Some time ago a Reader emailed me with some Questions about how I learned to muck about with Charts and I have reproduced much of it here and added a lot to it. Apologies to that Reader if I did not ask your Permission to do this but I have been very careful to remove any references that might give away your Identity and you seem like a reasonable Chap so I am sure you will be happy that I share this around. And I am confident you will appreciate the improvements I have made to that original text !!
There is a bit of common Folklore that goes along the lines that the moves of a Share Price can indicate what is going on within a Business and that this should be a major factor in our Buy, Sell or Hold Decisions. I guess it is an extension of the Efficient Market Hypothesis (EMH) which is more of a Macro concept whereby Economists make the claim that a Share Price, Asset Price or Index Level is merely the Market reflecting all known information about a Share or Economy or whatever and it purports the idea that “The Market is always right”.
Or is it?
Well, perhaps there is some validity here but overall I would say the EMH is utter garbage - it is perhaps a wonderful Academic Exercise (and regular Readers will be aware most likely of how much I see little use for such Trash and I only respect such Theories if I have seen them to be true in my immersed experience of Markets over many years) but in truth it probably would only apply to a ‘Perfect’ Market where all Information available at a Point in Time is known to all the Participants in that Market and they react rationally and with 100% accuracy in an instant. I guess the flaws here are rather obvious apart from the simple fact that in The Real World (ah, the WD strapline !!) there is no such thing as a Perfect Market. It is a theoretical construct to help explain how Economies and Markets work but it is of little value to us as Investors (or Traders).
Last Week turned out to be a bit of a pain for me - from Monday to Wednesday nothing much seemed to happen and then things tailed off at the end of the Week so my Portfolio took a hit of 1.2% over everything (excluding my Income Portfolio which I rarely look at). This continues my angst at failing to see my Portfolio Breakout of its All Time High which was put in back in May and I feel like much of the Year has achieved very little !!
However, as always we need to stay calm about such situations and focus on the positives and what has really been achieved - even if the Numbers are not reflecting it yet. There was an excellent TED Talk (Rory Sutherland - ’Perspective is everything’) which my mate Tom Tomsky @calvoreon sent me on Twitter which was about Psychological Framing and Perspective - the basic essence being that how we experience things that happen in our Lives etc. and how we let them affect our Emotions/Decisions, is largely down to how we set the context of whatever has happened. I am not explaining this very well, so rather than me jibbering on, check out the Talk yourself here - it is 18 minutes long and actually quite funny:
First off I am having a very good year despite the flat recent Months - this is something that obviously I should celebrate and not get too down about. In addition, I have a nice collection of Stocks and I expect to see nice upside from the majority (or at least decent Dividends) in the Months ahead - and as we will see below, several of my Stocks are in very interesting Technical Situations where they are on the verge of All Time High Breakouts (don’t switch off already, I am going to do a proper explanation of this !!).
This blog has come about as a direct result of Wheelie’s Summer Bash which was on Saturday 23rd September when a load of us met up in a Boozer local to me. If you take notice of my Twitter Feed, you may have spotted that at the End of each Day (usually around 5pm to 7pm ish) I do a Report via a Tweet of how my Portfolio Value has changed during the Day and the larger ‘DOWN’ and ‘UP’ movements of that day for the relevant Stocks. On a Friday I report the numbers for the Day but I also show the Weekly Result for my UK Portfolio and Spreadbets.
On a few occasions over the last 3 years I have been asked by a Twitter Follower what the Numbers actually mean and I have given a fairly full response on the whole I think but obviously the 140 Character limitations of Tweets probably leaves many People just as bemused as before I tried to answer !!
I am sure many Readers will recognise the sentiment of “missing the Boat” and I regularly see this comment and I am also often asked “How can I justify buying a Stock which is hitting at New All Time Highs?”
In general I think this is a big challenge for New Investors in particular but I also know a lot of experienced Peeps who won’t buy something which is up at New Highs. This might be a Cognitive Error - correction, it definitely is a Cognitive Error !!
For me there are 2 aspects to this puzzle. The first one is that if a Stock is making New All Time Highs (and therefore pushing into ‘Blue Sky Territory’ with no obvious Resistance Levels where Sellers will naturally come in) then it clearly has MOMENTUM. I deliberately have used Caps Lock there because we should all know by now that Stocks which possess Upwards Momo are something we should be looking out for and trying to buy; and on the flipside we really must be avoiding Stocks with Downwards Momentum.
I am doing this on Saturday night because I am off to the British Superbikes at Thruxton tomorrow and I doubt I will be back in time (or be in the mood !!) to look at Charts when I normally do. Time is a bit tight so I won’t waffle much and there are quite a few Stock Charts I want to run through.
Last week was a bit of a non-event for me - it started very messily with both UTW and AA. giving me grief but by the end of the Week I was flat and back exactly where I had started. Of course I am pleased to have got away with several problems but I was quite disappointed that a few of my Stocks that reported Results didn’t respond to the upside - in particularly I thought the Aviva AV. Results were good but the Stock did pretty much nothing. This is a shame because AV. has been moving horizontally for many months and I was hoping the Results could trigger a Breakout to the upside - the Stock certainly looks cheap enough and a Dividend Yield around 5% is well worth having.
Readers who are actually awake might have spotted that I recently stacked the shelves in Wheelie’s Bookshop with countless copies of Kerry Balenthiran’s book - ‘The 17.6 Year Stock Market Cycle - Connecting the Panics of 1929, 1987, 2000 and 2007’.
As I cryptically commented in the text I put with the Book, here is a Guest Blog that Kerry has kindly put together for us which gives a lot more detail and explanation about the subject matter of his Book and it certainly gives something to think about. The last part is particularly worth concentrating on because Kerry shows how his Cycle ties in with many recent events and more crucially he gives a Road Map to a likely future.
Kerry is on Twitter as @17_6YrStockCyc and I am sure he will be happy to discuss any connected matters and you can leave a Comment below if need be.
**WHILST UPLOADING THIS I HEAR RENZI HAS RESIGNED**
Thankfully Austria has managed to avoid electing a President from a party started by a former Nazi, but the focus now shifts to Italy and from what I am hearing on TV News, the result should come out in the early morning and by the time the Markets open on Monday 5th Dec, the result will be known.
If the vote is ‘No’ then Mateo Renzi will most likely resign as Prime Minister of Italy - although of course he could do the usual Politician’s trick of reneging on his words and staying on anyway. In addition, even if he resigns, it is very possible that the President will ask him to carry on anyway. If Renzi goes, then a Technocratic Government should be formed and they have until February 2018 to call a General Election - that’s when the fun would really start if Bepe Grillo’s Comedy Party wins and starts to move Italy out of the Eurozone.
I do worry that people are beginning to get the impression this is a Technical Analysis website - I assure you this is not the case, I purely use TA as an aid to my far more crucial Fundamental Analysis !!
Anyway, the point of this Blog is that there was some chit chat on Twitter recently about investing in Miners and the Mining Sector. I am no fan of the AIM Tiddlers as you probably know by now (if you want to waste Money, give it to me please - I might even say “thank you very much” which is more than an AIM Exploration Stock will offer), however, I don’t have much Mining Exposure apart from a small Glencore GLEN position and a load of Golden Prospect GPM which is sort of a bit different as it is really a Hedging Play on Gold.
Whilst chatting away with Ian Smith (@GrindertraderUK) at the Master Investor Show, somehow we got onto the subject of Level2 and Ian casually slipped into the conversation something along the lines of saying Level2 only gives you pretty much the same timing information that you can get by reading small timeframe Candlesticks - I got the impression 15 minute or 30 minute Candles would do the trick.
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