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THE T.A. WAY


happy2

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Tecnhical Analysis is a topic that seems to arouse animosity in some investors. Why? I do not know.

 

I have noted that some people (read, many) scoff at the concept of Technical Analysis and its practitioners.

 

Basically Tecnhical Analysis (TA) is simply charting the price of stock. However, there is more to TA than just charting the historical record of stocks.

 

In fact, TA is a requisite subject for the Australian Securities Institute's (ASI) courses that accredits students with the Graduate Diploma of Financial Planning and Graduate Diploma of Applied Finance and Investment.

 

Australian Technical Analysis Association (ATAA) is a reputable organistion that actually conducts the subject of TA for the ASI. ATAA have their own certificate of which the prerequisite to doing the advanced course is completion of the 11 modules for the ASI unit.

 

Having done the ASI component, I would say that it was a valuable education that gave me significant parameters within which to understand market psychology and how to profit using TA as a basis for trading.

 

People who scoff at TA as being akin to playing roulette or superstition need to realize that first of all TA is a science because it is a systematic body of knowledge applied to the understanding and application of general principles that are observable and can be predicted to recur under certain conditions.

 

Secondly, those who learn the skills required to succeed as a practitioner of the science of TA will only be able to do with attention to detail through investigation, observation and studying the application of the principles and techniques that form the body of knowledge that enables charts to analysed.

 

Thirdly, TA is not simple looking at charts and observing patterns. TA incorporates the use of measuring criteria to determine the statistical significance of money flows, volume, price and time, as well as mathematical and geometric probabilities.

 

Fourthly, TA assesses the optimism and pessismism that is taking place in the market place.

 

Fifthly, TA incorporates the historical record of past market behaviour which can be used as a basis for recurring events.

 

One of the distinguishing features of TA is the fact there is no need to resort to any other information outside of what market behaviour suggests as recorded in the charting process.

 

Fundamental analysis (FA) is based on historical data (which is already out of date) that is supplied (sometimes, or often, with unintentional or intentional error) to the marketplace.

 

TA, relies on the more up to date information that is provided by what is happening in the actual marketplace itself and not on what management might have done six months ago to achieve results.

 

Hopefully, in this thread we will be able to discuss aspects of TA such as indicators, theories and successful application of TA principles.

 

 

 

 

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In reply to: happy2 on Saturday 04/03/06 07:38pm

Its all eye of newt, and chook guts if you ask me Happy http://www.sharescene.com/html/emoticons/biggrin.gif

 

The chart is a pictorial representation of what the sum total of all market players(Mum, Dads, traders investors institutions) and what they are thinking about stock XYZ at any given time.

 

I am afraid for the die hard fundamentalist TA is just too simple Happy2, after all the market is much more complicated than trend lines, support and resistance etc,...or is it??

 

Cheers

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Howdy ...

 

I certainly use TA ... but I am 95% Fundamental analysis and 5% TA.

 

MY reason being .... TA proponents around the world claim ... all you need is to look at the chart and not the underlying company or product ... I disagree with this view totally.

 

TA is a great tool ... but only with a very strong fundamental analysis side. One without at least 50% of the other .... to me its gambling. Together with a mix of the two is the best.

 

With Fundamnetal analysis

 

Also some prone to fantasy with regards to fundamentals and prospects ..... too many ...

look at the cold hard facts and little else then weigh them against the accounts. Liking a company because it has the potential to discover something as opposed to what it has discovered and has production coming on line is a good example.

 

One is a reality and the other a fantasy ... or hope.... usually hype !!

 

Pricing something because it owns some prospective land but has zero know commercial resevres is always put down to funamental analysis by stock promoters. In reality its claptrap. How does one value a company with neagtive earnings and no known commercial deposits ?

 

It is not possible !!

 

Even a company with a new product ... never earnt a profit but has a good product and maybe earnings coming .... fundamental analysis would not mix up the two ... potential .. is one thing but if earnings actually are going down or flat and expenses going up ... the fundamentals actually are getting worse. One does not equate to the other.

