Category: TECHnical

TECHnical

Technical side: Chart Patters what are they?

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source: http://www.chartpatterns.com/

Here is what Investopedia.com has to say about patterns:


In technical analysis, the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction. Also known as “trading pattern”.
So generally chart patterns are formations made by connecting some points of the stock’s movement for a period of time. With this definition one chartist may see a different chart pattern from another chartist if they have different time period and different movements as a connecting point.

Chart patterns can be made whether one uses a Candlestick chart, a Bar Chart, or a simple Closing Price Chart. These patterns are not exact and accurate answer to everyone’s question if a stock is a buy or a sell but mainly it guides one to at least know what is the probable price action of the stock in the next couple of days base on historical price movement.
Patterns can be classified as Bullish pr Bearish chart patterns. 
source:http://www.torycapital.com

Bullish chart patterns are patterns that signify an upward trend meaning price action is predicted to go up because sellers are pushing the price up and buyers are willing to buy at a higher price believing that stock price are still going up due to an expected market recovery or boom in the economy.

Bearish chart patterns are the opposite of a bullish market. A bearish pattern signify an expected decline in prices brought about by fear of economic downfall or an expected poor economy. Such fear spur panic to investors thus sellers sell down to grab as much profit they can take before market gets stuck. Buyers on the other hand bargain hunt thus they bid for lower prices.

Patterns as well can be viewed as a Reversal or Continuation.
Source: http://tradegartleypattern.blogspot.com/

Reversal patterns indicate a opposite action from what has already been happening in the stock’s price. If the stock has been on a downtrend for sometime a reversal pattern will indicate an expected upward thus investors anticipate such reversal and thus buy more of the stock to capitalize on the stocks lower price.
Continuation pattern on the other hand indicates that the stock price will be expected to go up further. With this expectation investors will buy more to ride with the stocks seemingly continuing rise.

TECHnical

Investing word of the day: YoY or Year on Year

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Year on Year or sometimes Year over Year is a terminology that means a comparison of the current year against last year.

Let us use the data below for a simple analysis of a company’s performance.

To compute YoY ratios we follow this simple formula(remember to click your “%” in your Microsoft Excel to express the value below in percentage:

Now base on the above information Sales of the company have grown or risen 10% year on year while Cost of Goods Sold(COGS) have also risen into a whopping 44.44% as compared last year.

Though there was a 10% increase in Sales the big 44.44% increase in COGS contributed to the decrease of Gross Profit by 18.18%. A decrease in Expenses by 20% as compared to last year curbed the big chunk of decrease caused by the increase in COGS but not enough to eliminate such impact bringing the Net profit decrease to only 16.67% as compared to last year.

source: http://www.beijing-kids.com


Too technical?

It only means that the decrease of Net profit was  due to  big increase of cost of sales but thank goodness a decrease in expenses lessened the impact of such increase.

source: http://www.allposters.com

TECHnical

Technical Side: Doji

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What is a Doji?

Doji is a candle formation which occurs when the opening and closing price of the stock is the same or nearly the same. See examples below




Why is the Doji an important candle formation?

Doji are important because they are indicator of market indecision. Buyers and Sellers end up at the same price after trading. With this concept Doji becomes a turning point in the stock’s trend. 

The usual assumption is that when a Doji is formed at the bottom of the stock meaning when the stocks trend is downward and a Doji is formed at the end it could mean a reversal which in this case is an upward. A Doji at the top or peak of the trend might also indicate a reversal but this time it is a downward trend.

source:http://stocata.org/

source: http://stocata.org/

A doji with long wick or shadows and the opening and closing is in the middle is also called Rickshaw man. 
http://www.forexbrace.com
This is the doji that clearly signify indecision. Trading range is wide as indicated by the long wick or tail. The stock opened at the middle and close at the middle meaning neither buyer or seller is willing to advance or lower price thus ending in the same price. 

http://www.forexbrace.com
Gravestone doji as it says is the bearish doji. This doji signify that  sellers who wanted to sell their holdings tried to trade at a high thus forming a long wick but in the end price is pulled down by buyers but never below the opening price.

