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Packersoldkidney
25-02-2005, 06:03 PM
Just to stir the pot:

The problem with fundamental analysis is that companies have great earnings and prospects at the top of the cycle, and pitiful earnings and outlooks at the bottom.

25-02-2005, 06:45 PM
Kidney what changes the trend for TA if not FA

duncan macgregor
25-02-2005, 07:01 PM
POK. That is not the trouble you have it wrong. The real problem is that times change, and if people dont change then they get left behind. Most fundamentalists get it right at the start, and most TA people start to late,and miss the bus at the first stop. The fundamentalist is first on the bus knowing that they got it right.
When the share goes bad, it is the technical analyist that is first out,and the fundamentalist bleats on about being right,and the market is wrong. The person with any brains takes the best of both worlds into account. The market is based on perception, not on fundamentalism which makes the fundamentalists wrong. it is also based on companies making a profit in the real world that some times the TA people cant comprehend. To be the stuck with one or the other is a mistake, open your mind to opportunity and use both. macdunk.

Packersoldkidney
25-02-2005, 08:01 PM
Kidney's one trading rule (that admittedly he knows little about, even if it is a few short words): 'the trend is your friend.'

I agree to go either overweight on TA or FA is going to lead you up the garden path - I guess my point is that TA might be able to tell you the stock/sector/commodity you are in is about to take off/have a crash. What fundamental analysis will tell you is how to make the most of the conditions you are given, ie what stocks/commodities are best to speculate/invest in. There were no fundamental indicators in 2002 that would have predicted the current boom we are in in the moment - but there certainly were and are technical ones. Once you'd of ascertained that you would then use FA to work out what stocks/commodities would of outperformed comparative to others.

At the moment all the fundamental indicators are pointing to boom times - it is at these times you should start to be extra cautious. I consider myself a relative novice to investing/trading, yet I'm finding even I'm able to pick quite a few winners and get some pretty handy returns. If I'm the kidney equivalent of a dartboard that seems to be having quite a run of luck I would suggest that I could also be a barometer as well. It's like Joe Kennedy in 1929: he knew it was time to exit the stock market when the shoe shine boy started giving him tips. If a kidney is getting good returns, that should tell you to start to be cautious.

The kidney indicator has officially turned bearish. Caution is advised.

Cooper
25-02-2005, 09:26 PM
Fair call POK, the exception would be defensive stocks like food producers etc... earnings shouldn't be cyclical.

In regards to resource stocks though, I wouldn't be arguing to vehemently against anyone who wanted to take their cash off the table. Good point... worth thinking about.

25-02-2005, 09:52 PM
Cooper a lot of food producers will be hurt badly because they are producing for the top end of the market. those producing basic staples will be good holds.

Cooper
25-02-2005, 09:56 PM
quote:Originally posted by ENIGMA

Cooper a lot of food producers will be hurt badly because they are producing for the top end of the market. those producing basic staples will be good holds.

I'm glad you asked, Enigma :D BPC on the ASX. Have been holding for a while. Worth a look.

Edit: I think I'm preaching to the converted though aren't I?

26-02-2005, 02:48 PM
Cooper Yes NFD is another one if fontera has the guts to stick it out, And say our present price is final and stick your $6.00 offer as we will not sell.

Snoopy
26-02-2005, 09:22 PM
quote:Originally posted by Packersoldkidney

I guess my point is that TA might be able to tell you the stock/sector/commodity you are in is about to take off/have a
crash.


I've never seen any evidence that TA is a predictive technique with a positive tradeable track forecast. Not even Phaedrus claims that.


quote:
What fundamental analysis will tell you is how to make the most of the conditions you are given, ie what stocks/commodities are best to speculate/invest in.


Yes


quote:
There were no fundamental indicators in 2002 that would have predicted the current boom we are in in the moment


Yes there were. Imminent war with Iraq, and the fact that the US economy was doing well. Meanwhile 'back in NZ' farmers doing well
and tourism arrivals going gangbusters.