 

Don't mix the two up !! No profits .... its impossible to value. If the earnings are not coming on line and growing faster than expenses ... same thing ....

There has to be concrete proof ... in the accounts !! Or an actual deal or contract !!

 

 

Too many fall for this trap ... company says the potenial earnings are $3- billion ... means less than nothing .... a read over some fallen angels should wake most up to this .

I can however think of one exception to this rule ... but its so rare ... so rare .... a totally earth shattering invention which supercedes all others ... but it must be well proven by reputable sources and not shonks. Too many shonky stories out there from the blood plasma group ... to cold fusion. Be wary ... I can think of just one that falls into this category in the past 5 years !! Just remeber the hype behind the tech boom !!

 

If a company has never made a profit .... you cannot use fundamental analysis !!

Exceptions are ones with projects coming on line such as a mine which the product is known and one can factor it into things .... or a decent rate of sales growth and it is approaching profits. Sales growth exceeding expenses ... ect

 

I remember too many discussions over the years with people citing earnings potential when a look at their accounts showed the opposite and made me very sceptical of any claims as to the future.

 

One nameless company has a record of self promotion second to none. But a glance at their accounts bigger and bigger losses all funded by issuing more shares .... and the issuing of shares/options to directors is something like 30% of all shares on issue .... without a very good look at the accounts and a pure technical side would have seen you buy into this stock time and time again. Every 6 months or so they have a promotional push and either their pet broker sets a price target of 500% of the current price or they do a road show promoting the hell out of the stock. All of which has nothing to do with the company ever making a profit. In fact it's a cost ... reality is the price of the stock is 40% of what it was 3 months ago ... 25% of a few years ago ... and despite all the announcements and promotion the stock keeps racking up a bigger and bigger losses.

 

Hahah ... just noticed the recent promotion on the back of some big deal in the pipeline .... company now admits it is unlikely any contract will be awarded in the near future. Thats the third trick in false fundamental analysis .....

 

Just usuing TA and NO FA at all .....

Here is how I would see it ....

 

If one wanted to buy a second hand car .... say a specific model and make. It would be like seeing an ad in the papaer and buying the car unseen. This is exacly what one does with buying a stock with a casual look at things at best. Would you buy a car or a house without a building inspection ? Or a property search ? The car you bought sight unseen might have been the right make and model but with no engine and had been sitting in the middle of a salt pan for decades and reduced to a pile of rust.

 

One without the other at least in equal parts is an intersting way to trade. A chart will tell you what is going on with the share price .... but buying on stop once things and the market decides a stock is going up is always a loosing proposition as opposed to buying things with decent and vastly improving underlying earnings and potential .... quite often the market will be moving in the opposite direction to these fundamentals at the time. Waiting for a squiggly line to break a point before you buy will see your entry 20 or 30% worse that buying into reality. Charts very often do not represent reality ... but if a company delivers profits almost always eventually the market will react by marking their share price to the new reality. A chart will not tell you the underlying earnings or potential of a company.

 

WPL in 2003 was trading at $10- even lower than its price when the price of oil was half back in 2000 .... all prior to Sept 11, 2001 stuff. In fact the price of WPL was 25% lower but the price of oil was 50% higher. Fundamentals ..... maybe if one was lucky when WPL broke $15- the chart said buy .... big difference between that and $10/11/12.

 

Whilst WPL is not a pile of rust in the middle of a salt pan .... if one looks at company that is ... Sorry cant name them ... but rose quickly from 20 cents to 40 cents ... then came off ... rose again on charts from 15.5 cents to 25 cents ..... Right now ... this pile of rust is at 1 cent. A good look at the accounts or fundamentals behind this company and you would never have touched them. Never !!

 

Usuing a technical based view one would have brought them twice ... and lost twice.

