ABA Chart

[Phaedrus]

ABA is an interesting stock. As a "longterm buy and hold" it has been a disaster and many people will have lost a lot of money on it. In the shorter term (1 year) it has been an absolute standout performer with the shareprice tripling in that short time. While there is no sign of obvious weakness in the current uptrend, now is a good time for holders to set up their exit strategy. This chart shows a selection of suitable indicators that could be used to monitor the uptrend. When the uptrend ends any or all of these indicators should provide timely exit signals, getting you out before you give too much of your gains back to the market. You can see that these indicators have all worked well in the past and there is no reason to believe that that should not continue.

Use of simple kindergarten level TA would have got you into this stock at around $1.15, but then ABA went into a trading range for 3 months before the uptrend really got going. This is a reminder (if you needed one)that the end of a downtrend does not necessarily mean the beginning of an uptrend.

Here is a little test to see if you have been paying attention. Take a look at the OBV plot. Can you see a Buy signal/where the "smart money" got in? Yes? And didn't they do well! Maybe some people really do know a lot more than others!

http://h1.ripway.com/Phaedrus/ABA620.gif

[shasta]

Thanks Phaedrus

As someone who uses mainly fundamental analysis, but uses charts as a confirmation of when to buy/sell, i posted on the "ABA - Not worthy of Comment" thread, on 18/7/06, 31/10/06, 15/11/07 & finally 2/1/07.

It isn't rocket science is it!

[Phaedrus]

Shasta, it could hardly be any simpler!

[Paper Tiger]

quote:
Take a look at the OBV plot. Can you see a Buy signal/where the "smart money" got in? Yes? And didn't they do well! Maybe some people really do know a lot more than others!

Maybe assigning significance to these occaissional large step changes in OBV is "misguided".
Independent of the direction of the current trend the price change at the end of day as set by the many smaller trades may be up, down or neutral compared.
Ryman is the classic example where there have been several step downs in OBV whilst the share-price maintains it now four year old uptrend.
AFI, AIA, ALF etc all show contrary "smart money" indicators.
To put it bluntly there is a randomness to the "direction" of these events and it is best to ignore them.

regards
Paper Tiger

[Footsie]

FYI - I bought my first lot on 29 September 06

Still holding.
One of my best trades

[Halebop]

quote:Originally posted by Paper Tiger

Maybe assigning significance to these occaissional large step changes in OBV is "misguided".
Independent of the direction of the current trend the price change at the end of day as set by the many smaller trades may be up, down or neutral compared.
Ryman is the classic example where there have been several step downs in OBV whilst the share-price maintains it now four year old uptrend.
AFI, AIA, ALF etc all show contrary "smart money" indicators.
To put it bluntly there is a randomness to the "direction" of these events and it is best to ignore them.

Understanding of how OBV is constructed provides insight into how to best use it. OBV is a measure of price and volume. Falling price and OBV falls, Rising price and OBV rises, in each instance the degree of the fall or rise is dependent upon the volume for that day.

AFI and ALF are two securities that generally only trade in light volumes. OBV in these two examples was heavily swayed by a short period of much higher than normal trading volumes. Often these sorts of readings happen during a period of corporate activity - corporate activity to my mind is not smart money - it can often be strategic money or simply an act of housekeeping.

ALF was impacted by a single daily volume of 580,000, well above the norm of a few hundreds or thousands. Remove that and OBV looks something like the orange line on the image below. Clearly the orange trend line matches the price trend. Think about it - in most instances how could it not - where volume and price movements combine - net sellers and net buyers must over time drive the price...

Excuse my ham-fisted image editing but you can get the point...
http://img406.imageshack.us/img406/4807/alfgiftl4.gif

Neither of the other example are any different but I couldn't be bothered editing the charts. In any case, change the time frame of AIA to exclude the single days of giant volume and OBV is giving a pretty good pointer on direction...

http://img50.imageshack.us/img50/4051/aiagifxn6.gif

[Phaedrus]

Paper Tiger, you say Independent of the direction of the current trend the price change at the end of day [u]as set by the many smaller trades</u> may be up, down or neutral.... there is a randomness to the "direction" of these events.
Not true PT. There is nothing random about it at all. If there is overall buying pressure, the day will close higher than it opened. Any end of day change caused by "many smaller trades" is not of too much interest though - these are the little guys, the mug punters. The total volume will be small and any effect on the OBV miniscule. We are not talking about such "ordinary" days though, are we? We are talking about steps in the OBV, right?