A dragonfly doji is the reverse of the gravestone. The scenario is that buyers drove the price down but sellers fought back thus push back the price up but only up to the extent of the opening. 

With these general doji types one should also make sure that such formation must be confirmed by either the previous candles and volume. As I mentioned the general assumption is that a doji found at the bottom indicates an upward reversal while if found at top a downward reversal. Also doji form patterns with other candles. These combination of candle formations make a pattern and may indicate a bullish or bearish trend.

TECHnical

Technical side: What are Candlesticks?

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First of all lets know where Candlesticks came from. Let’s borrow some history information from Investopedia.com

The candlestick techniques we use today originated in the style of technical charting used by the Japanese for over 100 years before the West developed the bar and point-and-figure analysis systems. 

source: http://optionalpha.com
In the 1700s, a Japanese man named Homma, a trader in the futures market, discovered that, although there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. He understood that when emotions played into the equation, a vast difference between the value and the price of rice occurred. This difference between the value and the price is as applicable to stocks today as it was to rice in Japan centuries ago. The principles established by Homma are the basis for the candlestick chart analysis, which is used to measure market emotions surrounding a stock. Read more

The Concept of Candlesticks

source: http://stockcharts.com

A candle is formed as per above illustration. A candle has 3 parts: the upper shadow/wick, the body, and the lower shadow/tail. Relevant information as shown above correspond to the Open, High, Low, and Close information we get from trading.There are two basic candles one is the hollow candle(which is mostly green on other charting programs) and the filled/black candle(which is sometimes red in charting programs). 

A Hallow Candle is a bullish candle because it shows that the stock closed higher than its opening. Filled or black candle is a bearish candle indicating that the stock closed lower than its opening. Now the difference between the opening and closing can be seen in a candle’s body length. An elongated candle means that the opening and the closing are far apart indicating a very high interest of the market. On the other hand a short body indicates a low interest and may even indicate that the stock is bound to consolidation.

Below is the candlestick chart of PSEi as of July 27, 2011 for our illustration:

See all awesome STOCK REPORTS in PinoyInvestor! (size 375x192)


PSEi as of July 27, 2011
As you can see above the green candle indicates a bullish trend from mid-June to the first week of July. Also if you noted in the end of June a successive long green candles led to one of the all time high of the PSEi with a sudden reversal indicated by the red candles but then it recovers with another series of elongated green candles that led to the 4506 finish of PSEi.

Candlesticks has become popular because it gives the stock analyst the feeling of the general market through the color and length of the body and shadows. In a glance one can see what is the market action and what is the likelihood of the next. The body of the candle generally indicates when a stock is bullish or bearish. The more it is elongated, the more it states how bearish or bullish it is. 

The wick or the tail also indicate at what price investors are willing to buy or sell. If the wick and tail is short it indicates that price action is within the range of the candle’s body while longer shadows indicate that trading has gone beyond the range of the open and closing. 


Note: This is the first part of the topic regarding candlesticks. More postings will be made in the future.
  

TECHnical

My Personal Analysis: Atlas Consolidated Mining & Development Corpoation(AT)

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Last Friday Atlas Consolidated Mining & Development Corporation(AT) made a voluntary suspension of its shares trading in the stock market.

Atlas is one of the companies under the Ramos Group of the well known National Bookstore chain and Anglo Philippine Holdings. The said voluntary suspension was in connection to the reported buy out of their Singaporean partner in the Carmen Copper Corporation in Toledo City(click here for more on this). The deal is said to be at $390 million of which AT will finance through additional shares and borrowings.