 

If one used this for some other piles of rust ... Another stock had several rallies ... 25 cents to 80 cents .... and 6 seperate rallies a TA person would have followed ..... reality is whilst the high was nice .... any gains from the 30 to maybe 70 cent profit level were all wiped out on the false breaks and the overall price sits now at 3.3 cents from the peak of 93 cents and even if you only brought on the break of the old high at 34 cents 18 months ago ... you have lost 90% of all your money.

 

If one buys rust for anything over the price of iron ore .... expect the same results.

 

As to calling the TA market respected .... opinions vary. Some of the most repected technical indicators sworn to by the current market were invented by people who have never traded or if they have have had awful results for their clients. Larry Williams claims are a favourite .... Welles Wilder even better. As for the Gann Man ... hahhaha

 

Good book to read "Winner Take All" by Gallagher I think was his name.

 

TA is a useful tool ... dont get me wrong. A chart can give one a good idea where one should buy and no longer be holding a long position .... but without a very very good look at the fundamentals behind a company and earnings and earnings growth and profits .. all one will end up with is a pile of rust.

 

Discipline is the key to a more TA focussed approach and absolute disciplne is needed .... when a stock fails and breaks lower ... taking the loss is not something many are very good at doing. Oh it will recover .... it will get better ... I will sell next rally I am sure was the cry from many on the stock that broke 30 cents up to 90 and now back to 3.2 cents ...

 

Most sadly as opposed to cutting when they should ... buy more on dips ... or more on a rally which in the end fails ... and instead of loosing 90% of a 5% capital investment they double and then double again ...

 

Discipline ... discipline ... discipline.

 

If one is going to trade at all .... this is the only point ... and more crucial with a purely TA approach. Good money can be made from usuing TA ... but if one does not have the discipline to cut ones losses it will never work. Running the loosers and doubling on dips or averaging in .... is hard to resist.

 

Few rarely do have the discipline.

 

CHeers

 

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Kahuna....

 

95% FA 5% TA

 

I take it that is the mix at the buy decision ?

And would the 5% be to not buy a stock that was still falling ?

 

What at the other end ? After your fundamentals are judged to be fully valued ?

Or you are sitting on profit and over weight ?

would you see any value in relying more on TA then as a sell signal..

 

 

For example... say 80% FA 20% TA.... mix at the bottom for the buy decision

But 20% FA 80% TA Mix at the tops for the sell decision ..

 

Many examples of stocks that go down and the bad news and factors are only clear in hindsight ? And they can go down a lot once they start..

 

TA maybe could have got you out of many markets and stocks before the eventual bottoms

even if they got you out early or a little late.. eg NASDAQ 5000 ?

 

Nothing beats FA IMO... But the fundamentals that matter are the ones of tomorrow..

and maybe not even the fundamentals of the stock itself.. But a knew competitor that will

turn the landscape upside down... Eg look at what Walmart did to Kmart....

 

It was the Walmart fundamentals that mattered.. for walmart and kmart as well..

An analyst focusing on Kmart fundamentals would have seen it coming too late..

 

But maybe the TA would have acted as a herald...

 

I think there is special merit in comparative relative strength analysis..

 

motorway

 

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Great stuff guys.

 

Just blows books away, ie. views penned by many for no financial gain as opposed to the thoughts of one for financial gain.

 

My own contribution would be that when talking about investing, I can't think of anything to add to Kahuna's post. However when discussing trading I think Sentiment Analysis should stand beside Fundamental Analysis and Technical Analysis.

 

So you could have a situation where a company was strong fundamentally with a T/A setup that was a screaming "textbook" buy - yet fails to deliver in the short-term because Sentiment towards that sector/index is negative.

 

For the investor this is not an issue, as the Fundamental Factor will eventually overide all others, and the stock will move in that direction. For the trader, not considering Sentiment can lead to much head scratching and money not working for you as it should.

 

When looking at the end of town where F/A is not possible for the reasons outlined by Kahuna below, Sentiment Analysis can step up to the plate and provide a clearer picture of where stocks are headed in the short-term.