Those were the kind of positive indicators that were going to flow down the wider NZ market sooner if not later. What rock were you sleeping under POK? One of Packer's kidney stones perhaps?


quote:
At the moment all the fundamental indicators are pointing to boom times - it is at these times you should start to be extra cautious.


What fundamentals are pointing to 'boom times'? I see quite the opposite. Stretched PEs and various profit warnings coming in.


quote:
The kidney indicator has officially turned bearish. Caution is advised.


A sensible conclusion from you at least POK, but why has it taken so long to learn this? With any serious investment caution is *always* advised. You have to consider both the upside and downside risks.
How could you have ever thought otherwise?

SNOOPY

Packersoldkidney
26-02-2005, 11:34 PM
Glad you've bought into the argument, Snoopy. A little late for me to reply, so I'll leave it till Sunday - I'll catch some z's under one of Packers kidney stones (!) , with a 'Do not disturb' sign on it till then.

Packersoldkidney
27-02-2005, 11:00 AM
I would actually say the opposite: TA is a predictive technique - though I would eject the rider 'with a positive track forecast'. (in other words TA can be a generalised predictive technique) Look, for instance, at the Coppock guide that has almost universally predicted correctly market bottoms in the last 80 years - and thus every major buying opportunity during that time. And has worked when every F.A. indicator was bearishly bear. For further explanation go to the investech.com website and read the paper: '"Best Buy" Opportunities in Stocks.....and the conditions that precede them.'

'Imminent war with Iraq', and 'the US economy was doing well' are not fundamental indicators. Looking at such things is more sticking your finger up into the breeze to tell which way it is blowing. Fundamental indicators are market ratios such as EPS, PER and PEG: and also generalised economic readings like the CPI, employment rate etc etc. Besides the US economy was most certainly not doing very well in 2002.
In Australia I think it is recognised that what has boosted the Australian economy is that country with the smallish population to the north of us called China: but you would have found it difficult to chase down an economist in 2002 who would have told you that Australia's economy would be in the state it is in right now in 2005. I suspect the same might go for you Kiwis.

As for 'stretched PE's', at least here in Australia, forward PE's are actually historically looking quite good - but this is precisely my point: At the top of the cycle, fundamentally everything looks rosy - only technical analysis is able to tell you that despite things looking fundamentally good, technically things may not be so. So the upshot is when isolating trends, whether they are economic or for a sector, I would go with technical analysis any day - when it comes to individual stock selection, that is when I turn to fundamental analysis to get a clearer picture of whether a company is worth investing in.

Cooper
27-02-2005, 03:24 PM
I think POK is focussed more on the commodity markets, especially resources, while Snoopy is predominantly thinking about the NZX... rules are slightly different for each I would suspect. Resources are highly cyclical while the NZ market (economy) is a little more diverse, not so speculative or volatile.

I think this is pretty much what you were saying Packers... PE ratios are looking good due to unsustainably high profits, and therefore looking at things like PE will give you a false picture, because it is not taking cyclical (and highly volatile) factors into account?

It also follows that if you're trying to forecast supply/demand factors you may be overestimating demand by assuming growth in demand will remain fairly constant, and by underestimating supply by assuming supply will also grow at current rates.

Obviously this isn't the case... prices become too high for certain uses (depending on the availability of substitutes) and demand for the good decreases, while at the same time supply is ratcheted up because suppliers are willing to supply more and previously unfeasible resources become feasible... the result is sometimes increasing production can sometimes overshoot reducing demand and there can be a short term oversupply... which is bad news if you happen to be invested in the good in question, and even worse news if you were assuming that prices were likely to continue growing, and you bought in at the top of the market.

This is all pretty basic but I wonder how many are being caught out. A little off the path you were heading down POK but I don't have a clue about TA...

27-02-2005, 08:52 PM
Cooper in other words a resources boom & bust cycle rather like the tech wreck. IS this your meaning.

