Technical Trading Suddenly Makes More Sense

[Trembling Hand]

I guess like a techie who has looked at 1000s of charts you can spot interesting annomolies very quickly,then spend the time honing a prospect.

By the way for the record it has taken me atleast 6years of mistakes to start to develop a plan for my investing/ Trading.

DYOR

Both Techies and Fundies are doing the same thing.

Pattern recognition. Ones based on price the other on economic internals.

Its the skill of trading that once the pattern is recognized that makes the dif no matter what the approach.

 

[GreatPig]

i'm back into banking stocks this week, bought ANZ , WBC, and picked up CBA

They would appear to have been good choices, as all four major banks are up a little today - nearly the only green stocks in my watchlist.

GP

 

[Frank D]

Banks are at 'fair value' pricing based on my model...

I buy banks when they hit these prices regardless of what the market is doing... i'm not buying into Margin positions, it's all cash

It's not the time to be using margin atm ...

I understand the larger cycles in the market, and I know that markets can find support and consolidate for a number of weeks/months around certain levels.

I think in the bigger picture, markets will find support around these levels, maybe punch down a little, but will probably remain above these levels in this quarter...but not much upside either...

The next quarterly timeframe is then the big worry, because if this is the 2nd stage of a bear market, it will move to lower lows in the next Quarter and follows the larger yearly timeframes down, which will probably be into next year. 2009......

And i'll use 'fair pricing' again for 2009

I was looking for a 'blow-off' bottom in this Quarter, maybe today is the day...let's see where it closes

cheers
Frank

 

[tech/a]

RAGE

You are probably then going to ask me why wouldn't I just sell all of my positions in a falling market and buy back in when the dust settles.

Funny you should mention this method.I've actually done some work in this area with regard to exiting or standing aside ---as a condition to be used as a filter for systems. Simply selling out when the market downturns doesnt help systems.However there is evidence that if a stock begins to under perform an index by X% then its exit could be beneficial.The amount of work required to test all variants of comparison with stocks and indexes is massive something that I don't currently have time for.

Another really interesting area Ive been working on is to create an index from your universe of stocks---in your case you have one the ASX 200 or XJO.Then make an index of your portfolio---compare the relative strength of your portfolio index to your index and or the Core index and use that as a filter.

I guess this is something that I need to devise a calculation for what amount of further gain would be required to offset any potential tax.

This as we have mentioned is a very valid point however if the stock falls 30% and you still sell then you still have 50% capital gains if not held for 12 mths---actually compounding you dilemma.

The way I see it from your posts basically its hold tight if the market (Economic Conditions) are the cause of the down slide in your holding,if the market is OK and there is a noticeable slide without reason then sell.

Leads me to this question.

Economic slides CAN and do have an impact on the fundamentals of many businesses positive and negative,how do you pre-empt their effects on a company whilst holding it in the confidence that the down turn is economic rather than Company Fundamentals?

As You can see the only problems I have with Fundamentals is not the valuation getting in part but the getting out and evaluating risk.

For me its simply a line which if hit renders my analysis incorrect for the time being and my exposure limited to 1-2% of total capital.
I can always get back in.
However a 30% loss means I then need a 60% gain just to break even on any stock which blows out to the downside that amount or more!

Its not often you see a stock fall 30% then rise 60% in the near future.

Not Saying one is better than the other just finding those aspects I find difficult to comprehend and asking someone who knows far more about Fundamental trading that I probably ever will.

 

[GreatPig]

However a 30% loss means I then need a 60% gain just to break even

How do you figure that? Are you including tax or something?

Without considering tax or brokerage, a 30% drop needs a 43% gain to get back to break-even.

GP

 

[TheRage]

RAGE



Leads me to this question.

Economic slides CAN and do have an impact on the fundamentals of many businesses positive and negative,how do you pre-empt their effects on a company whilst holding it in the confidence that the down turn is economic rather than Company Fundamentals?


Not Saying one is better than the other just finding those aspects I find difficult to comprehend and asking someone who knows far more about Fundamental trading that I probably ever will.

I am enjoying our conversation and have the utmost respect for some of the better technical traders on this site with yourself included. So I agree that there is not one better methodology.