 

For some-one like myself, who churns through more stocks then I would care to admit, I find that I place a greater weighting on T/A and S/A on stocks that are just straigh-out trades (hold days to weeks).

 

As I start to like a story and look to turn a trade into an investment, I usually read everything I can about that company, and T/A and S/A starts to take a backseat to F/A.

 

The exciting thing for me regarding S/A is that it can alert me to stocks before T/A or F/A put them on my radar.

 

Hope I haven't strayed to far from topic Happy, I know you enjoy trading Indices, where F/A is not really that relevant, but I am sure you would agree that S/A can also work well in conjuction with T/A for this particular style.

 

For example if I was looking to take a trade over the FTSE, in addition to studying the FTSE charts (T/A) I also observere the behaviour of the ASX200 and Nikkei markets to get a "feel" for that day's Sentiment.

 

 

 

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Excellent discussion we got here guys, thanks for your contributions neutron , Kahuna and BSA.

 

Firstly, to address BSAÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s veiled reference to ShakespeareanÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s MacbethÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s witchÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s broth made of ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“eye of newt, tongue of dog, wool of bat, etc. At least I am assuming that this is what is being inferred.

 

TA is often seen in the light of the paranormal occultic superstitions of those who believe in the black arts.. The concept of interpreting charts sounds very much like interpreting tea leaves, lines on palms and backsides, cards and stars. Because of this it is tossed to the wind or thrown out with the bath water.

 

What is being overlooked by those who assign TA to the arts of the occult is the fact that interpreting charts is not something that is beyond anybody who would care to look.

 

There are some simple principles which can easily be established.

 

Trend lines are easy to follow and seem so simple that many people overlook them. Some people think that is all that needed to be known. In some respects, they are right. Merely knowing what the trend is can be sufficient to turn a quid in your favour trading in stocks. The stock is going up. Jump on board. The market is going down, get out. Or short the stock. This is a very simple process and the basis of beginning to understand TA.

 

Every fundamental trader needs to understand this simple fact. If the price of the stock is going up, there is no need to sell. If the stock starts to trend down, why keep the stock.

 

But if fundamentals suggest that the stock is still good value based on P/E, cashflow, competition, future contracts, future cashflows yet to come on line, and the stock begins to falter and head south, why sell.

 

The TA trader would sell. Not because of any other reason other than the fact the SP is falling. This is basic TA.

 

Many fundamentalists would sell because they see the value of their stock diminishing and want to take profit. Their view may be I can always buy in later.

 

Actually, one of the reasons the stock might be heading south is because there has been a change of management. If a successful proactive brilliant manager leaves the company, then there is cause for concern. YesterdayÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s figures might look good on paper, but they were produced because of the brilliance of those leaving the company. The company now has an unknown. Savvy investors decide to get out. Other fundamentals stay in the company and even buy more stock because the SP is less. New investors buy in because they perceive the stock is now cheap.

 

Two stocks that fall into this category that come to mind are ION and RDF. ION is currently subject to a deed of company arrangement. RDF still has plenty of potential. All the TA practitioner, or anyone holding the stock who had a regard for trends, needed to know the trend has reversed sell. There was no need to know that the management had been replaced or that there were other problems. The charts indicated that and that was sufficient to sell. There is no need to divine the guts of a goat or study the entrails of a virgin ewe or apply any other magic. The trend said, ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Sell.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

Simply understanding the simple concept of the trend is the basis of TA. I know it is simple. It is easy to understand. ButÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦butÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦not all people seem to be able to follow a trend. Why should we bag TA, if we do not understand the trend reigns supreme in understanding the arts of the charts? Or because it seems so childish and beneath our perceived intelligence?

 

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kahuna hit the nail on the head with FA being misused based on "potential" not actual or likely.