"Maybe assigning significance to these occaissional large step changes in OBV is "misguided"."
What causes these OBV steps? What lies behind them? Superficially they are caused by a price movement on unusually high volume. Here is the ABA volume bar chart. The bars are green if the action drove the price up (buying pressure) and red if there was selling pressure (the action caused the stock to close lower than it opened.) Anyone buying up large will push prices up. A big player getting out will depress prices. Steps in the OBV are caused by really big transactions and mark the activity of institutional or other big players getting in or out.
http://h1.ripway.com/Phaedrus/ABAvol620.gif
So, we can see that somone was buying up large. I know that big players can make mistakes too, but by and large they have better sources of information than you and I have access to and it pays to keep a close eye on what they are doing. In this case it was the Stewart family/Masthead Portfolios investing over $7million. Don't you keep track of SSH notices PT? You should! If you did, you would have seen that ABA director, Alan Clarke, was also buying at around the same time. Maybe you think that assigning significance to that is "misguided" too!!!!

[Mick100]

I think those big volume days are significant.
For stocks that are trending sideways, a big volume day often indicates the beginning of a new trend (by big volum, i mean 5-10 times normal volume)
Saw the same thing with PGW a couple of months ago.

This indicator does not always work though - have a look at CBM (AIM). Had a huge volume day a couple of months ago accompanied with a spike in price and has since gone back into it's downtrend.
.

[Phaedrus]

Nothing, but nothing always works. The best we can do is use what generally works and not rely on any single indicator or system. Because nothing works every time, we need a system to get us out on the hopefully rare occasions when our system fails us.
Don't forget that the many technical ABA Buy signals came months before the OBV "step". When that came it was simply a nice confirmation, that's all.

[baxter]

Phaedrus...I don't quite get it. If a large purchase is a significant pointer that some-one in the know is buying isn't it equally relevant that a large seller is also in the know, and if the two meet then what does that point to?

[Phaedrus]

Baxter, A big buyer will take out multiple sellers - the stock is being accumulated. The reverse of this applies when a big seller sells to lots of little guys. The stock is then being distributed. In the event of a crossing where a very large parcel of shares simply changes hands, we have no way of knowing whether the buyer or the seller is the smarter. Rest assured though, one of them will probably know something the other doesn't! Do the names Fay and Richwhite mean anything to you?

[Halebop]

quote:Originally posted by baxter

Phaedrus...I don't quite get it. If a large purchase is a significant pointer that some-one in the know is buying isn't it equally relevant that a large seller is also in the know, and if the two meet then what does that point to?

OBV is not pointing to a large purchase or a large sell. It is a trending indicator so you are looking at a pattern of behaviour from "the market", not an extraneous large transaction. To prove a trend requires many points of data, not a few. When considering trends, as in anything statistical, probability rests with those who ignore "unusual" events and follow the "typical" events. A rising OBV is achieved by higher and or more frequent "up day" scores than "down day" scores. This "score" is set by the direction of the price (up or down) and the volume traded. Therefore if you have over a time series more up days and particularly up days on higher volume days, this tells you the buyers are setting the pace (we know for every buyer there must be a seller but to achieve a purchase in the example of a rising OBV the buyers are typically bidding the price up to get their share of the action). The reason why it is considered a smart money indicator is that higher volume transactions require more money/shares/wealth than low, not necessarily that the money is in fact smart. I see that consistently higher prices on higher volumes is sending a clear message on where the money is flowing, and at the end of a run you can sometimes see a falling OBV despite a rising or static share price - again indicating where the "smart money" is disembarking. So, subject to the usual fallibility of probability models, the OBV volume-price trend will tend to reflect price performance and so in hindsight, the smart money does indeed tend to be smart.

