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British American Tobacco moves to long term underperformance

October 10, 2013

British American Tobacco (BATS) has been a long term outperformer but that looks about to change.

Firstly, on price, BATS hasn’t had a moving average crossover on its 30 and 40 week combination since September 2009 and had MACD divergence at its high (as in 2008). This meets my criteria of looking for series for which the moving averages have not crossed for at least four years. A price crossover looks imminent.

BATS price

BTI WEEKLY

Relative to some UK large cap stocks, crossovers have occurred and after an even longer wait.

GlaxoSmithKline (GSK) v BATS

GSKBTI

  • The 40 and 50 week moving averages crossed in June 2013, having not crossed since December 2000
  • There is no hard and fast rule about which moving averages to use. The point is, something has changed for BATS.

HSBC v BATS

HBCBTI

The 40 and 50 week moving averages crossed in January 2013, having not crossed since January 2004

Barclays v BATS

BCSBTI
The 40 and 50 week moving averages crossed in January 2013, having not crossed since November 2003

Conclusion

BATS is now set up for a period of underperformance against some other large cap UK stocks, having outperformed for a long time. Moving averages can take a long time to take effect though and we should use other methods like Bollinger Band breakouts to determine the timing of this long term rotation.

 

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