To answer your questions I simply don't hold cyclic shares anymore. I buy into shares who's ultimate business growth is not dependant upon where the economy is going. As an example one share that I own has a significant marketshare over vitamins in this country with an ever increasing consumer base occuring due to the baby boom phase we are entering. I have confidence that the growth in this company will continue for some time yet despite an economy that might be busting.

 

[tech/a]

How do you figure that? Are you including tax or something?

Without considering tax or brokerage, a 30% drop needs a 43% gain to get back to break-even.

GP

Sorry stand corrected.
Your correct.
However a 50% loss means a 100% gain to get back to even.
No wonder I'm a techie!

Rage.
Fair enough.
Some green technology stocks etc "Could" be placed in that lot.
Carnegie comes to mind.

 

[The Barbarian Investor]

I have been meaning to say for ages, thankyou tech/a, for offering THE most valuable piece of investment strategy I have ever read.

And what was that

 

[The Barbarian Investor]

They would appear to have been good choices, as all four major banks are up a little today - nearly the only green stocks in my watchlist.

GP

PKT was up 29% on my list

 

[ROE]

Sorry stand corrected.
Your correct.
However a 50% loss means a 100% gain to get back to even.
No wonder I'm a techie!

Rage.
Fair enough.
Some green technology stocks etc "Could" be placed in that lot.
Carnegie comes to mind.

Another way of looking at thing.

A stock can only go to down to Zero
and there is no limit going up

for instance you buy 2 stocks each 10K each
1 stock can go to hell and hit 0 so you lose 10K
but the other stock could triple, quadruple or 10x

 

[exberliner1]

I must admit it has been bl**dy easy here in Europe trading the indices on CFDs.... huge swings and double bottoms / tops galore making very easy change of direction triggers...

Shame it won't last - UK, Ireland and Germany have been like playing a computer sim for the past few days...only with real money.

Hopefully when it is all over my resource stocks will head back up again and the start of 2008 will just be a footnote in the history of the markets.

Be happy

EB

 

[GreatPig]

PKT was up 29% on my list

Well I did say nearly, and I don't have PKT in my watchlist.

Cheers,
GP

 

[dhukka]

Let me respectfully disagree. I admit to initially thinking that ducati knew what he was talking about. But as the months progressed it became more and more obvious that the didn't. I would ask anyone who can be bothered, to go back through the BHP thread and see ducati's analysis of BHP's FY07 results. It is woefully amateurish.

The reason he doesn't post anywhere anymore is because I took him to task with some analysis on his blog. He put out his usually vitriolic analysis of a company that did not deserve it. I pointed out several glaring errors in his calculations and his understanding of balance sheets. He tried to defend himself but just ended up digging himself into a bigger hole. After a couple of days of back and forth on his blog about this particular stock he deleted his blog altogether and has not posted here since either.

Ducati called himself an arb trader but I suspect that is merely just a mask for the fact that he does not have the courage of his convictions to buy stocks based on the fundamentals he presumes to know. There are a few others on this forum, such as ROE, that know far more about fundamentals and estimating a company's intrinsic value than ducati ever did.

It seems I have been giving myself far too much credit. I was contacted by ducati, (you can read his comments on my blog at this post) who says that my claims about why he discontinued his blog and contributions to ASF are false. Actually he said 'lies'.

The bit about him, (which is my opinion) not understanding company financials, as well as his self-proclaimed title of arb trader as a mask for his inability to apply fundamental analysis to stock picking, I steadfastly stand by.

 

[tech/a]

Actually never disliked duc,admired his guts to at least post up his convictions.
Albeit misguided as they were.

Few do this in the live arena.

 

[ducati916]

I see this has gone public.
Fair enough.

The link to the blog pretty neatly sums up my stance.

What I dislike most is the cowardly manner of the attack. If you wish to have a brawl with me, then do it to my face like;

*tech
*BSD
*rederob
*others

To claim victory, when you achieved no such outcome.....pure lies.

jog on
d998

 

[Mofra]

As I read the tales of woe on this board and others, I can't help feeling a bit smug about being a technical trader.

wayneL,

Honest question - are you actually a technical trader?

I have read most of your posts over the years, noting you have a high degeree of technical literacy in terms of both charts & ETO greeks, and I have been struck by a strinking observation - for almost every technical position you have stated, you can provide the fundamental justification to support your positions.

