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> The Technician

George Cochrane first became licensed to give investment advice in 1986 while writing for Personal Investment magazine and offering advice through an ABC talkback program and, since 1988, a Sun-Herald newspaper advice column (later also in Sunday Age). George currently holds an Australian Financial Services License.

His education includes a BSc (McGill 1967), MBA (UNSW 1974), Grad Dip in Applied Finance and Investment from the Securities Institute of Australia or SIA (2000), the Diploma in Technical Analysis from the Association of Technical Analysts of Australia (ATAA 2000) and a Grad Dip in Financial Planning (SIA 2003).

Prior to 1982, when he began work as a finance journalist, George worked as a stockbroker's research analyst. Since 1992, he has operated his own firm as a professional investment adviser and as part of his service to clients has offered a newsletter focussing on stock selection.

For members of Share Scene, George will provide a weekly post, "The Technician", providing his view on market trends along with individual stock recommendations.
George publishes a newsletter "Buy'n Hold + Trading Portfolios", issued monthly mid-month. The newsletter offers one "Buy'n Hold" portfolio of up to 20 stocks, and four trading portfolios, focussing on Growth, Income, Major Resources and Penny (under $1) stocks. Subscription is $295pa, payment via Visa or Mastercard. To purchase and learn more about George's subscription newsletter click here.

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Technical Thoughts With George Cochrane
mpl
post Posted: Aug 29 2011, 07:06 PM
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In Reply To: flower's post @ Aug 29 2011, 05:37 PM

Flower

Typical Snipe at something that happens NOT to suit your own Pre-Conceived idea's of what everything "Should" Be !!!!

Surely just a Snippet statement that Shorting is Not for you for whatever reason would Suffice ????.

 
flower
post Posted: Aug 29 2011, 05:37 PM
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In Reply To: The Technician's post @ Aug 29 2011, 10:52 AM

I don't short, nor recommend it to private clients, but that's not a criticism, just a recognition of my risk limits.
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IMO the above about sums it all up. We are reminded constantly about trading in both directions, but surely a wise person only trades with which he/she feels comfortable and understands.

No shame in saying "shorting's not for me", the market is littered with newbies who thought (and said) it was all so easy and disappeared in a cloud of shredded $100 notes.




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Combining Fundamental comments with Fundamental charts.
 
mistagear
post Posted: Aug 29 2011, 04:49 PM
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In Reply To: The Technician's post @ Aug 29 2011, 10:52 AM

George,
It's fairly obvious you're unfamiliar with or dont like to short trade, but thanks for attempting to respond to my post.

Regards ,M



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Bear Cottage is the first children's hospice in NSW.

It is a place where children with terminal illnesses and their families can stay from time to time and receive rest and medical care in a home-like environment.

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The Technician
post Posted: Aug 29 2011, 10:52 AM
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In Reply To: mistagear's post @ Aug 22 2011, 11:41 AM

Short selling

A reader asked about stocks to short and given recent volatility, some people have probably made money going short.

It is also quite likely many others have lost.

If anyone plans to short, they need to
(i) know the ASX rules on short selling
(see http://www.asxgroup.com.au/media/PDFs/asx_section_19.pdf),
(ii) read ASIC’s rules as well and
(iii) understand that the risks undertaken when shorting are greater than when going long.

This is largely because, if you are long and the price moves against you, it can only fall to zero but if you are short and the price rises, it can theoretically rise indefinitely.

I don’t short, nor recommend it to private clients, but that’s not a criticism, just a recognition of my risk limits.

Many brokers do not offer short selling to small private investors. Instead, buying put options or selling calls can be offered as an alternative, as are CFDs.

Between September 2008 and May 2009, all short selling was banned during the GFC.

The ban was lifted for covered short selling in May 2009 but naked short sales remain largely banned, subject to exceptions listed in ASIC Regulatory Guide 196 “Short Selling”, found at www.asic.gov.au.

Shares can be shorted where there are (a) 50 million issued and (b) the market cap is $100 million or more.

Also ASX brokers must report all daily gross short sales to ASX and total short sales must be available to the public.

Note that, under ASX Settlement Rule 10.11.12, if a client fails to provide securities when required, the broker can close out the trade.

Daily lists of reported short sales are found at http://www.asx.com.au/data/shortsell.txt while backdated lists can be found at www.asxonline.com, click Communications/Reports.

The report is a .txt document, best pasted into an Excel spreadsheet if you want to sort or analyse the data.
(Click here for an Excel template of column headings, Shorts-Template of ASX column headings.xls. It saves a few minutes of frustration!)

