Saturday, 29 March 2008

Mega Hopeful

After a long wait, if you can call 6 months long, there is finally a stock in the Philippine Stock Exchange that has shown some signs of probable reversal of fortunes.

Megaworld (MEG) is in a sector battered due to problems in their sector owing more to the problematic housing sector in the US. Talk about colonial mentality. Anyway, from what we can see in the chart, after peaking in October, it has been downhill since December 2007. The number of investors in this stock has multiplied. By investors, we mean people who bought high and never sold because it's just too damn painful.

The good news that we see here is that MEG has gone sideways for the past 2 months showing us what looks like a double bottom. It's a little early to call it a bottom anyway, but just in case it is, I've already set my neckline for MEG at 2.65. I'm looking at 3.20 as a minimum target should this breakout of the neckline wiht significant volume.

Even if it's a little early to call the consolidation a bottom, the MACD has been showing me a positive signal with its bullish divergence. So maybe it's just a matter of time before we see MEG flying higher than current levels.

Of course, this is all speculation for now. Until we get a confirmation of a reversal, which is the breaking of the neckline, I'm not calling a buy on MEG.

So have a little more patience my friend. That's your best asset for the moment.

Saturday, 8 March 2008

Logic Defying

Time and again, I get to encounter people from different backgrounds with one thing in common: the stock market. It is safe to say that these people have been hurting since late last year. They were all expecting that the first quarter was going to give them an opportunity to make money as like every first quarter of every year. Unfortunately, they weren't expecting the lingering credit crunch in the US to last this long.

Lately, I have had a healthy discussion of the goings on in the market with my boss. Without naming names, he just couldn't understand why a certain company involved in the energy sector and infrastructures could be dropping to lower levels. Summing up what he said, the current price action defies logic when the financial numbers show a sound cashflow. Obviously you can see where this is going, a debate between a hardcore fundamentalist and a purist technical analyst. After hearing his logic defying question, I gave him an answer that anyone can understand easily. When the number of people who want to sell outweigh those who want to buy, expect prices to drop, regardless if the financial numbers say it's doing good. I think he found the answer a little too simple to digest.

Sometimes, the answer to certain questions are really simple. Unfortunately, many people cannot accept simple answers as they feel they need to be sophisticated when gathering information. Isn't it that the simple law of economics dictate that when demand is greater than supply, the price will rise? The same goes that when demand is less than supply, the price will fall. That is a simple but absolute truth about how prices move. Yet many cannot accept this.

As a trader, I put my complete faith in the 3 tenets of technical analysis. What I have described above already is a good example of the first tenet that says price discounts everything. No one can be better than the price. Anytime anyone wants to contest this, they are welcome to disprove it by following what the financial numbers say. However, be warned that once you have bought into a stock with a good FS yet the price keeps dropping, expect the price to be telling you, "Thank you for contributing to the winner's fund". The winner being someone else other than you.

This first tenet should also dictate our self discipline as to when we should be pulling the trigger to execute our orders. A disciplined trader would cut his losses once it reaches a lower price that is within his tolerance level (or a higher price if they are doing some short covering). Typical investors don't do this. It defies their logic to consummate a paper loss into real losses. They decide to just hold on to their losing position until it recovers, whenever that is. No one even knows if it will ever recover if the price has gone off the deep end. If we were conscious about computing for the time wasted while holding on to losing stocks, we would say we should consider the interest you would have gained if that same money was kept in the bank after cutting the loss. That's why I don't want to be called an investor, because it is equated to getting stuck with a loser. Of course, I'm only talking about my own personal style. I'm not knocking those whose style differs from mine.

One last thing on this topic, sometimes we have to consider what is our objective? Are you in it to be sophisticated, to be the star of the party, or are you in it to make money? Think about it.

Saturday, 1 March 2008

Charred Grill Burger

Everyone I know loves burgers. Especially when it's the chargrilled kind. Unfortunately, things aren't looking bright for the owners of Carl's Jr. and Hardee's: CKE Restaurants (Nasdaq:CKR).

Ever since June 2007, CKR has been trending downwards. Not only did this pause during August to October inside a descending triangle, when this broke the triangle, there was a role reversal that happened after the breakdown. The support that turned into a resistance, was tested 3 times before it finally dropped to its minimum target and below. Then sometime in December 2007, CKR goes sideways again in another descending triangle with a bigger base. Last night, the burger maker's bottom finally gave way.

The support here is pegged at $11.28, with a downside target of $8.46. Anytime, this should rally back above the support, a cut should be made to preserve the capital. To confirm the bearish sentiment, the moving averages have long been in the bearish firing order since October. Another confirmatory indicator is the MACD. It has been oscillating below the zero line ever since June 2007. Everytime it rallies to the zero line, it has a hard time keeping itself above the zero line.

Since the bearishness is confirmed, there's only one thing left to do: short the sucker! And short it I did. The question now is, does it have enough momentum to propel it down to its target? If only the prices of their products also adjusted downward like the stock price...

The Water's Fine

Many issues in the local market have dropped a lot and are currently going sideways. One exception to the rule is MWC.

MWC has been travelling inside a trading range and right now is consolidating inside what looks like an ascending triangle inside the channel. The good part to this is that this stock is still bullish despite the current downtrend in the market. Should this area of consolidation really prove to be an ascending triangle then we wait for the breakout. One thing noticeable about MWC which makes me wary of entering immediately is the bearish divergence showing in the MACD. Could this be telling us that MWC would be breaking down soon?

If it does then, all who have MWC must be careful when it breaks 17.75. We could see it go down to 14.25. If it should breakout, 19.25 is the resistance for this and we see an upside target of 22.50. That's IF it breaks out. Anticipating a breakout is different from anticipating the breakout but buying into it prior to the breakout. Let's not be idiots here.

Let's play it conservatively when the market is still unsure of its footing. Otherwise, if it was a bull market, I'd be the first one waiting when this breaks out.