The share price of AT surged and closed on Thursday at Php 20.00; a 5.37% rise from Wednesday’s close at Php 19.24. The suspension will last up to Monday, June 27, after the company’s Board meeting regarding the structure of the said capital raising for the purchase.


source: 

Carmen Copper Corporation, a subsidiary of Atlas, has contributed much of the company’s 52% increase of first quarter revenue as compared to the same period last year. Such has caught attention of most investors and the news on its buyout of its Singaporean partners to Carmen Copper even drove the price of the stock last Thursday. 
Below is a graph of AT’s price surge:

Though a typical mining company with high Debt to Equity ratio due to massive capital expenditure and a deficit due to some years of non-productivity, this new event might be a possible turn arround for AT. If such Carmen Copper site will have a better than expected production and shipments of copper to their primary customers in China and Korea will be continues, price share of AT may even go further up. The suspension will be lifted up on Monday and we will see on Tuesday if such news of buyout will further make AT’s price higher.
Again fundamentally, AT have a not so good looking Current ratio and Debt to Equity due to its line of business. Technically it is about to enter overbought levels marked by its sudden price surged. If the price trend breaks out further up those who were able to get AT at Php 18.00 level will be lucky when they are able to sell such at Php 22.00 in the short term.  

TECHnical

Cup and handle: Technical side

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Ever heard some friends who say they are seeing a cup and handle formation?

Weird huh? But what is that cup and handle they talk about?

I am not a full Technical guy but let me enlighten you about this wonder most Technicians and Chartist call CUP AND HANDLE formation. Below is a graph of FPH(First Philippine Holdings)



Here is what our friendly Investopedia.com say  about CUP AND HANDLE:

A cup-and-handle pattern resembles the shape of a tea cup on a chart. This is a bullish continuation pattern where the upward trend has paused, and traded down, but will continue in an upward direction upon the completion of the pattern. This pattern can range from several months to a year, but its general form remains the same. 


Note that a cup and handle pattern is a pattern in which the stock is generally on the uptrend and due to correction or consolidation it dipped down forming a cup. Though there is a deep correction investors who believe in the stock hold onto it thus after the dip it rises back to form the cup part of the pattern.

In our example FPH enjoyed a brief comeback from the cup and handle formation due to the correction that the market is in right now. But if you noticed it there was a small downtrend after the cup formation thus completing the cup and handle.

But lots of chartist have various interpretations and view on a cup and handle formation. Also such formation may take a short period or a long period lasting to months and even years.

Not all cup and handle pattern go to the expected reversals thus I warn anyone who reads the chart to do check it and do some calculations. As always check volume if it confirms it. When a formation is forseen and the volume picks up there is a great likelihood that such pattern will lead to reversal.

TECHnical

How to use APF Trading’s Expert Stock Screener

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In my previous post I introduce you to some tools that you can use in your stock picking and one of them is APF Trading’s Expert Stock Screener.(Click here for a sample of Expert Stock Screener)

Basically it is the condensed report of some listed stock of a certain stock market(I’ll be using The Philippine Stock Exchange as my example) based on reports and analysis of various broker and analyst taking into consideration both fundamental and technical analysis. 

So how do really use this tool anyways?

First of all it is a report in an excel format thus where there is excel this is a filter function. In the far right of the report there is a column with a heading of ALIGNMENT. Click the dropdown arrow and unmark everything and then mark “YES” to filter stocks with an alignment status meaning the Fundamental and Technical analysis aligned as per APF Tradings criteria.

Then from the filtered list you can chose which stocks to pick up for a buy or for a sell. You can further filter the selection by adding another filter.

You can either use the FAIR VALUE DEVIATION as your criteria of a buy consideration. The stock with the highest value means that the various analyst value the stock higher than its current price. What does this mean. Let use FPH(First Philippine Holdings) as an example. FPH has price on May 20, 2011 at 63.75 pesos/share with a FV deviation of 46% this means that the analyst has a target price of 93.075 pesos/share. This is the fundamental side of the analysis. Various analyst have different criteria and methods of determining Target Price but it all boils down to the company’s financials taking into consideration future cashflows anf profitability.