So does this fundamental understanding form part of your positon management (even as a confirmation)? If so wouldn't this make you closer to a techumentalist? (shaddup it is too a word!)

 

[ducati916]

dhukka

I see that you have disabled the "comments" section of your blog already.
Didn't actually care to have the discussion face-to-face, man-to-man as it were.

I guess you just like to post comments behind peoples back's, months after the fact.

Here is the comment that I tried to leave on your blog 3mins ago;

dhukka,

With regards to BHP. You state that it is not incumbent for you to to disprove my [or anyone elses's] analysis.

That is true.
However, if you are not willing to challenge it at the time, don't write about how you are the expert months after the fact.

On how I invest.

You have no idea how I invest. Thus, you have drawn erroneous conclusions based on abosolutely zero knowledge, to suit your own bias.....pathetic.

The challenge on CST showed me nothing as your "attack" was in large part ad hominen.

My reason for pulling you, was to allow you to defend your actions. Obviously you feel the best defense is to try and excuse your cowardly behaviour.

Fine, I hold you in total contempt for such cowardice.

If you wish to ressurect CST, we can do so. It will not take long to show that they were capitalizing operating costs.

tech/a is someone with whom I nearly always disagree, yet hold in respect.

Why?

Because all of our arguments were above board face-to-face.

This isn't tech/a argument. It is yours.

Poltroon.

jog on
d998

Note to management [Joe]

I realize that this is not particularly what you want on ASF.
It will be the last time that this matter is raised on ASF by myself.

d998

 

[wayneL]

wayneL,

Honest question - are you actually a technical trader?

I have read most of your posts over the years, noting you have a high degeree of technical literacy in terms of both charts & ETO greeks, and I have been struck by a strinking observation - for almost every technical position you have stated, you can provide the fundamental justification to support your positions.

So does this fundamental understanding form part of your positon management (even as a confirmation)? If so wouldn't this make you closer to a techumentalist? (shaddup it is too a word!) <== LOL

Well you've jolted me with this revelation, I can't say I ever "consciously" considered FA apart from in the macro sense. I'll have to ponder upon this.

 

[ducati916]

dhukka

Here is my BHP analysis that appeared in August 2007 on this site.
As you are the ex-professional expert, and I am the inept bumbling amateur, perhaps you might wish to provide input?

After all, your comments within your post make it very clear what you think of my BHP analysis [along with CST of course]

I originally posted this on the 29/August;

BHP released their financials early last week. Having now had a chance to read through them in-between Jury service, there are some interesting things going on.

BHP have two separate share repurchase programs that have currently been announced. The August program, a $3.0B program, is more or less complete now.

142Million common shares were repurchased at a cost of $2.957B or circa $20.82/share. Does this represent management’s assessment of value?
Ignoring whether this was good value or not, the allocation of cash-flow went;
$286M………………………….Share Capital
$2.559B……………………….Retained Earnings

So, we can count these earnings twice?
The first time, the earnings are earned via Revenue, flow through the Income Statement, ending up on the bottom line as Net Profit.

That Net Profit if not paid out in dividends, would then rightly be recorded as Retained Earnings.

However, that is not what happened.

Assuming cash was paid for the share repurchase program, out of Net Profit, the shares were repurchased, placed in the Treasury, awaiting cancellation. [Previous Treasury shares have been retired]

Meanwhile, the cash used for the purchase has been recorded as….Retained Earnings. At this point we have the same cash showing up in three different places;
*Net Profit [Retained Earnings]
*Treasury shares [Share repurchase]
*Retained Earnings [Share Repurchase via Treasury shares]

Now, if the shares are not retired [cancelled] and are stored in the Treasury, they should not be recorded under Retained Earnings, they however remain an asset that can be resold. Should this happen, then the proceeds will be recorded under Financing Cashflows, and the proceeds placed in Current Assets as cash.

If the shares are retired, then, the asset is destroyed, in effect, a Return of Capital.
The advantages of this strategy is that future earnings are divided over a smaller share base, thus earnings per share will rise.

In either case, these are not retained earnings.
Currently BHP are counting their earnings three times…a little optimistic.