As Phaedrus sagely advises, it is but one indicator and not a magic bullet. But statistically it is just measuring a combination of volume and price performance and is not particularly arcane.

[Paper Tiger]

Maybe assigning significance to these occaissional large step changes in OBV is "misguided". Take II

Large step changes in OBV occur when an unusally large volume of shares are registered as changing ownership. Essentially this happens by a different mechanism from the way that most trades are conducted.
Most trades consist of orders to buy or sell placed at market price or at a limit price and has time progress the price moves around and closing prices can be higher, lower or same than that of the previous trading day.
For instance from 12-Oct-2006 to 20-Jun-2007 the statistics for ABA are:
66 higher closes;
50 lower closes;
53 same closes;
Up days are the biggest group in the uptrend, and that is not surprising, but they do not constitute a majority of closing price changes.

hence my statement "Independent of the direction of the current trend the price change at the end of day as set by the many smaller trades may be up, down or neutral compared".

Now when Masthead bought their near 20% stake in ABA they did not bung a buy order into the market that morning, pushing the price up.
Probably days, maybe weeks before talks were going on between the major shareholders (although not necessarily directly) to see if a deal could be reached, eventually it was and come the 13th it was announced to the market and off-market trades appeared in the trades list.
On this occaission said announcement was during market open and the market in the short term decided that this was a good thing and resulted in the end of day price being higher and the OBV steps up.

Then an uptrend begins and many months later Phaedrus makes his post.

But and it is a big but: How the market closes compared with the previous day when these big share movements are announced is not necessarily related to the subsequent direction of that share.
There are numerous reasons:
Announced after market close; the initial near jerk reaction of the "little" guys goes against the longer term opinion of the market; no one gives a hoot and the general randomness of the last trade of the day holds sway, etc.

So I say again and hopefully more clearly. Maybe assigning significance to the direction of these occaissional large step changes in OBV is misguided.


best wishes
Paper Tiger

[Halebop]

PT I think you just said what I said in explaining the big jumps or falls in OBV. This is however a different conclusion to Mark I's "randomness" contention. If the share price is trending, Odds are in favour of OBV trending too. Not much randomness in that. A big jump or fall can demonstrably be ignored in statistical speak where it is not part of a pattern. It is the pattern that is the trend, not a one off movement. If the pattern is to jerk from high to low and back over again and again, then that is the trend. If the pattern is a slowly rising "squiggle" line then that is the trend. In your examples the sudden jumps are simply an aberration in what are otherwise clear trends.

Few people would use OBV as the only indicator, they would use it as part of a probability package and by ignoring those extraneous transactions, the trend line remains intact to worm whichever way it is going.

I wouldn't try too hard to be "right" on "disproving" OBV as an indicator of price performance - by it's structure OBV will tend to follow what the share price does simply because share price change is half of the inputs. Statistically OBV would only need to point me right 55 or 60% of the time in order to significantly augment my selections. When used in conjunction with other indicators that might similarly give me a small advantage, the overall impact is emphatic (but nobody is trying to say failsafe).

Phaedrus uses many indicators and while the benefit of adding extra indicators is unlikely to be exponential, if his mix of probability tools improves his picks by even 10% this will result in substantial performance enhancement (If we are measuring the number of profitable investments, a 10% increase in winners also means a 10% decrease in losers - a substantial 20% enhancement). None of these tools or indicators are about being a "magic bullet". They are about enhancing decision making. Many of these tools are used in the fundamental application of operating (and particularly innovating) businesses. They aren't new. They aren't perfect. But thanks to statistics it is generally accepted they improve business decision making.

My suggestion is rather than looking at TA which it seems people are either pre-disposed towards or not; Google TQM, Six Sigma or Baldridge. These schools of business excellence use the simplest forms of statistical analysis (and some not so simple ones for the more techy minded) to augment decision making. Many of the measures used are very similar to TA and very successful companies like Toyota and General Electric apply the concepts on a day to day basis. You will find it's not weired science, it's just probability modelling in a form that doesn't require a math or actuarial qualification.

