Different types of stock splits can have different effects on Wall Street news based on the reasons they are implemented. Several of the concepts to understand about this technique are literal stock splits, reverse stock splits and dividend payouts.

Literal Stock Splits
Because of the existence of reverse splits, it is necessary to differentiate between the two. For example, a literal stock split occurs when a company announces that it will do a 2-for-1 split of their common stock. If MEW Industries has 1,000 shares of public stock at $50 per share before a 2:1 split, they will have 2,000 shares of public stock at $25 per share after. The stock market average returns for these new shares will reflect the ratio that was used in the split.

There is one primary reason for this stock market strategy, which is to increase liquidity of the stock. Although there are investors buying Google stock at over $500 per share, many more investors would be inclined to buy if there were five times more shares at $100 per share. This tactic is employed by companies if their stock sales stall as the price rises. If the stock doesn’t stall companies will typically allow the price to rise, as indicated by Google over $500 per share and Berkshire Hathaway, the market’s all-time stock price leader at over $110,000 per share.

Reverse Splits
Reverse stock splits are less common and have a somewhat negative investment strategy attached to them. If the price of a stock drops too low, many mutual funds will not purchase them and they even run the risk of being delisted, or removed from the market indexes. In addition, the low stock prices create a psychological stigma as people view them as worthless. By doing a reverse stock split, companies can raise the stock price by lowering the number of outstanding shares, eliminating the problems caused by the low stock prices.

Dividends
Sometimes a company will choose to avoid a stock split and lower the share prices by paying a stock dividend to shareholders. The effect of this move is somewhat the same as a split in that it lowers the share price since the company is worth less after the payout. This can be a good investment philosophy for companies that already have a large number of available shares plus the move is usually well received by stockholders, since this is basically investing a portion of the profits back into the people that have already invested in the company.

Conclusion
Stock splits have historically been used by companies to increase or lower the number of outstanding shares or to change negative impressions of the stock price. Investment timing in companies like these has shown to be more psychological than factual since stock prices are adjusted and the resulting price movements follow. Stock splits are another interesting feature of investing and a good piece of knowledge for those who are learning about the stock market.

Market Direction: Applying simple elements of confirming indicators with candlestick signals dramatically improves the analysis of a price trend. This analysis consists of a very few assessments. The most important is the signal itself. It should be remembered that the formation of a candlestick signal is the product of a change of investor sentiment. The reversals become more compelling when all the technical factors align.

This is best illustrated in the movement of the Dow this past week. Monday formed a bearish Harami. That indicated the buying had likely stopped. The following day revealed selling at the trend back down below at the line and the 20 day moving average. Selling confirmation after a Bearish Harami, closing below the T-line and the 20 day moving average was an indication the sellers were now in control. The possibility of a pullback to test the 200 day moving average was likely EXCEPT the stochastics were not quite into the overbought conditions. The fact that the stochastics were not in an area that could show over bought conditions would have alerted investors that the pullback was merely a pullback day in an uptrend.

DOW

With the Dow selling off as hard, as it did on Tuesday, for a reversal in the uptrend to confirm, what should have been witnessed on Wednesday? More selling, or at least the lack of buying. With the new strength coming back to the markets on Wednesday, it could be surmised at the Bulls had not yet left the market. A close above the T-line and the 20 day moving average, a bullish Harami, reinforced the fact that the stochastics had not yet reached an over bought condition. Trends do not go straight up or straight down. If the stochastics reveal that a trend may not be over, be more diligent in watching pullback days when an uptrend can be observed. This is not rocket science. This is merely applying what other technical indicators are conveying in conjunction with candlestick signals.

The use of simple technical indicators along with what candlestick signals are revealing make investing much easier whether day trading or long-term investing. Ricky Wayne, the moderator of the Candlestick Forum chat room, has developed some very effective trading tools and rules for successful investing. The combination of a candlestick reversal signal and the utilization of supportive technical indicators provide a very profitable trading format; one that has allowed Ricky Wayne to consistently pull money from the markets while day trading.

The application of Ricky Wayne's T-line after witnessing a strong candlestick reversal signal is an excellent format for remaining in a position. As illustrated in the ALJ chart, the T-line acts as a trend confirmation. The position can be maintained upon two simple parameters. A candlestick reversal signal has not appeared AND the price has not closed below the T-line.

ALJ

The longer a trend remains intact, the more important these two elements become. Can prices close below the line? Certainly, but a close below the line without first experiencing a candlestick sell signal does not provide a compelling sell situation. However, the price should be addressed more diligently. On the other hand, a candlestick sell signal could occur but if the selling is not confirmed, the price not closing below the T-line, the uptrend should still be intact. This does not mean the reversal signal should not be addressed. After a long uptrend, the selling should be confirmed with both a candlestick sell signal and a close below the line.

Learning these subtle nuances is not difficult. The visual analysis of a chart can be very quick. Knowing what to look for is an easy learning process. Both Mr. Bigalow and Ricky Wayne will be providing private training sessions over the next few weeks. These are excellent opportunities to learn valuable investing practices using candlestick signals and other technical indicators. For more information on the private training session schedules, click here.

Chat session tonight at 8 p.m. ET. Trends can be easily assessed when understanding what the signals and confirming indicators are revealing. Click here for instructions.