Looking at a recent daily list, we find that, on Friday 19th, when the All Ords fell 147 points, 368 stocks were reported as including short sales.

Some 15.6pc of the day’s turnover in these stocks were shorts and the Index fell 21 points on the following Monday, which could have meant profits for those who selected the right stocks and held their positions over the weekend.

The percentage of short sales within the total turnover of those stocks ranged as high as 100pc for some ETFs (IRU-Russell 2000, although only 22 were sold, and ISG-MISCI Singapore, 51 ETFs sold), dropping to 65pc for Charter Hall Office REIT (CQO) and 64pc for Coalworks (CWK) although the latter rose strongly the following week, presumably on short covering.

Other stocks with high levels of short sales that day were Pacific Brands PBG, 54pc, Toll TOL, 50pc and Boral BLD, 49pc.

In the latter three, prices fell the following trading day (or closed unchanged in the case of BLD) but rose sharply the rest of the week, again possibly due to short covering.

This highlights the need for a trader to be aware of the number of shorts in any one stock since, the higher the number, the more the price will react if short positions need to be closed out.

There’s a strong argument that shorting increases volatility rather than decreasing it, as is argued by the proponents of short selling. For example, when a person buys a stock, he can hold the stock indefinitely but a short sale can only be temporary and if the price rises, short covering will push the price higher more quickly, only to see it fall back when shorters are out of the market.

On Thursday 25th (latest available at the time of writing), when the All Ords rose 45 points, shorts represented 17.3pc of turnover involving 340 stocks and the Index fell 9 points the following day.

So the numbers don’t seem to vary too wildly.

Gold has just had its biggest weekly fall in years. Is it a possible short?

Attached Image



Technically, the ETF GOLD, which is intended to reflect the price of 1/10th of an ounce of gold in $A (while stored in London) rose sharply out of a 2˝ year triangle at the start of August.

It is currently retracing and, from here, the textbooks would say it could fall all the way back to the line of breakout, around 10pc from here.

After that, it should rise to new highs.

Attached Image



AGL had warned that its profits would be hit by the natural disasters experienced in the first half and accordingly last week reported a small increase in underlying profit of 0.5pc in its full year results to June 30.

Underlying eps was worse, down 1.3pc. However, Statutory NPAT was up 56.9pc and this seemed to have caught the market’s attention, sending the price up above $15 on Friday for the first time since February.

Fundamentally, the stock is not overly cheap, selling on a PER of 16.5 and a fully franked yield of 4pc but then it is one of the premier blue chip utilities, so its always a surprise when it does sell cheaply, as it did for a long while after its sorry stoush with Alinta.

Technically, the price has bounced off the lower parallel line drawn in and jumped 3.5pc on Friday, the day after the company’s results were announced.

I don’t think that its going to rocket up in the short term but, at this price, it could be a reasonable addition to a long term portfolio.

Attached Image



Kangaroo Resources (KRL) is an Indonesian coalminer whose shares have been zigzagging between the 10c and 20c levels for the past two years.

Of technical interest is the sine curve-like price movements whereby the price oscillates from a low to a high and back down again every few months.

With the current price at 15.5c, near a recent low, could short term traders be riding it up to a peak every few months? Being under 20c, I consider this a high risk play.



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Disclaimer: Please note that the writer, or associated parties, may have investments in securities recommended here and, as a matter of policy, do not trade mentioned stocks for three days either side of a published recommendation. Portfolio listings use real prices but do not account for transaction costs as these can vary as a percentage.

Recommendations for stock selection are purely made on the basis of technical analysis – i.e. a study of the accompanying charts - and does not fully consider the fundamentals of company accounts and broker research. Technical analysis is not a guaranteed forecasting method - otherwise all technical analysts would be rich - but it is a powerful tool in indicating ongoing trends. This is generalised advice and may not apply to your specific circumstances. You should request a broker's advice before taking, or not taking, any action on the basis of these notes. Data is sourced in good faith but no responsibility is accepted for its accuracy. Published by George Cochrane, AFS License 237380. T/A Cochrane Investment Services ABN 51 053 200 703, PO Box 3001, Tamarama, 2026
 
mistagear
post Posted: Aug 22 2011, 11:41 AM
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In Reply To: The Technician's post @ Aug 22 2011, 10:22 AM

George,

Considering the majority of listed stocks have been in a downtrend for many months, would you please be able to post some examples of short side trades. Am sure many Sharescene members could benefit from showing how to successfully trade a bear market rather than being restricted to failing long side trades, being stuck in losing positions or withdrawing funds from the market because of inability to trade profitably.
The beauty of Technical Analysis is the ability to read and therefore profit from times where the market is ignoring fundamentals in stocks, currently there are an endless number of examples where a trader could be making substantial profits in the current volatile market conditions.

