I’m sure that was a Pink Floyd song - or maybe I am getting mixed up with the Bovril Turner Overdrive - it’s my age you know……
These Markets are truly remarkable - it seems like whatever happens they just keep going up. Readers of my Charts stuff, Tweets, Website Trades etc. might have seen I put a Small Short on the S&P500 on Monday Night Last Week as it looked really poised to drop back a bit - but in the event it has actually been flirting with my Stoploss and at the Close on Friday it was still a fraction below - I will look at this Chart etc. in due course. I was thinking about my Shorts earlier this afternoon and I am of a view that the best approach is to open fairly Small Shorts initially and then if they go my way to increase them and ‘Push the Position’.
Last week my Overall Portfolio (including the Overseas Unit Trusts but not the Income Portfolio) was down 0.15%, which is really just ‘Noise’ in the bigger scheme of things and I am still right up at the All Time Highs although I still am slightly below the High Point the Portfolio hit back in May - wasted Summer or what ?!!
From a quick read of my slightly Out of Date UK Stockmarket Almanac, in a typical October we tend to see 2 good weeks at the start and then it falls away but finishes with a final flurry with the Markets rising in the last few days and the Last Trading Day having the glorious accolade of being the Strongest ‘Last Day’ of the Year. So far October 2017 has behaved as per this pattern and if it continues, then we might have a bit more of a soggy week ahead.
There is actually a very good explanation for this - we are right at the start of the US Earnings Season and with Markets so high I suspect that even good Earnings Announcements are already ‘baked’ into the Prices - so it is only if Results are truly outstanding and give an Upside Surprise that we will see Individual Stocks gaining. I think we are already witnessing this kind of behaviour in the UK where even good Results have seen Stocks sell-off a bit. Another thing to bear in mind is that the Clocks change at the end of October and this might have some bearing on things - psychological impact.
In terms of Strategy for me nothing has changed. I am still pretty much 100% Long with only a small bit of Cash lying around and my Spreadbet Leverage is still a little bit higher than I would ideally like - but with the Markets so strong I am not rushing to lower this dramatically. There are a few Positions that I want to trim a bit but I am pretty relaxed about them. I have a few new Stocks in mind but again I am in no rush - I am extremely tempted to buy a Small ‘Starter Position’ in Fevertree FEVR because I just think the Forecasts are daft and hugely understate the Actual Results that FEVR is likely to achieve - so the Forward P/E is in reality probably a lot lower than it appears to be. Obviously with a clear ‘Valuation Risk’ I don’t want to go mad on FEVR but I like backing my beliefs with actual Cash (that’s my Egomaniac side coming out !!).
I have made great progress on the Income Portfolio Blog Series and Part 1 will go live later this Week. The First 3 will be about the actual building and running of an Income Portfolio etc. then the Final one (or maybe 2 !!) will actually contains loads of Stock Ideas for use in such a Portfolio - that’s the hardest one to write really though.
This is one that was kindly flagged to me by mrl84 @miteshrlad on the Tweets - it is a very interesting situation. CPI has been through the mill along with all the other Outsourcing Groups but I suspect that deep-down CPI is actually a very good business (I remember from my Fujitsu days that we often competed against them and many people left FJ to work at CPI as it was seen to be quite a ‘prestige’ player in the IT Outsourcing World).
From a quick read of some stuff on CPI it looks like they are taking action to address the problems and they have just appointed a new CEO who was the guy at Amec FosterWheeler AMFW - this is a key element in any Recovery Situation I find. Note also that there has been a lot of Director Buying here recently which is clearly another good sign. Of course, one slight ‘downside’ of having a new CEO brought in is that they might try to ‘Kitchen Sink’ any Results and get all the Bad News out of the way - so there might be another set of poor Numbers here before a Recovery gets properly underway.