 

FA and TA is just what the name implies "analysis" which means there will be error in the output. so it is easy to point the finger at the larger inaccuracies that appear in each discipline from time to time.

 

the irony to me is that strong proponents of FA will break down complex numbers into tables (which is a very basic form of ordering numbers). the next step is often to create a graphic representation to help analyse trends in costs vs revenues etc. even going as far as noting percentages.......to help build a picture in their mind.

 

sound familiar?!!?

 

all seems like the same coin just depends on which side you like to look at more.

 

kahuna tosses heads 9/10 times (gotta get his coin for Anzac Day)

 

ps. i have a virgin, white goat and an altar in the secret sub-basement at my place. call me old fashioned.

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It may be stating the obvious, but sharemarket success is not a question of whether you use FA or TA (or SA), but how good you are at them. i.e. the benefit of time and experience!

 

There are so many individual tools that can be classified under those headings, that I do feel it is hard to generalise. However, in my opinion, FA is possibly the safest starting point. Assuming you were very bad/inexperienced at both TA and FA, I would think that investing in stocks with low P/E, high yield with a 1-2 year timeframe, would probably have a better rate of success than looking for uptrends and risking the huge potential losses generated through triggering a succession of 5-10% stop-losses.

 

This thread is very relevant to me. When I joined this forum a year ago, my background was virtually 100% FA. Having been told by a mentor that "I've never known a rich chartist", I'd pretty much ignored the whole field of TA. So when I joined up, I was looking to find improvements to my FA - an understanding of why my FA had failed to find me the correct exit points on a number of stocks, but most particularly on ION...

 

Firstly, I realised that there were major flaws in my FA. I wasn't an accountant and learning to read the detail is a slow process. That is something that improves with time. Secondly, I came to understand that TA really could provide some useful warning signs that should not be ignored. For now, observing basic trend-lines and changes in OBV and using them to time exits and entries has provided me with substantial improvements to my results. Finally, I have come to appreciate sentiment factors or SA.

 

In the last year, my FA has improved substantially, my TA has moved from non-existent to "very helpful" and my SA is under development... all three together seem like a pretty powerful team.

 

In context, I will probably always be a long-term investor with a 1-3 year horizon, which does somewhat change the preferences. I want a lifestyle where I can ignore my shares for days or weeks (or even months) at a time, while still managing to sleep well... For anyone in the same position, I suspect FA will remain a prime consideration.

 

I would also note that good FA is not limited to "historical" given that it can be cleverly used to predict capital raisings, dividend yields, forward P/E's and other useful triggers of stock sentiment. And I disagree that it cannot be used to value stocks with negative earnings, provided there is a realistic assessment of future earnings potential and the risk to those earnings is adequately considered. After all, that is the basis of DCF.

 

In conclusion, whether we primarily use FA, TA or SA, I think the value of experience outweighs the value of the tools. Those with experience will probably choose one primary method and "thin-slice" the rest... with much the same result all round.

 

 

 

 

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Hahaha ...

 

Sentiment yep ... all has to with the market and I find it very hard to quantify.

In fact almost impossible .... maybe its just me :{

 

Have a tendency to leave a lot on the table when the market cathes up to my view ... but since I also have a a tendency to buy into unloved or overlooked things they basically cancel each other out.

 

Crying over selling too ealry WPL at $43- when it goes to $47.87 or RIO at $71.66 when it goes to $78.66 is a waste of time. So too is a person long the whole time gloating at the highs about the fools who sold too early ... especially when we see now they have all come back to even lower levels. Whilst missing the highs TA gives me some idea of where if I still like or love the stock I should re enter ....... rarely do stocks go in one direction for too long. WPL which was my favourite during 2005 advanced in total 100% but now has suffered 3 pullbacks of the order of 20% during this advance. Usually one gets a second chance to get back on board. Not much use pointing out WPL hit $47.87 on 3/2/2006 when 14 days later it was trading 19% lower at $38.60.

