The Market Gets This One Right
Tuesday, July 5, 2011 at 12:19PMOn June 28th, Accenture Plc ($ACN) climbed 3.2 percent to $59.65, the highest price since it went public in July 2001 on the announcement that the firm will replace Marshall & Ilsley Corp. ($MI) in the S&P 500 after the close of trading on July 5th.
We had shorted $ACN the prior day as part of a pair trade. This move had triggered a stop loss and we unwound the trade for a 6% loss. But if you look at a graph of $ACN you can see that the stock had begun a sharp upward move about a week earlier. It was this earlier upward move that signaled to us that the stock was rich relative to Automatic Data Processing ($ADP). Most likely, the inclusion of $ACN was already getting priced in.
That’s one of the risks of trading spreads. Often, the market is right and the spread widening is warranted.
Written by Norm Winer. Follow me on Twitter and StockTwits.
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