But, in all seriousness, reverse splits appear to equate a capitulation of the company to attempt to reverse prior adverse circumstances (poor company decisions, unexpected competition, legal issues, global events etc.). Is there an opportunity to use post-reverse-split upward price action in a trading system? It could certainly be backtested...
%% YES + C is a good example. Many years ago, IBD founder , [old book ]noted poor fundamentals on why not to buy GE + C. Put another way a short seller on Citi noted ''fundamentals win in the end'' So if one likes good uptrends, buyer beware. GE sold so much , but still way off its $465, 2000 price Strange, my chart does not show GE anywhere near a actual low of $6.66+/.
Story time. In 2006 I bought this oil shipping company called TOPT (Top tankers) They've since changed their symbol to TOPS. I bought about 2500 shares at $7 and change (I believe I was in for around $17,500ish). Dumped after the price dropped about 75 cents or so a couple months later but I always remembered that company so I would occasionally check back on it. It kept going down for a few years then did a 1 for 3 reverse split. Kept going down and did a 1 for 10 a few years later. Then 1 for 7 in 2014 Then 1 for 10 in 2016 Then 1 for 20 in 2017 Then 1 for 15 a few months later Then 1 for 30 two months after that Then 1 for 2 two months after that Then 1 for 10 in 2018 Then 1 for 20 in 2019 Then 1 for 25 in 2020 The stock price is at $1.03 as of close on Friday. If I held, I imagine I would need the stock to go to a couple quadrillion dollars per share to break even. LOL.
I didn't trade bank stocks then. I was attracted to the low priced stocks then like VTSS. I think it was reverse-split 1:20 or something. it was too long ago to remember... I think it's been delisted or bankrupted... I lost about $15K on the trade
If you think TOPS is bad, check out OTC:AIGI (Axia International Group Inc). This company has gone through 10 reverse splits. 1:10, 1:10, 1:30, 1:1000, 1:500, 1:1000, 1:50, 1:10000, 1:5000, 1:8000. This one last traded 0.000001 on OTC. If you'd been holding since it debuted in 1994, you only need it to go to 937440000000000000000000 to breakeven. Such values broke AmiBroker's Y-Axis! To put that into perspective, that's 11 billion years of current world GDP. Ouch!
VTSS (Vitesse Semiconductor Corp) was delisted in April 2015 due to a cash takeover ($5.28). If you held on from around the time of the 1:20 reverse split in July 2010, you'd have roughly broken even. However, if you bought in the tech boom and held on, you're down about 99.7%.
Yeah, I remember they cut the dividend right after I bought it. At the time I thought that might be a reason the price was dropping. Then they drydocked like half their ships and I was like F this company.