle.

On December 18, BRK/B benefited from a monster broad market rally, which emanated from a favorable announcement from the Fed regarding the pace of the upcoming taper. The issue catapulted through the 113, 114, 115 handles during the session, which is not a sound technical formation.

Related: Philip Morris - Left Behind in the Bull Market

As a result of the vacuum on the way up, there are no reliable support levels for the issue on the way back down, as evidenced by the weakness in BRK/B over the last few trading sessions. Now owners of BRK/B may have to wait and observe the trading action when it revisits the major support level of 113.50.

With no fundamental news out on the stock, one can only speculate for the reason for the precipitous decline in this issue. Perhaps the “Oracle of Omaha” himself Warren Buffett is unloading some of his large stake. Buffett stated on September 19 that stocks “have moved a long way” in the past five years, going from “ridiculously cheap” to “more or less fairly priced now.”

Keep in mind, his statement was made when the S&P 500 index was trading at 1722 and now the index trades hands at 1833, over six percent higher. If Mr. Buffett deemed the market fairly valued then, he may say it is overvalued now.

Interestingly, while the index continued on to new all-time highs at year-end, BRK/B languished and failed to return to its all-time high. At this time, the issue is trading well below its September 19 close (117.17).

Investors will have to have to wait until February 14, when 13-F filings are released, to know for certain that Mr. Buffett has indeed trimmed his stake, or whether or not other institutional shareholders have abandoned the issue.

Long-term shareholders of the issue should pay close attention to the price action at the 114.97. If that level is breached, BRK/B will enter another thinly traded area until the October 9 low (110.84).

This story was written by Joel Elconin

Posted in: Movers & Shakers Technicals Intraday Update Trading Ideas General