 

Many argue ... tax tax tax ... well as a company it doesn't matter for me ... even as an individual rated as a professional investor ... it doesn't matter either. No CGT discount.

So my views .. different from most who if they hold for 12 months only pay half tax at 25% .... but as a company I pay only 30% and have no way to avoid the tax question.

 

As to Motorway your question .... use charts for good levels to buy ... but less than half the time do I enter a trade when the stock is going up. In fact I follow a fair few stocks but tend to stick to the bigger end of town and prefer to buy them when they are less than loved.

 

Last week ... we saw metals rebound in a big way off their lows on the 28/2 ... the stocks which in the past went nuts over this sort of a move barely moved. Most are poised just below recent highs and in some cases they have broken new highs like silver. The advance during the week was 6-11% for most metals yet RIO end down by 2.5% and BHP by 1% or so.

 

Now part of the reasoning I suppose used was the balance of payments for the Dec quarter showing a massive drop in metals exports due to the cyclone season in the Pilbara.

Fraankly was served this as a reason behind the BHP and RIO's ignoring the move .... and lets juts say its idiotic .... why ? Well both just released results for the period ended Dec 2005 and they were not at all impacted by this despite ... yes exports being lower and almost a full months exorts being zero in the last quarter ... yet they did not a single thing to impact the half year numbers for BHP or the full year numbers for RIO. Just gives one some idea of how much more htere is to come. For prices to fall during the week for both despite metals recovering 6/7/8 % and looking as strong as 20 men is amusing.

 

I didn't this time even bother looking at a chart .... just bought into weakness and will continue to do so .... both are well off their highs and over 10% ... despite the fact as time ticks away the fundamental side just gets stronger and stronger.

 

So suppose I like buying into what I see as unfounded weakness .... suppose we will break the old highs when metals market breaks new all time highs and with gold less than 2% off its highs .. copper 3% and others the same .... fundamentals one way but the share price the other ?

 

If I was to wait till BHP broke the recent high ... $25.50 ish it would cost another 5% on a stock I think will advance maybe 15% in 6 months from where we are now .... much prefer to buy into weakness.

 

Charts I look at for the old lows in cases like this and BHP is 1% off the low when copper was 8% lower at US$2.12 lb and gold at US$533- 6% lower same sort of thing for Nickel, lead zinc ... oil .... and the rest.

 

Much prefer to buy BHP at $24.40 ish as opposed to $25.50 ... unless the world changes in a large way thats where BHP will head over time and more likely this week if we see metals break into new territory. Copper picture short term looks ugly with Mexico and peru and Chile having big problems.

 

Anyhow ... all the best .... as to exits .... like to use tech levels as a guid for where I should exit ... but with the hyped up market in recent weeks/months its been hard. WPL for example at $43- I thought wa sover the top barring oil at new highs ... so what was the peak ... $47.87 ... then all the way back to $38.60 before off we go again ... or a correction of 20% between one extreme and the other.

 

Bottom line not a fan of ever buying on breaks .... but as to a good level to sell out I use tech analysis alog with fundamental fair values to try and place take profits. Also ... god forbid also use tech levels as stop losses ... but for me to stop out has to be some fundamental change to the companies story usually to get me to exit. Sure sometimes ... especially with my style of normally buying things that are going down ... you have bought into a correction .... but only buying things with a fantastic fundamental outlook always seems to save the day in the end. If say i bought WPL ... an oiler and then the pric eof oil tanked by 15% .... I would call this a fundamental change to the valuation of the company ... but its perverse the market .... WPL hit all time highs when I was not so impressed with their numbers or cost blowouts and if anything oil was going down and natural gas ... its main product by the way halved in price in 6 weeks as the US shortage perceived by the market fell by the wayside.

