BUD Stairsteps to Profit – Random Walk?

Jul 28, 2008: 12:11 PM CST

Anheuser Busch (BUD) has been in the news prominently as the takeover candidate of ImBev (buy-out), and the stock has responded positively in a unique ‘stair-step’ pattern which is worth examination.  Let’s see what we mean.

BUD Daily Chart:

After rumors were announced earlier this year, the stock began to respond positively to the potential of being a take-over candidate – now with the news well-confirmed, BUD has reached record levels prior to the deal being complete.

What’s interesting is the relatively rhythmic, stable price ‘jumps’ from one level to the next.  This stock would be what I, personally, would expect if the “Random Walk” Hypothesis was 100% correct – that stock prices are random and news is filtered into the price immediately as it is released, giving investors nothing more than a random chance for profits.

Of course, we as traders seek profit through disproving this hypothesis, or squeaking through its holes, particularly through emotional price overreactions and situations (trade set-ups) with ‘edge’ but nevertheless, I thought it was interesting to see this pattern and wanted to highlight its occurrence.  We would expect to see far more situations like this (gaps and pauses/flat prices) were the theory 100% correct.

Moving on from the brief Random Walk thoughts, let’s look at the Weekly chart of BUD, which shows just how far this stock has risen in 2008:

BUD Weekly Chart:

A slight positive momentum divergence, as well as support coming in from the 200 week moving average preceded this rampant run-up, but it was not the technicals (price chart) at all that did the run-up – it was rumors, speculation, then confirmation which did so, as is the case many times with takeover candidates.

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