The Picture below from the Oscar Winning ShareScope Software (it is so superb that it even managed to avoid Uncle Stan) is the ‘Details’ Screen for CPI and if you look in the Top Right Hand Corner you should see ‘Norm EPS (p)’ for ‘Dec 2018 Forecast’ of 52.28p - this gives a Forward P/E Ratio of 10.9 (571p divided by 52.28p) which looks pretty reasonable (this is especially the case if we are talking about a Turnaround Stock where it is highly likely that the Earnings will accelerate as the New CEO gets a grip - indeed, if you look at the Forecast for 2019 it is much higher at 61.11p). It is worth appreciating that for much of its life CPI was seen as a Stockmarket Darling and traded on a pretty high P/E - often up around 18 times or so - obviously there is no guarantee it can get back to those heights but if we see the Business make good progress on a Turnaround then it seems likely the Market will award CPI with a much higher P/E Rating.
You should be able to see that CPI is forecasted to pay a Dividend Yield of 5.55% - this is also very appealing. The Company looks to have a fair bit of Debt so this is something for People to investigate further before taking things further.
As always, if you click on the Charts they should get bigger in your Browser so you can see them a bit better.
As always we will start with a Long Term View. The Chart below goes back yonks and the key thing here is the Black Line (Black Arrow) which marked an Uptrend Support Line for much of that time. However, where my Yellow Circle is CPI came out with a Profit Warning and the Price breached Support and dropped a lot.
The next Chart zooms in and the Black Line is the same one as on the previous Chart as is the Yellow Circle. The Key things here that I want to point out are the Red Downtrend Line (marked by my Red Arrow) and the Green Downtrend Line (marked by my Green Arrow) - both of these Lines need to be Broken-out of in order for Bulls of CPI to really make big progress.
The Chart below zooms in again. This time the Red Line and the Green Line and the Yellow Circle are all things we have seen before. This makes it clearer that Bulls need to see CPI up above about 650p to be really sure it has Broken-out of the Green Line and then to crack the Red Line it needs to get over about 750p ish.
The next feature here is my Blue Support Line (Blue Arrow) which was in place for much of the last Year but recently the Price dropped below that line which is not so good (this is partly shown with my Pink Circle). Failures of Support like this are not a good thing and we need to see the Price back up above this Line if we are to see more Gains here.
My Pink Arrow is pointing to where CPI did a Bullish ‘Golden Cross’ between the 50 Day Moving Average Line (the Darker Blue Wiggler) and the 200 Day Moving Average (the Lighter Blue snaky thing) - this was a positive development. Note however that the Darker Blue 50 Day MA Line is now heading down towards the 200 Day MA - if we get a Bearish ‘Death Cross’ then this would be a very bad sign and suggest any CPI Recovery is not happening.
In the Bottom Right Hand Corner you should see a Text Box which says that CPI is due to go Ex-Dividend on this Thursday 19th October for 11.10p per Share. At the Top in the Right Hand Corner, you might see my Green Semi-Circle with a small white ‘b’ in a small black box - this highlights the Director Buys.
Zooming in a lot more and just showing a few Candles, there is an interesting situation here. Note in the last 2 Days we have had 2 nice Big White Up Candles but the thing to look at is the ‘Inverted Hammer’ Candle in my Green Rectangle - this touched the 200 Day Moving Average Line (as per my Blue Arrow) and then dropped back from about 587p - so this is the Level that Bulls need to get the Price over. In fact, a move above 587p is probably a Buy Signal but with the caveat that the Price still needs to Breakout over those Green and Red Downtrend Lines from my earlier Charts.
Somero Enterprises SOM
This is a Stock I hold and I really like this one - the big standout for me is how SOM totally dominates its Market and that is quite a rare thing and shows they have a clear Competitive Moat. The Current Share Price is around where I bought in a few Months back and if you click the ‘Stock Buy Rationale’ Category or use the Search Box, you should find a Blog I wrote on it. The Chart has been sliding for most of the Summer but something happened last Week which I will now demonstrate.
The Chart below goes back around 1.5 Years and if you look on the Left you should see a very clear Uptrend Channel which is bounded by my Parallel Green Lines (marked with Green Arrow). Note next how it then ‘Broke-down’ where my Pink Circle is and the Price got into a Downtrend over the Summer and this was capped by my Red Downtrend Resistance Line (Red Arrow). Then we get the really Good News - my Yellow Circle is highlighting how the Price Broke-out to the Upside last week - this is very positive and such a Breakout could be taken as a Buy Signal.