[Paper Tiger]

quote:Originally posted by Halebop

PT I think you just said what I said in explaining the big jumps or falls in OBV.

Ah, but I said it first, just not in language that you understood, but graciously I am willing to accept responsiblity for that :)

quote:
This is however a different conclusion to Mark I's "randomness" contention.

No it isn't, and that is entirely your fault for not realising what I meant. :):)

quote:
If the share price is trending, Odds are in favour of OBV trending too. Not much randomness in that.

This I currently assume to be true.

quote: A big jump or fall can demonstrably be ignored in statistical speak where it is not part of a pattern. It is the pattern that is the trend, not a one off movement.

This is absolutely, precisely the point I have been been trying to make.

quote:
If the pattern is to jerk from high to low and back over again and again, then that is the trend. If the pattern is a slowly rising "squiggle" line then that is the trend. In your examples the sudden jumps are simply an aberration in what are otherwise clear trends.

See above i.e reread my last comment.

quote:
Few people would use OBV as the only indicator, they would use it as part of a probability package and by ignoring those extraneous transactions, the trend line remains intact to worm whichever way it is going.

I make no assumptions on what "people" who use TA do or do not do. I simply add my observations for the greater eddificaion of all

quote:
I wouldn't try too hard to be "right" on "disproving" OBV as an indicator of price performance

Read carefully what I actually said, not what you and others assumed and i did not say. I believe that you and I regard these occaisional "biggies" as statistical anomylies which are best ignored for all occurances. This is as opposed to those amongst us who choose to use them as confirmation of their agenda when it suits them.
[quote]quote:
- by it's structure OBV will tend to follow what the share price does simply because share price change is half of the inputs. Statistically OBV would only need to point me right 55 or 60% of the time in order to significantly augment my selections. When used in conjunction with other indicators that might similarly give me a small advantage, the overall impact is emphatic (but nobody is trying to say failsafe).

Phaedrus uses many indicators and while the benefit of adding extra indicators is unlikely to be exponential, if his mix of probability tools improves his picks by even 10% this will result in substantial performance enhancemen

[Phaedrus]

I can't help but feel that this has all got too technical, too theoretical and too intellectual. Here is my "Simple Man's Guide to OBV Indicator Steps".

Large steps in the OBV are directly caused by activity by major players.
A large shareholder exiting a company is Bearish.
Someone taking a new stake of significant size is Bullish.
If the transaction decreased the number of shareholders, this is accumulation and is Bullish.
If the transaction increased the number of shareholders, this is distribution and is Bearish.
If the transaction was on the open market and pushed the price up, that's Bullish. If it pushed the Price down, that's Bearish.

Even if you totally disagree with all of the above, there are good grounds to believe that major players know more than you or I do. At the very least, it pays to be aware of their movements. Steps in the OBV alert you to such activity.

[Paper Tiger]

quote:Originally posted by Phaedrus

I can't help but feel that this has all got too technical, too theoretical and too intellectual. Here is my "Simple Man's Guide to OBV Indicator Steps".

Large steps in the OBV are directly caused by activity by major players.
A large shareholder exiting a company is Bearish.
Someone taking a new stake of significant size is Bullish.
If the transaction decreased the number of shareholders, this is accumulation and is Bullish.
If the transaction increased the number of shareholders, this is distribution and is Bearish.
If the transaction was on the open market and pushed the price up, that's Bullish. If it pushed the Price down, that's Bearish.

Even if you totally disagree with all of the above, there are good grounds to believe that major players know more than you or I do. At the very least, it pays to be aware of their movements. Steps in the OBV alert you to such activity.


The technical bit of technical analysis perhaps?

Here is my Simple Man's Guide to OBV Indicator Steps": Ignore them; and look at the OBV trend before and, subsequently, after.
Large transactions require both a buyer with deep pockets and a seller who has had deep pockets, both will at the time consider it a trade worth making. ;)

enjoy your week as best you can [:0]
Paper Tiger

[Phaedrus]

"Large transactions require both a buyer with deep pockets and a seller who has had deep pockets"
Not necesarily PT. What you are talking about there is a crossing - an event that is neither Bullish nor Bearish and can be ignored.
It is quite different when a big Seller takes out multiple smaller buyers, or a big Buyer takes out multiple smaller sellers.