Earnings were also reported without including “Exceptional Items”.
Exceptional Items totaled……………………………………. $259M
Not an insignificant sum. The general rule is, are the items normal business?
In the case of BHP I would say that they are, thus they should be included.
They were;
*Impairment of South African Coal operations
*Newcastle steelworks rehabilitation [maintenance]

Capitalised Interest……………………………………………$353M
This one is a disgrace. Capitalising interest boosts net earnings. With a company claiming such a successful earnings period, capitalising interest is particularly egregious.

Taxes.
BHP have been utilising Tax Loss carryforwards to reduce Taxable income [no figure supplied]
This company has lost money?

Deferred Taxes……………………….+53.6%
BHP has accelerated depletion for tax purposes. In a resource business this is important. If you purchase on the basis of shareholder figures, you are guaranteed to overpay by the Deferred Tax figure. Again, simply a ploy to boost per share earnings by subterfuge.

Revenues/Inventories/Receivables.
So if we take Revenues of $47.47 and subtract the contribution made by higher prices we come to $40.37 Billion which is a 3.2% increase in Revenues. Now Inventories and Receivables rose by 20.6% and 22.4% respectively.

If you accept that Revenues rose due to advantageous pricing as opposed to increased sales of production [which is the case] then this figure is confirmed by the increase within the Inventory. It is also interesting to note that if Revenues hide the sold production, Receivables suggest that BHP is financing their customers purchases. In this “high demand” era, why is that?

BHP is a highly cyclical company. BHP is a “Pricetaker” not a “Pricemaker” thus, in weak commodity price cycles, BHP can indeed lose money.

Therefore BHP has certainly boosted Net Income by;
Tax + Exceptional + CapInt………………………………………$612M + ?
Retained Earnings………………………………………………….$2.957B
Total………………………………………………………………..$3.569B+

Liquidity [Working Capital]
Total Current Assets……..$8776………………$11087
Total Current Liabilities…..$8661………………$10249
Net Current Assets……….$115.0……………..$838.0
Current Ratio……………….1.01………………..1.08

For a “Blue Chip” Investment, BHP does not come close to passing the working capital liquidity test [minimum = 2.0] It is almost 100% below the cut-off point minimum.

This, especially in a contractionary credit cycle is vital. We have seen $10B Hedge Funds go bankrupt in the space of 5 days. I’m not suggesting BHP is a Hedge Fund, just that liquidity is vitally important and if you don’t have it when you need it, bad things happen.

BHP does have a newly negotiated $3.0B credit revolver…but were you expecting your rock solid investment ever requiring emergency bank lending?

In addition BHP debt is increasing in the time of plenty;

BHP have issued new debt, and placed a Shelf Registration for future debt.
This of course underlines the fact that the cashflow from Net Earnings, ahem, has been spent.
Future Working Capital requirements exceeding cash on hand etc, will be financed via this new issued debt and the debt registered, and already sold.

$788M Floating rate due 2008
$788M 4.375% due 2014
$875M Floating rate due 2009
$625M 5.125% due 2012
$750M 5.4% due 2017

Those “Floating” rates, could seriously impact future earnings…..if of course they are not capitalised or re-financed.

So what were the real, or adjusted earnings?
Adjusted figures………………………………$1.894B

Not quite the headline grabbing BHP version.


jog on
d998

 

[dhukka]

dhukka

I see that you have disabled the "comments" section of your blog already.
Didn't actually care to have the discussion face-to-face, man-to-man as it were.

I guess you just like to post comments behind peoples back's, months after the fact.

Here is the comment that I tried to leave on your blog 3mins ago;



jog on
d998

Note to management [Joe]

I realize that this is not particularly what you want on ASF.
It will be the last time that this matter is raised on ASF by myself.

d998

Yes I have enabled moderation on the comments section of my blog because as I said in my first reply to you, I want people to post comments about the posts themselves, not use it as a forum to vent over their bruised egos.

I have published your last two comments for the record but any subsequent posts from on that topic will be deleted. If you feel the need to clog up this forum with your nonsense go ahead. It's been publicly shown that your fundamental analysis skills are flawed but conveniently you deleted the evidence. Now you want to take up the debate again, sorry not interested.

jog on