|  AUG 1990

Secondaries by Arthur A. Merrill, CMT

Secondaries by Arthur A. Merrill, CMT If the owner of a large block wants to sell without generating a big price decline, he sometimes enlists the help of an underwriter. This type of sale is called a secondary offering. The underwriter uses his skills to dispose of the stock discretely at the best possible price. Owners of large blocks certainly watch the performance of their stock and its company. Sometimes they are on the ""inside."" They are not small operators, and they should have access to good information. Their wish to sell must have a reason: perhaps they have uncovered some bit of information that is unfavorable. As a result, the quantity of secondaries is a measure of informed bearishness. A large number of secondaries is a bearish sign, while a small number is bullish. This statistic is easy to watch. A list of secondaries is published each week in Barron's. How well has this indicator performed? The chart is the record of a 40% exponential average. (This is about the equivalent of a four-week moving average.) The average over the past 10 years is 2.7 secondaries per week, with a standard deviation of 2.2.

by Arthur A. Merrill, C.M.T.