 

Now personally was glad to be out of them by this stage ... despite them advancing 14% above where I sold .... as much as many would like to argue WPL's main resource is Gas not oil and reserves are 73% made up of gas not oil ..... so longer term I have taken a bit of a less enthusiastic view on them since natural gas is back trading at just over the 71% level when compared to the price of a barrel of oil. It took years for the ratio to creep from 50% to 60% eventually to a happy medium of 80-85% .... and whilst this decline may be short term ... the fundamental underlying value is in question especially when I look at the P/E of WPL at 25 ... and a very simialr growth outlook when compare to BHP but BHP's own P/E implied this year is around 7 .... yes 7 ... and growth outlook is as good as WPL's going forward with expansions .... but one is trading at 3.5 times the price of the other.

 

Recent months if one compared the two .... one has seen its implied forward outlook in terms of earnings go down 20% plus and the other up by 20% .... no prizes for which is which !!

 

Suppose as the man said its all sentiment .... both have great outlooks in reality. I am sure the natuaral gas market will come back to the 80-85% level as time goes on ... but BHP on a sentiment basis has to be the clear winner. Share price is unchanged basically from January .... its confirmed its earnings and the outlook even better with higher prices .... yet the stock sits at the same level.

 

As I said ... sentiment for me a hard one to call ... .I do know however when something has a fantastic outlook that improves with prices 10% higher or around US$4- billion on earnings for a company with a market cap of 86 billion .... just this increase would give it a P/E of 17.2 ... let alone what it will do to the analyists call of a 7 p/e .... sure only 6 months will impact BHP full year numbers at this stage out to June 2006 .... but since they have locked in ... one can presume months Jan-Mar .... the year end position at this stage is indestructable.

 

Sentiment ... hmmm market thinks BHP is ho hum here ..views the future as though its a sure thing its a one off and prices decline.

 

Suppose the best measure of sentiment is maybe a chart ... but better is the broker calls.

Looking at WPL which advanced from $10- to $42- in 3 years .... March 2003 - March 2006.

Currently its rated by brokers overall as a hold .... 16 brokers cover it ...

In the 3 year period where it quadrupled it was rated as only a hold for 17 weeks

Also it rated only avery weak buy almost a hold for a further 37 weeks.

So out of a total of 156 weeks where it quadrupled it only rated on average a buy for not too much of the time and not ever was it rated as a strong buy overall .... even a keen buy with an average under 2 ..... only 59 weeks out of 156 was it rated there.

 

Sentiment ... for me too hard to call.

BHJP on the other hand ... its only advanced from $8.22 to here around three fold .... so has performed 33% worse each year ... accoring to the same group of brokers it has been rated a buy the whole time. Never a hold or reduce and in fact for 6 weeks in total it was even rated a strong buy ... from the brokers. Almost worse .... BHP out of the 156 weeks in the 3 year period only rated anything under a very keen buy for 46 weeks and nothing approaching a hold.

 

All this shows is I suspect brokers got it wrong.

 

Sentiment is not something I look at ... ZFX is the prime example for me .... only flaoted since April 2004 but the brokers calls should be ... well shot. Stock up 400% like WPl but in a shorter timeframe ..... covered by 10 brokers for most of the last 100 weeks of this advance ..... for 62 weeks rated as a very very weak hold .... never rated overall as a strong buy NEVER ... never even a keen buy with the average under 2 .....

 

We all have ways of making money ... TA or FA or Sentiment analysis ..... for myself mix between FA with a sprinkling of TA ... some are 100% TA others 100% FA ....

 

Many ways to skin a cat in this market and make money.

In the end ... longer term ... for myself ... if its there people will come ... if profits are there eventually they will come. We all love battlers and growing companies are much like this .... but when they don't deliver year after year ... eventually patience will wear out along with shareholders support for issue after issue after placement.

 

Enuf .... have a great week

 

Good luck

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QUOTE (kahuna1 @ Sunday 05/03/06 03:46pm)

Lifted from Cash is King thread...

 

QUOTE
My view actually does change according to underlying fundamentals and direction of associated markets.

 

http://www.sharescene.com/html/emoticons/wink.gif

 

 

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