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This should be a quick WheelieBlog - there’s some Superbike Racing on the TV soon so time is limited !!
You may have seen via the usual comms methods (Tweets, ‘Changes List’ on Homepage, ‘Trades and Portfolios’ page etc.) that I closed (sold) my Long Spreadbet on National Grid NG. and banked a reasonable 10% Profit on the Exposure and near 200% on the Capital used as Margin Deposit for the Bet, in a swift 2 months.
Now you might think I am quite mad doing this, as, after all, NG. is a pretty decent Dividend Income Stock and I am the first to pronounce its virtues -and I will continue to do so. This was really a Technicals Based Sell - as I will show in the ScreenShots below, there are several reasons why the recent Short Term move looks like it might run out of puff.
Don’t get me wrong - I love NG. and am keeping a huge position on it in my Income Portfolio and I will be looking to buy back in again when/if the Share Price falls back to the kind of levels I bought in at a couple of months ago around 850p. It strikes me that NG. is a typical Divvy Megacap Stock that tends to trade in a Range that gives superb opportunities to Buy and Sell the moves on a relatively Short Term basis with fairly low levels of Risk.
The reason for this ‘Ranging’ behaviour is that when the Price falls to its lower levels around 850p, the Dividend Yield gets nicely up around the 5% area and this attracts Income Buyers in. Once the Price then gets in an up ‘Wave’, it can only go up a certain amount because NG. is not the kind of exciting Stock that can ever justify a High P/E Rating and low yield as it is just too slow with regards to Revenue and Profit Growth and it is simply too boring for the people who want excitement (not me thanks, I’m too old for that stress).
So, my approach on NG. and on several other of the Stocks in my Income Portfolio is to keep them as ‘Long Term Buy & Holds’ but to then trade around the Price Moves using Spreadbets when opportunities arise. I hate to say this, but on a Stock like NG. this strikes me as pretty much ‘Easy Money’ (oh god, tempting fate there !!).
More clarity - I want to stress that NG. still has huge attractions to me and is a Stock that could form a Core Holding in anyone’s Portfolio. It pays near 5% Dividend Yield and that has been slowly rising over many, many, years. I see it as a very safe Utility Stock for the simple reason that the Government (of whatever persuasion) just cannot ever let the Electricity Supply of the Country come under question - any Blackouts or similar problems would mean almost certain Electoral Defeat - so this is a huge incentive not to meddle.
Here is the Blog I did on NG. some months back:
I won’t dwell on this, but I have stuck in the ShareScope ‘Details’ Screen as it appeared on Thursday Night when I made my Decision to Close the NG. Spreadbet. You can do the maths yourselves, but the Forward P/E Ratio for 2017 is 15.4 and the Forward Divvy Yield for 2017 is 4.88% at a Price of 919p.
I really want to focus on a couple of Shorter Terms Charts because they are relevant to my Sell Decision, but I looked at some Longer Term ones and thought I would chuck them in anyway. As usual, all Charts are as per the situation that prevailed when I made my Decision to Sell late on Thursday Night.
The Chart below is the longest I can do on ShareScope and it shows NG. right back to the start of 1997 - i.e. around 18 years. The Blue Lines I have drawn in show the Uptrend that has prevailed over those years - not bad hey? However, it must be appreciated that there have been some pretty huge swings in there as well.
The Chart below shows a much shorter time frame of around 5 years ish - as you can see here, there is a nice Uptrend going on.
The Chart below drills in to recent months and I have drawn in a Green Line marked with a Green Arrow that shows how the Price has come up against a Resistance Line that can be created by joining the previous Peaks. This suggested to me that the Price may struggle to get much higher in the very short term.
On the next Screen, I have circled the Daily Candlestick that was generated at the End of Play on Thursday 1st October 2015 - i.e. when I made my Sell Decision. The key thing to note here is that the Candle is an ‘Inverted Hammer’ which in the context of the run up over 6 or so trading days, suggests that the Price is most likely to drop now.
On the Chart below, please look at the Bottom Window which shows the Relative Strength Index (RSI). If you have read some of my spiel about this before, you should know that the general rules are that you Buy when the RSI is down around 30 and you sell when the RSI is up around 70 - but obviously this depends hugely on which Stock / Asset you are trading.
In the case of NG. in recent months, you should be able to see that when the RSI gets up around 70, it tends to mark the Short Term Peak in Price Action and it is time to Sell. My Black Arrow points this out exactly with the situation that was confronting me on Thursday night.
Of course, it is very important to remember that all this Technical Analysis business is ‘Probabilistic’. Simply put, this means that it suggests what is MOST LIKELY to happen, not what WILL happen. Anyway, as it happens, with a huge dose of Hindsight, it turns out that the Stock rose on Friday - of course, the beauty of my Approach here is that even though I closed the Long Spreadbet, I still have lots of Exposure to NG. Shares via my Income Portfolio so I won anyway.
Right, that was short and sweet. Here’s to more such Trades !!
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