Norman Z Rogers

Snoopy
27-02-2005, 09:11 PM
quote:Originally posted by Packersoldkidney

I would actually say the opposite: TA is a predictive technique - though I would eject the rider 'with a positive track forecast'. (in other words TA can be a generalised predictive technique)


I don't think you can remove the rider 'with a positive tradeable track forecast'. If you cannot successfully trade the information based on the prediction, then what is the point of the prediction?


quote:
Look, for instance, at the Coppock guide that has almost universally predicted correctly market bottoms in the last 80 years - and thus every major buying opportunity during that time. And has worked when every F.A. indicator was bearishly bear. For further explanation go to the investech.com website and read the paper: '"Best Buy"

Opportunities in Stocks.....and the conditions that precede them.'


Have just downloaded that. The conditions that preceed great opportunities in stocks are:

1/ Government Bond yield stops being reduced and starts being increased. (an FA indicator)
2/ A plunge in consumer confidence of 35 points or more (that means a one off negative result) (I'll call that a combined FA TA indicator)
3/ A plunge in the index of 20%. Notice there is no wait to see if a 'turning point' has been reached. (So FA).
4/ Two successive quarters of negative growth (FA)
5/ Bullish bond market reversal (TA)
6/ Coppock Guide near zero (some black box indicator not fully explained ( - to be ignored))
7/ Selling pressure on stocks making new lows abates six months past its worst. (TA)

Basically this amounts to a contrarian investment strategy. I would say Investech is right here, but you certainly don't need TA to be a contrarian investor. Half of those indicators are FA anyway.



quote:
'Imminent war with Iraq', and 'the US economy was doing well' are not fundamental indicators.


They may not be 'company specific', but then I tend not to follow specific companies in the US anyway. But thery certainly are bits of fundamental information that are not contingent on the movement of stocks. That makes them FA information in my book.


quote:
Looking at such things is more sticking your finger up into the breeze to tell which way it is blowing.


Can you name one instance when the USA has formally declared war and the stock market has gone down? It's actually a very relaible indicator.

If the US economy is growing then US shares tend to do well. Again quite a relaible indicator overall. It is far from 'finger in the breeze' stuff.


quote:
Fundamental indicators are market ratios such as EPS, PER and PEG: and also generalised economic readings like the CPI, employment rate etc etc.


...and any information that is not based on movement of stock prices and volume of stock traded. FA is not just fancy ratios.


quote:
Besides the US economy was most certainly not doing very well in 2002.
</f

Packersoldkidney
27-02-2005, 10:22 PM
I'm enjoying this repartee, Cooper, Enigma and Snoopy: obviously my ideas are a bit different to Snoopy's but I'd agree with Cooper when he stated that PE's can give you a false picture of a situation. Though I suspect that Snoopy would have a better grip on fundamental ratios than myself.

Obviously I have a bit of a problem with 'forward earnings estimates' etc etc - because that is real fortune telling stuff. There actually is a website that rates fundamental 'estimates' called starmine.com - worth a look if you have the time - they basically rate different analysts ability to fundamentally 'predict' the future.

Actually the fundamental analysis I'm actually sold on is historical: OShaunghnessy's "What Works on Wall Street" showed that it was quite possible to beat the 'benchmark' using simple fundamental historical data screened in particular ways. Certain combinations of indicators had superb returns - but this is exactly what I am saying - using fundamental analysis as an individual stock selector. Effectively the stocks with the best ratios you buy - but that still doesn't solve the problem of when to buy and when to sell. Entry and exit points really are a technical art - and I know that I'll have an argument from Snoopy in writing that - but fundamental indicators are frankly no chop at telling me to buy this and this company at this point. I could of pointed you to quite a number of stocks with great 'fundamentals' in August 1987, but that didn't stop them from suffering when the 87 crash came. And yes, there were technical bears before the market went ar se up.

I guess what I'm saying is pick the best stock at the right time, buy it, and then turf it when its the right time. Selecting the best stock is a fundamental art: entry and exit is technical.

I'm back under the kidney stones for the night, after I have a beer.