Your advice is to "Ignore them; and look at the OBV trend before and, subsequently, after."
What you are saying here is that only the "small trade" component of OBV is significant and that any "big trade" component of the OBV should be ignored. This is the direct opposite of conventional wisdom and I would be very surprised if you got any support at all for this view!

[duncan macgregor]

quote:Originally posted by Phaedrus

I can't help but feel that this has all got too technical, too theoretical and too intellectual. Here is my "Simple Man's Guide to OBV Indicator Steps".

Large steps in the OBV are directly caused by activity by major players.
A large shareholder exiting a company is Bearish.
Someone taking a new stake of significant size is Bullish.
If the transaction decreased the number of shareholders, this is accumulation and is Bullish.
If the transaction increased the number of shareholders, this is distribution and is Bearish.
If the transaction was on the open market and pushed the price up, that's Bullish. If it pushed the Price down, that's Bearish.

Even if you totally disagree with all of the above, there are good grounds to believe that major players know more than you or I do. At the very least, it pays to be aware of their movements. Steps in the OBV alert you to such activity.

I am inclined to agree with PHAEDRUS on this. The big buyer or the big seller is more inclined to be right most of the time, with inside knowledge that the small trader is unaware of. I give you an example of this in a different field. I had a system at the races, where i would follow a big punter up to the window take note of his bet then stick a place bet on whatever he bet on. I had absolutely no idea of what the hell was going on behind the scenes, but recognized the fact that he might. Incidently i always seemed to come out on top. Another good example is those two good people that flogged of Tranzrail to the little people.[V] Macdunk

[Halebop]

quote:Originally posted by duncan macgregor

...Another good example is those two good people that flogged of Tranzrail to the little people.

They sold shares to some quite "big" people, which points to the concept that they were probably using a high-probability-non-insider-information-technical-system to sell so fortuitously to smart money.

[Phaedrus]

Since its trendline-break SELL signal of a week ago, ABA has fired off other confirmatory sell signals and is now in a downtrend. This is the "usual" order - trendline break first, then other indicators, with the trailing stop last to be hit.
http://h1.ripway.com/Phaedrus/ABA816.gif

[Tanger]

I see Masthead have come back with a partial takeover offer at $3.85. Given the shares were around this price not so long ago, doesn't seem like that great an offer to me. Won't be getting mine at that price.

[Footsie]

This is exactly why TA isn't a full proof strategy !

I was reading the other day that in life human behaviour follows no pattern.
hence why we are unpredictable
We will eat wetbix everyday for years and then one day change to cornflakes for no real reason.


I use fundamental analysis to select a stock, then use TA to HELP time my entry and exit.
But neither strategy, even when combined ensure success 100% of the time

[COLIN]

Quick Phaedrus, let's have your response, before my faith in you starts to waver!!
Seriously, though, it would take a lot more than this "blip" to turn me into an unbeliever in the strength of your charting skills and analysis.

(I haven't been following the sharetrader forum closely for a few months so forgive me if I show my ignorance of recent posts.)

DISC: Hold ABA

[Phaedrus]

Footsie, I agree. Nothing, but nothing is foolproof!

Colin, let's look at what TA did do with this stock, rather than what it didn't do.

See how well the 3 indicators plotted here agree with each other.
Observe the quick "double your money" trade over 5 months back in 2005.
See how TA then kept you out of the ABA downtrend for the next 10 months.
Note the nice early $1.18 - $1.20 "Buy" signals in July 2006 (too early, really!)
See how the OBV flagged big buying interest in October 2006, re-confirming the entry signals.
Observe how these same indicators kept you in ABA for a year, over the course of the entire uptrend.
Look at the cluster of Sell signals, giving an exit at $3.40 - $3.60.
Anyone following these signals would have tripled their money in a year!

After stellar performance like that, do you really think that they would give a toss about missing out on todays lucky 10% break? Not likely!