Thanks, M



--------------------
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[url="http://xgamesbowling.com"]X Games Bowling[/url]
Bear Cottage is the first children's hospice in NSW.

It is a place where children with terminal illnesses and their families can stay from time to time and receive rest and medical care in a home-like environment.

Please support >>> Bear Cottage for Kids,
An initiative of the Children's Hospital at Westmead NSW
http://www.bearcottage.chw.edu.au/

................................................................
www.xgamesbowling.com
 
The Technician
post Posted: Aug 22 2011, 10:22 AM
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The Technician for Monday August 22

The week that was

The best that can be said about last week is that no-one was bored, especially in the US where the Dow still looks poisonous!
Attached Image



The picture above (since 2009) shows how the USA’s Dow Jones Industrials Average fell through a two year support line, at around 11,500 points, on August the 2nd, the same date as the deadline set by Washington for the Government debt ceiling to be raised.

I suspect that the agreement that was passed by the Democrats and Republicans is seen by the equity market as a big negative in that reduced spending will reduce growth and increase unemployment.

The behaviour of the Dow since then is strictly according to the textbooks in that it turned up after the breakthrough, on Tuesday 9th from a low of 10,588 and retraced back to the rising trendline, now around 11,550m which it touched on Wednesday 17th before turning down again.

Such behaviour – a break through a line followed by a retracement back to the line – usually precedes a fall to new lows.

The market closed down 157 points on Friday 19th, having traded as low as 10,749. A measured guesstimate for a target is around 9,650, although there is support between 10,000 and 10,500.
Attached Image



Our All Ordinaries Index has shown similar behaviour in that a breakdown, on August 2nd, at around 4,525 points from the diamond pattern drawn in, bottomed at 3,829 on Tuesday 9th and was followed by a retracement to a peak of 4,390 on Wednesday 17th.

Since our trading hours precede those of the US, it is interesting to note how global trading patterns now often cause us to lead New Your, rather than necessarily follow it.

Again, I would expect further falls although, given the extent of the intraday plunge on the 9th (when the market closed 267points or 7pc above its lows) we may see some consolidation around this level.

Stock of the week
Attached Image



Silver Lake was only marginally affected by the selloff in the first half of August and closed up 2pc on the 19th and up nearly 25pc over the month to date.

The company intends to increase its reserves of gold in the ground to 5 million ounces by June 2012 and the market seems to like its plans.

Technically, the price is continuing to advance ahead of its parabolic indicator, a good sign, while the On Balance Volume is positive in that it has been climbing since June, indicating good volume buying.

The Coppock long term momentum indicator is falling but it has been sloping down since 2010, reminding us that it is most useful for one signal and that is a turn up from below its zero line.




--------------------
Disclaimer: Please note that the writer, or associated parties, may have investments in securities recommended here and, as a matter of policy, do not trade mentioned stocks for three days either side of a published recommendation. Portfolio listings use real prices but do not account for transaction costs as these can vary as a percentage.

Recommendations for stock selection are purely made on the basis of technical analysis – i.e. a study of the accompanying charts - and does not fully consider the fundamentals of company accounts and broker research. Technical analysis is not a guaranteed forecasting method - otherwise all technical analysts would be rich - but it is a powerful tool in indicating ongoing trends. This is generalised advice and may not apply to your specific circumstances. You should request a broker's advice before taking, or not taking, any action on the basis of these notes. Data is sourced in good faith but no responsibility is accepted for its accuracy. Published by George Cochrane, AFS License 237380. T/A Cochrane Investment Services ABN 51 053 200 703, PO Box 3001, Tamarama, 2026

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The Technician
post Posted: Aug 15 2011, 11:34 AM
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The Technician for Monday August 15

Diamonds

In the textbooks, a “diamond-shaped pattern” is usually a top pattern which, when extended over time, usually proves to be calamitous.

The first half consists of a series of higher highs and lower lows, followed by lower highs and higher lows, often with five waves either side of the peak, as in the diagram below.
Attached Image

Unfortunately, markets rarely give infallible, unmistakable signals (otherwise we’d all be rich) and this pattern can, in a minority of cases prove to be a continuation pattern, hence a forecast of a diamond pattern does not carry certainty.