Thanks for the convo people, I'll continue it during the week. I see that I haven't answered a few points raised by Charlie Brown's favourit pet, but will endevour to do so at this later time.

Cooper
28-02-2005, 04:20 PM
quote:Originally posted by ENIGMA

Cooper in other words a resources boom & bust cycle rather like the tech wreck. IS this your meaning.

Norman Z Rogers


Yeah, I guess so E, although to be honest I was muddling through it as I went. From what I know of the tech wreck, they totally disregarded earnings. With resources, even if you took an average of the past five year's profits and based next year's PE forecast on that average you may still be overestimating, such is the volatility and cyclical nature of the earnings. So yeah, pretty much what I was trying to say.

Snoopy... Do you allow for cyclical factors in your analysis, and if so how do you do this? Or do you just keep away from industries with high earnings volatility?

Steve
28-02-2005, 05:44 PM
quote:Originally posted by Packersoldkidney

Just to stir the pot:

Well POK, it appears that the pot is stirred...

Well Done!

whiteheron
28-02-2005, 06:14 PM
Hi folks

Considerable FA and research to begin with followed up with mostly TA once a share passes the test and is purchased , that is pretty much me and I have found it a system that works pretty well

Being essentially a trader I do keep a watch on all shares held on a daily basis and once I lose faith in a share or consider it has risen above fair value I exit pretty quick

Losses are not something to be held on to and nurtured ; there is no future in that ( as I learned the hard way some time ago on stocks like AMP , TWR and WHS )

To ignore FA and invest solely on TA is , I believe , a very risky way to go
You are likely to end up with too many duds , dogs or whatever you want to call them

28-02-2005, 06:32 PM
Kidney & others A below average PE can be a very big warning under FA as well as a PE that is to high Iuse a very big mixture Of FA TA Gut Feel Mc Dunks ideah like talking to workers, customers general views of a company. Tip sheet suggestions I take as a watch with mostly negative conontations and blatant Ramping as sell extremely quickly signal.

Snoopy
28-02-2005, 09:35 PM
quote:Originally posted by Cooper


Snoopy... Do you allow for cyclical factors in your analysis, and if so how do you do this? Or do you just keep away from industries with high earnings volatility?


Since I started reading up on Buffett I have tended to avoid the cyclicals by choice Cooper. After all if you can get the same gain by investing in something that is not cyclical compared to investing in something that is cyclical why not choose the less risky non-cyclical?

My core 'income' portfolio consists of LPC, RBD, SKC, TEL and WRI.

Those first four are not cyclical. It doesn't matter whether the economy is looking up or down. There will always be stuff coming and going across the ports. Phone lines will always be buzzing, the slot machines will still be sucking up those gold coins and I don't see the the trend to 'eating out' reversing either.

WRI is a little different. I actually bought in at an average price of $1.05 vowing that if the price ever got to $2 or so I would sell out and exit this cyclical industry at its peak. Well, I've had my chance to sell out but I'm still sitting there on the share register.

Why? Well the yield is still good and likely to continue to be so, because of the way Craig Norgate organised his buy in. He needs the high dividends to pay his noteholders. So basically the future volatility in the dividends has been smoothed out by the Norgate buy in. Also even though the share price has risen 90% since I bought in, the yield is still good in absolute terms.

So would I buy into a cyclical share? Yes but it has to be cheap, so cheap I feel like a criminal stealing them away at the price I buy at.
Try a P/E of 6.5 and a dividend yield of 15%! I think this is the key to buying cyclicals. You have to buy them right at the bottom of the market.

SNOOPY

Packersoldkidney
28-02-2005, 09:53 PM
Try CLF and GGB on the Nasdaq. Both have run, but got plenty more in them. Both with amazing PE's, earnings etc etc. Both cyclical.

Snoopy
28-02-2005, 10:13 PM
quote:Originally posted by Packersoldkidney

I'd agree with Cooper when he stated that PE's can give you a false picture of a situation.