[Tanger]

The interesting thing now is what will unfold over the coming months. With their Vertex acquisition, I think they initially went in with an offer of $1.90, but subsequently ended up paying $2.09 per share. It will be interersting to see if history repeats.

[Footsie]

Phaedrus - i've always wondered if it was foolproof or fullproof
thx for correcting me

FYI i found this defn from google
"If you want to get credit for solving a complicated mathematical problem, you will have to provide a full proof. But if you’re trying to make something as easy as possible, you want to make it foolproof—so simple even a fool could couldn’t screw it up."


I think you're TA did a great job with ABA. to be perfectly frank taking a ride from 1.20 to 3.60 in 10 months is an awesome trade!

if only my whole p/f was full of trades like that.

You have great discipline phaedrus- thats what i admire about your style. You follow it religiously and it works for you. And that's one of the biggest reasons that it does work, because you follow it so closely.

Discipline and patience. Very important factors in being a succesful investor/trader.

[shasta]

Phaedrus - i've always wondered if it was foolproof or fullproof
thx for correcting me

FYI i found this defn from google
"If you want to get credit for solving a complicated mathematical problem, you will have to provide a full proof. But if you’re trying to make something as easy as possible, you want to make it foolproof—so simple even a fool could couldn’t screw it up."


I think you're TA did a great job with ABA. to be perfectly frank taking a ride from 1.20 to 3.60 in 10 months is an awesome trade!

if only my whole p/f was full of trades like that.

You have great discipline phaedrus- thats what i admire about your style. You follow it religiously and it works for you. And that's one of the biggest reasons that it does work, because you follow it so closely.

Discipline and patience. Very important factors in being a succesful investor/trader.

Not wanting to take the gloss off Phaedrus (hes earned it well & truly!)

But if anyone had bothered to read my ABA posts from July - Oct 06, from a purely FA perspective they would have achieved the same result!

At the time i stated ABA was the only healthcare related stock not to be on an overly demanding P/E ratio & that in time it would catch up...

How do we retrieve the old posts?

Probably best i re-post it...

http://www.sharetrader.co.nz/showthread.php?t=1338&highlight=ABA&page=4

Footsie - like yourself i primarily use FA, althought TA confirms my decisions & assists with entry/exit points...

EG, I got in ADY at 21c & 6 weeks later it hit a high of 67c, i also posted about my intentions & what it would do at the time, again FA ruled my decisions ...

[Phaedrus]

It's just the same old story, Shasta.
The very best trades are those where TA and FA agree.

[shasta]

It's just the same old story, Shasta.
The very best trades are those where TA and FA agree.

My point exactly, we are all cut from the same cloth whether we like it or not.

My main point being, an investor/trader did not need to have your knowledge of TA to achieve the same results, an astute FA investor can (with some help from TA) achieve the same outcome...

[Footsie]

personally

I disagree

I think you must combine both FA and TA to achieve the best outcome

However i acknowledge you can be succesful following one or the other

FYI
i've owned a growth stock before on a p/e of 10 then watched in disbelief as it fell to a p/e of 7.

[Phaedrus]

I had to laugh when I saw that the current takeover offer was from Masthead. The charts on page 1 of this thread mention the very obvious "step" in the OBV plot, caused by Masthead's initial 20% investment in ABA.

Paper Tiger had his own take on this :- Maybe assigning significance to these occaissional large step changes in OBV is "misguided".......
To put it bluntly there is a randomness to the "direction" of these events and it is best to ignore them.

My reply :- We can see that somone was buying up large. I know that big players can make mistakes too, but by and large they have better sources of information than you and I have access to and it pays to keep a close eye on what they are doing. In this case it was the Stewart family/Masthead Portfolios investing over $7million. Don't you keep track of SSH notices PT? You should! If you did, you would have seen that ABA director, Alan Clarke, was also buying at around the same time. Maybe you think that assigning significance to that is "misguided" too!!!!

Paper Tiger - can we assume that you consider it misguided to attach any significance to Masthead wanting to increase their stake in ABA?

[Footsie]

follow the smart money

except in PVO :)