After determining the Target Price the next question one has is when to buy FPH. This is a hard question to answer because remember the truth about the stock market:NOBODY CAN ACCURATE PREDICT WHEN WILL THE STOCK BE UP OR DOWN ONLY A PROBABLE TREND CAN BE MADE.
With that in mind one can turn to the Technical analysis columns DAILY, WEEKLY, and MONTHLY. These columns indicate the bullishness of the stock(when it is positive) or bearishness(when it is negative) On this columns we can make to guidelines. 

1. Buy when the stock is at its bottom and about to go north
2. Sell once the stock’s price starts to fall

The two above rule are basics of the Demand and Supply Law.

It is a common mistake of small and newbie investors to buy when the stock has already gone halfway its upward trend as well as when the stock is still going down. Though it is always a premise that there is no wrong timing in the stock market it could have been profitable when you are able to buy the stock at a very cheap price and sell it at a high price. 

By comparing the Daily, Weekly, and Monthly bullishness indicator you can determine where is the start of the stocks upward price point; that is the point in which you start to accumulate until it goes up more and breakout from its resistance level. 
I guess those are the basics in using APF Trading’s Expert Stock Screener. If you are interested or want to learn more about APF Trading Expert Stock Screener click here


TECHnical

Zombieland attitude in investing

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Have you ever seen the movie Zombieland? 

Just watched it in my laptop awhile ago and it made me laugh. But along the movie if you were still able to catch it while laughing and freaking out at the same time on the chasing zombies I think you have the investor attitude.

Remember the rules? 
Yup Ohio has a list of rules. Rule 1 and 2 are always mentioned. Rule 1 is Cardio while rule 2 is Double tap. How are they connected to investing you ask? Cardio means having the stamina to continuously run. In the world of investing you can’t stop. You have to be on your toes because everybody is running thus you need a good cardio to last it. 
Double tap means being sure. Don’t just check it once, check it twice or even thrice as long as you are sure of your buys or sell decisions.

How about rule 22: When in doubt, know your way out. 
In technical lingo set your cut loss price. Often times we are trapped in our wrong buys  and hard headed as we are we keep on holding that is why one should have an exit plan. A stock’s price may be down but according to your analysis it would bounce back but for how long will it stay there? That is where you have to set that line called “cut loss” so that instead of losing you can divert your funds  to a better stock and then go back if the situation is already trending up to your expectations.



Also in stock investing you must always “Limber up” that is rule number 18. You might need to make some small stretching to tackle the task at hand. Planning when to enter and exit and making necessary other action plans to pursue your target price. You could test it first by buying small shares then jumping into another similar shares before you finally do what you have been cooking up in your brain.

And lastly the best of the rules, rule number 32: Enjoy the little things. 



Investing can be so exciting and sometimes so depressing. To keep you sane celebrate in the most simplest way to give yourself that feel good experience like eating a twinkie.
As my stock investor friends will say “pa-cheese burger ka naman” (treat as with cheese burger). Be happy and be victorious with the small things like a gallon of Selecta ice cream Ube flavor(Purple Yam my favorite) for  your family, a pizza with your friends, or a movie date with your special someone. 

So keep your eye open and be alert for you don’t know when will a zombie in the backseat attacked you, this is rule number 31 which only means be ready for the least expected.


TECHnical

How to read a Price Graph

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A stock’s price graph is one of the tools a stock trader or investor needs to understand to make that decision to buy or sell.


Price graph is a historical data showing the price movement of a stock. In technical analysis price is the driving factor that makes an investor or trader buy or sell. Stock investors and traders have different techniques in their stock picking. Some buy when the stock price is below their valuation, some buy when the stock is about to go north, and some buy when the stock indicates a downtrend.

You might ask how in the world did they know that? They are able to do that by interpreting the price graph.


Again let me re-iterate that nobody can predict stock movement; only a probable trend can be made based on what is the current market demand-supply level.

Let us use the below price graph and other graph of CHIB as our example.

Most charting software has three to four graphs. The above is take from Citiseconline’s charting in there website.