On the Chart below I have zoomed in to the last 6 Months ish. First off note my Blue Arrow which is pointing at a Bearish ‘Death Cross’ between the 50 and 200 Day MAs - this is clearly negative but it needs to be appreciated that such a Cross is a ‘slow’ Indicator and the Price can move contrary to this Indicator and it could well be doing so. It is key now to watch the Darker Blue Squiggly Line which is the 50 Day MA and we need to see that turning up and then creating a Bullish ‘Golden Cross’.
To be really sure that a Price Recovery is really happening here, cautious Bulls might be best off waiting for a Breakout higher than the Recent Peak at 312p ish as marked by my Black Line - if we see the Price go higher than that, it is clear that Bulls are in the driving seat and are able to overcome strong Resistance from Bears.
It is quite possible that the Price will ease back a bit in coming Days and might even ‘Test’ the Red Downtrend Resistance Line again - remember, ‘Previous Resistance becomes Support and Vice Versa’.
My Screen below has the Daily Price Candles for SOM but what I want to show is marked by my Black Arrow where we have a 13/21 Day Exponential Moving Average ‘Golden Cross’ - this is good news and implies gains in coming Weeks. However, note that whilst SOM was in the Summer Downtrend, such 13/21 Day EMA Golden Crosses were quickly negated so it is not a perfect Signal although in combination with the Breakout on the previous Charts, I am certainly of the view that this Golden Cross is positive.
The Chart below has the Weekly Candles for SOM. First off note the ‘Hammer’ Candle in my Yellow Rectangle and it is worth appreciating the lovely ‘Context’ here of a sustained Down Move which was then marked by the Hammer ‘Capitulation’ and then for the next 2 Weeks we have moved up. Last Week is shown in my Green Circle and looks promising.
Note also how the Price has pretty much turned at the 200 Day Moving Average Line (marked by my Blue Arrow) - this sort of makes sense. ‘Mean Reversion’ is a powerful force in Stock Price movements and what we have here is the Price dropping back to the kind of level where it has Traded at over the Last 200 Days.
These chaps did a Trading Update Last Week and it read pretty well with the Shares moving up on the Day. I have mixed feelings with this Stock because it looks pretty damn cheap but the exposure to South Africa puts me off - if not for this I would certainly be more keen on it. My concerns are around the stability or otherwise of the Government there - you only have to look at the example of Zimbabwe to see how quickly a populist Government can screw up an Economy by usurping the Rule of Law. Having said that, a Forward P/E of 6 and Forward Dividend Yield of 4.3% probably do reflect such Risks and give some Upside Potential. A P/E of 6 is crazy cheap really when we have a Market full of Stocks on absurd P/Es over 30. NXR does Triton Showers and Tiles and stuff.
It is quite an interesting Chart though - hence its appearance in the Blog this Week and I know a lot of Readers hold it.
The Chart below is a start off ‘Long Term View’ and the key thing here is the Uptrend which was in force for many Years and which was ‘floored’ by my Black Uptrend Support Line (marked by my Black Arrow).
Then we had a break-down in Mid-2016 where my Yellow Circle is and the Price has been below the Black Line ever since.
This is where things get interesting. My Chart below shows just the last Year or so and the obvious ‘Shape’ here is a ‘Flat Top Triangle’ and the Price is being squeezed from underneath by my Blue Line (Blue Arrow) and being capped at the Top by my Green Line at 185p - a Breakout over 185p would be a Buy Signal and it looks very likely we will see it soon.
The Chart below has the Daily Candles for NXR with the wobbly Blue Bollinger Bands above and below them. My Yellow Circle is pointing out how on Thursday and Friday last Week the Price got above and ‘Outside’ the Upper Bollinger Band - this is an unstable condition and I would expect the Price either to drop back in the Short Term or to at least go Sideways to get back inside the Bands. However, NXR is quite a Small and Choppy Stock so it could stay outside the Bands for a while.
This is an important one for me because as I have mentioned, I have a Small Short Position running here. The Chart below is my actual ‘working’ Screen and the Blue Line at the Top marks where I Opened my Short last Week and the Pink Line just above at 2555 marks where my Stoploss should be Triggered and this is on an End of Day (EOD) Close basis - i.e if the Price Closes higher than 2555 then I should close my Short (buy it back).