The problem with P/E ratios is that the 'P' is known (just look at the market price) but the 'E' is not certain. Just because you can go to the newspaper and blindly read off 'P', that doesn't mean you can blindly assume 'E' to be correct.


quote:
Obviously I have a bit of a problem with 'forward earnings estimates' etc etc - because that is real fortune telling stuff. There actually is a website that rates fundamental 'estimates' called starmine.com - worth a look if you have the time - they basically rate different analysts ability to fundamentally 'predict' the future.


I totally agree with taking a sceptical stance on brokers estimates of 'E'. You have to consider what happens if the brokers are wrong. If the P/E is already high and the brokers estimate next years 'E' to be even higher you can very easilly set youself up for a big fall. You get a double whammy effect if earnings are not up to expectations.

The share price will fall both because expectations of earnings have fallen short and the premium effect of a high PE is downrated at the same time. These falls are usually sudden and brutal, so you will not be able to use a' stop loss' to get you out at a good price. That in a nutshell is why 'growth investors' tend to be below average performers over the longer term.

However, if you are a 'value investor' and only buy shares that are cheap, then this double whammy effect works in your favour. Not only will the share price be rerated when earnings rise but the PE ratio is likely to be rerated as well because future growth prospects look so much better.


quote:
Use fundamental analysis as an individual stock selector. Effectively the stocks with the best ratios you buy - but that still doesn't solve the problem of when to buy and when to sell. Entry and exit points really are a technical art - and I know that I'll have an argument from Snoopy in writing that - but fundamental indicators are frankly no chop at telling me to buy this and this company at this point.


That really depends on how you look at it. Sure fundamental analysis will not tell you when a share has hit 'rock bottom'. But you can use a Buffett style analysis to determine an 'expected return' if you buy in today. If that expected return is to your satisfation and you buy today, then what happens if the share price goes down the next day? Nothing. you are still on track for your expected return. It is just that the person buying in the next day will get an even better expected return. Great for them, but I don't see that as a problem for 'you'.

Of course technical analysis will absolutely ensure that you don't buy at the bottom either. So if a share hits your 'cheap' spot price but you have to wait for the trend to be confirmed before you buy in you will always do worse than the pure fundamentalist buying the same share on a 'value' 'basis.


quote:
I guess what I'm saying is pick the best stock at the right time, buy it, and then turf it when its the right time. Selecting the best stock is a fundamental art: entry and exit is technical.


Unfortunately trying to 'time' t

Phaedrus
06-03-2005, 11:29 AM
Is TA only suitable for short-term trades?
http://www.sharechat.co.nz/archives/2001/06/msg00165.shtml

rotsevni
06-03-2005, 11:40 AM
Phaedrus, I went to this article thanks.
Just letting you know that this link in the article is dead:
"Technical Analysis from A to Z" at :- http://www.echarts.com/Learning/Library/
Pity, I was keen to read about the Q-stick indicator.
Do you have another link I can try? TIA

Phaedrus
06-03-2005, 03:32 PM
Historical ShareChat posts are not able to be edited so I can't correct broken links. Some of the stuff there I wrote years ago - it's a wonder any of the links still work!

Here are some notes on the Q-stick indicator, cut straight from MetaStock :-
The Qstick indicator was developed by Tushar Chande. Qstick provides a way to quantify candlesticks. The distance between the open and close prices lies at the heart of candlestick charting. For those unfamiliar with candlestick charting, the body of a candlestick is black if today's close is less than the open; it is white if today's close is greater than the open. A majority of white candlesticks over a specified range is considered bullish, whereas a majority of black candlesticks over a specified range is considered bearish.
The Qstick indicator is simply a moving average of the difference between open and close prices.
For more information on the Qstick indicator, refer to the book The New Technical Trader by Tushar Chande and Stanley Kroll.
Qstick values below zero indicate a majority of black candlesticks (over the time periods specified) and therefore a bearish bias for the security. Values above zero indicate a majority of white candlesticks (over the time periods specified) and therefore a bullish bias for the security.
There are several ways to trade the Qstick indicator:
Crossovers. Buy when the indicator crosses above zero. Sell when it crosses below zero.
Extreme Levels. Buy when the Qstick indicator is at an extremely low level and turning up. Sell when the Qstick indicator is at an extremely high level and turning down. You may want to plot a short-term moving average on the Qstick to serve as a trigger line.