The graphs in the above picture are:
1. Price graph
2. Volume graph
3. MACD
4. Stochastic


Now let us focus on the Price graph



Legend:
SMA3 – Simple Moving Average 130 days
SMA2 – Simple Moving Average 65 days
SMA1 – Simple Moving Average 32 days
CHIB – Stock Code


Simple moving average as the name says is the average price of the stock for the specified number of days. So in the legend SMA1 is nearly the average for a month, SMA2 is for 2 months, and SMA3 is for nearly 5 months.


Why are these important?


These are used as indicator meaning they give an idea where is the direction of the stock. It also defines where are the possible support and resistance. I know these words seems gibberish, click here and here to know more.

Now you know that the 3 SMA’s are the average of the stock’s price for a certain period, compare such averages to the current price. If the Current price is above all it indicates that the stock going stronger thus it surpasses its average prices. This means the stock’s price is trending up thus a good time to profit when you already have the stock. You can hold the stock for a while or as you wait for it to reach your estimated target price(which you can set by using some stock computation tool). Sell when the stock has reached your target price.

On the other when the current price crosses below the averages it means its price is trending down. If you have bought the stock lower than the current price it could be a good chance to take profits. But if you have bought it while it was above the average it is the best time to cost average. 


With this knowledge also remember that you have to verify such price trend. This could be verified in the Volume graph. The volume graph indicates the activeness of the stock. If the current price crosses the averages upward but there is no increase in volume then such movement is not verified thus it could only be that the stock is being played or such price uptrend is just circumstantial.


Other indicators are always included for further verification. MACD or Moving Average Convergence Divergence indicates whether the stock price has a bigger or smaller price change while Stochastic indicates whether the stock is overbought or oversold.

Again nobody can predict the exact movement of the stock; only probable outcomes. The price graph is a guide but no matter what happens it is still your call as an investor or trader to chose sell or buy button.


(I would like to thank my mommy Krissy for the volume verification, Tatay John316 for lessons on when to buy and sell, and Johnny Rocky for his explanation on the moving average)

See all awesome STOCK REPORTS in PinoyInvestor! (size 375x192)

TECHnical

Some tools that might be of use to you

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Currently there are two tools I have placed in my TOOLS tab above. One is an Excel file I created to aid the computation of  TP or Target Price if you want to achieve a certain percentage of gain or profit(this is based on COL and FMS rates only). The other is a paid service that sends you the combined analysis of most stock analyst and aligning fundamental and technical analysis.

See all awesome STOCK REPORTS in PinoyInvestor! (size 375x192)


The Stock Computation Tool (click here to download)
This Excel file is designed to generate an estimated target selling price. All you need is to plug in the number of shares purchased, its cost and the desired gain when selling. The rates for the different charges are based on the rates applied by most online stockbroker participating in the Philippine Stock Exchange. 




This tool is a service provided by APF Trading. The latest analysis is emailed to you for your decision making whether to buy or sell a stock. Its main feature is the alignment of both fundamental and technical analysis, when these two align a “YES” note is at the end to signify that such criteria is met.


TECHnical

Investing word of the day: Overbought

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You may have read this word in all stock analysis or forum and probably wonder what it is.

Here is a definition I pulled out from Investopedia.com

1. A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals.

2. In technical analysis, this term describes a situation in which the price of a security has risen to such a degree – usually on high volume – that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback.
When a stock is in demand, as evidenced by the growth in volume, prices tend to rise to balance the demand-supply dynamics. In times that the demand for such a stock rises abruptly  supported by a sudden increase in volume and rise in price, the stock is said to have reached its upper level thus it is said to be overbought and the tendency is for those sellers to sell their holdings to take profit. 

This is seen in the the Stochastic indicator when the line breaches the 80 level mark. If the stock is overbought it will soon drop and this alerts holders of such stock to sell to profit from their holdings once it crosses down the 80 level mark. Since most of the stocks are in the hands of former sellers, demand for the stock goes down thus a need to sell at a lower price than the previous price to sell the stock.