For a couple of Day last Week we flirted with my 2555 Trigger but even on Friday (pointed at with my Green Arrow) after going above Intraday, the Price fell back at the Close to 2553. The ‘Graph Legend’ Box shows these figures if you look closely at it.
In the bottom Window on the Screenshot below we have the Relative Strength Index (RSI) for the S&P500 Daily. On a reading of RSI 69 it is still extremely high and it has been dropping back from the level a few Days ago - for a Bear with a Short this is quite welcome.
The Bottom Window on the Screenshot below has the MACD (Moving Average Convergence Divergence) for the S&P500 Daily. My Blue Arrow is pointing to where the Green MACD ‘Humps’ seem to be heading towards a Bearish Cross - this is shown in the Signal Lines format above as well.
The Chart below has the Weekly Candles for the S&P500. My Yellow Circle is highlighting a ‘Spinning Top’ sort of Doji Candle which is not necessarily a Reversal Candle (we would need something like an Inverted Hammer or Shooting Star really), although it suggests that in the Short Term this is a pretty tired Market. Charts have been known to turn down off a Spinning Top type Doji though.
Dow Jones Industrials Index
This Index only has 30 Stocks and they are all massive Companies but it tends to be the case that the DOW, S&P500 and Nasdaq Composite (the US Tech Index) move pretty much in lockstep.
My Chart below has the Daily Candles for the DOW going back a short period of time but the key thing here is that in my Green Circle on Friday we got much more of a ‘Shooting Star’ shaped Doji than on the S&P500 - in other words the upwards ‘Wick’ or ‘Tail’ or ‘Whisker’ or whichever term you prefer, is longer than the downwards one below where the Open and Close levels were - this could be Bearish.
In the Bottom Window on the Screen below we have the RSI for the DOW Daily. On a Reading of RSI 74 this is extremely high and like the S&P500 it has been easing back from a higher reading a few days earlier.
My Chart below has the Daily Candles for the CAC and my Yellow Circle is trying to flag up how the Price in recent Days has been falling away after the Strong Move Up which took place within my Pink Rectangle.
In the Bottom Window on the Screen below we have the RSI for the CAC Daily. On a Reading of RSI 62 and falling from up near RSI 70, this looks Bearish.
In the bottom window on the Chart below we have the MACD for the CAC40. My Black Arrow is showing a Bearish MACD Cross in the Histogram ‘Humps’ format and this can be seen above in the Signal Lines format also.
The Chart below has the Daily Heiken Ashi Candles for the CAC40. My Yellow Circle is highlighting how the Candles have gone Red after a long period of White Up Candles - this is bearish.
My Chart below has the Daily Candles for the DAX. My Green Circle is highlighting about 4 Narrow Body Doji Candles which show a tired Market - this could easily turn down.
In the Bottom Window we have the MACD for the DAX Daily - my Blue Arrow is pointing to where the DAX is bang on the verge of a Bearish MACD Cross.
Readers might (arguably they should !!) be getting an impression that many Global Indexes look like they could turn down quite easily from here.
The bottom window on the next screen has a DAX Daily reading RSI 73 - this is a very elevated level.
The Chart below has the Daily Candles for the FTSE100. My Yellow Circle is highlighting where we are now and the key thing is that we are up near the All Time High at 7600. A positive thing here is that we are up above my infamous Red Line (Red Arrow) which is the Bottom Support Line of that Long Term Uptrend Channel I have shown regularly in recent Weeks - it would be good to stay above this line. Obviously the most bullish thing here would be to see the Price Breakout Higher above the 7600 ATH.
In the bottom Window on the Screen below we have the RSI for the FTSE100 Daily. On a Reading of RSI 61 this is not overly high but the key thing is that it seems to be turning down and the FTSE100 has often found this kind of level quite high.
The Chart below has the Weekly Candles for the FTSE100. My Green Circle is highlighting a ‘Spinning Top’ Doji sort of thing - this could be a Reversal Candle but not necessarily - again it shows a tired market.
OK, I am running out of time - I hope everyone has a decent Week and be careful out there because October can be a funny one !!
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