Divergences. Buy when the Qstick is moving up and prices are moving down. Sell when the Qstick is moving down and prices are moving up. You may want to consider waiting for the price to confirm the new direction before placing the trade.

ruethewhirl
07-03-2005, 04:18 AM
Phaedrus,

I'd be interested in your opinion on what to do
when a share you're in goes bananas.

We all know what to do when a share trends down,
and we know to hold when shares trend up, but
what about when a share goes ballistic?

Some commentators would recommend you sell, as
on the balance of probabilities, when a share
is so far above its moving average it can only
spring back.

(Check out the ASX:Monadelphous thread to see
what I'm talking about)

Phaedrus
07-03-2005, 07:59 AM
Only time will tell whether a sharp rise is just a flash in the pan, or the beginning of something really big. Because of this uncertainty, I advocate partial profit-taking in such circumstances. For (say) half your holding, move to a very short-term system using daily candlesticks and sell on short-term weakness using a system such as is described here :-
http://www.sharechat.co.nz/archives/2001/07/msg00167.shtml
How you trade the rest of your holding will depend on your reading of the future of the company. I would look at using a suitable moving average and a trendline to monitor the uptrend. You should probably use a log price scale. If you use neither of these indicators (or lack discipline) a Trailing Stop should be in place to save you from yourself if the uptrend should reverse. You can make this stop as tight or as loose as you like, but if it is triggered, you MUST exit.

whiteheron
07-03-2005, 02:34 PM
I , like Phaedrus , take partial profits after a share has had a sharp rise in price as invariably in such a situation the price will overshoot and then pull back when things have quietened down
If this happens I then re assess whether a re purchase at the lower price is warranted ; sometimes it is , sometimes not , but by taking this course at least a portion of potential profits can be realised with the prospect of further profits over time on the balance of shares held

As I think is common I find when to sell much more difficult to establish than when to buy , especially for a share that has been showing a good uptrend but is ( probably ) reaching full value

KJ
08-03-2005, 01:56 PM
With trading stocks, I tend to sell completely when a sharp rise in price takes place.(say about 10% quite quickly)I average 4 to 6 weeks in any one stock and see a sharp rise as a good opportunity to move on as more often than not the price will over shoot on the high side and then come back.

This is not always the case but it is what I do more often than not.

duncan macgregor
08-03-2005, 02:50 PM
I still am inclined to sell to quick. I dont have a hard and fast rule about selling half, or the lot. I allow stop losses time lines to tell me to get out. When the share goes sideways in a trading range, i find that more times than not, i sell the lot, but not always. It depends if i have found a new home for the money, as i only invest a 50pc portion with a tight stop loss at the start, and the other half i place with something on a confirmed uptrend. I use fundamental analysis mostly in buying a new stock, and dig deeper than most, and get in before the trend. I will never buy a share on pure TA, i really dont trust the herd to come up with what to buy. The second 50pc goes on with straight out technical analysis when the herd tell me i was right in the first place. The fundamentalists are to concerned with the PE, and forget that it is the news in the pipeline that drives a share up. To dig deep and find that is the answer to when to buy. macdunk

ruethewhirl
08-03-2005, 07:36 PM
Thanks everyone for your tips.

The MND move was on very high volume and it's
difficult to fault the yearly report. It's got
loads of zeros in it. The stratospheric move
may have been realistically warranted.

Anyway, I'm going to hold a bit longer, watching
daily for weakness. The problem is that this
stock does trade on relatively thin volumes,
which does not make spotting weakness easy.

Another point is that my holding is not huge,
and selling bits and pieces off doesn't make a
whole lot of sense. Despite my 'Member' status
in the group, I'm still very much a minnow.