The behaviour of the All Ords since September 2009 seemed to form the first half of a diamond pattern but the progress since mid-2010 crated an irregular pattern and there was room to hope that it would prove to be continuation pattern.

The All Ords since March 2009

Attached Image



and since 1974 (logarithmic)
Attached Image



The picture at the top showing the All Ordinaries Index since it bottomed after the GFC in March 2009, illustrates the irregular diamond-shaped pattern it formed from September 2009 to August 2011.

The falls at the start of August confirmed the end of this sideways movement. Have the falls finished? I strongly doubt it, even though there may be some technical retracements back to the lines drawn in.

Looking at the long term logarithmic picture of the All Ords since 1974:-
[] Line A, at the top of the picture, connects the peaks in 1987 and 2007, 20 years apart. Parallel lines are a curious and powerful feature of price movements.
[] Parallel Line C was hit in 1968, 1969, 1970, 1980, 1991, 1992 and 2009, proving that trendlines can exert themselves over decades.
[] Line D proved to be support for the 1971 and 1982 “shoulders” in the reverse head and shoulders base pattern formed over that 11 year period while Line E is no more than a parallel line drawn though the 1974 low which, for those who don’t remember it too well, represented the end of a four year period of falls after the 1967-70 “nickel boom”.
{} Line B is an enigma. Is it the neckline of a huge but irregular “head and shoulders “ top, with shoulders represented by double peaks in 2001-2 and 2009-10? If so then Lines C and D are likely to be penetrated over the next couple of years.

Looking at the world’s largest stockmarket, New York, for guidance gives us the pictures below:-

New York’s Dow Jones since 2009
Attached Image



and since 1974 (logarithmic)
Attached Image



New York’s Dow Jones Industrials Average (top, since 2009) fell out of its 21 month upsloping pennant-shaped pattern and found support at around 10,600 points on August 9th, just as it had found resistance there a year earlier.

The textbooks would say it could rise back to the line of breakout, now at around 12,300 before falling away to new lows. Is it likely to fall as low as it did in 2009, when it bottomed at 6,470?

The picture at bottom shows the Dow since 1974.

Is that a diamond-shaped pattern being formed with peaks in 2000, 2007 and 2011, and lows in 2002 and 2009?

If it proves to be one, and if it turns out symmetrical, it can be expected to end some time around 2014 and the question then remains, will it break on the downside, or will it turn out to be a continuation pattern.

Again, we can draw in parallel lines through history:-
[] Line A provided resistance to climbs in 1987 and 1990 and then support against falls in 1994, 1995 and 2009.
[] Line B was touched in 1976 on the way up and 1987 on the way down.
[] Line C recorded contacts in 1974 and 1982.
It looks as though we have not seen the end of the falls although there could be a short period of climbs upcoming. At the time of writing, pre-market sales of stocks in the Dow are indicating a strong opening for Monday night our time.
Looking further ahead, does that mean the US is likely to enter a recession? The following story appeared on CNN on Friday, August 12 and provides an amusing understanding of our human ability to foretell the future.

Says CNN:
As stocks took a blistering dive this week, Wall Street economists scrambled to readjust their forecasts of the likelihood that the economy is headed for another recession. In a matter of days, a consensus quickly emerged: Most strategists now place the odds of a double dip at 30-40%.

The last recession officially started in December of 2007, according to the National Bureau of Economic Research. In January of 2008, economists surveyed by Bloomberg put the likelihood of a recession at 40%. That February, they lifted the odds to 50% and then left them there for months (there was a brief spike in April, after Bear Stearns went under).
In early September, just days before Lehman Brothers collapsed and the stock market imploded, economists still placed the probability of a recession at just 51%.

What's incredible about those odds is the speed at which they changed. That October, economists declared a 90% chance that a recession was coming (by then, you'd have to be a cave-dweller to think otherwise).

The latest revisions are similarly drastic. This June, forecasters saw a mere 15% chance of a recession; in July, that number actually dipped to 13.8%. As more and more economists roll out their (uncannily similar) estimates in the 30-40% range, it seems likely that August's survey will show a marked increase.


I suspect that the US recession has already begun, although it will just take months for the statistics to prove it.

In Australia, I would argue that everybody but the mining industry and its hangers on (lawyers, accountants, etc) can best be described as in a major slowdown with small business already in recession.

Nor would I hold out much hope of resources.

BHP (below, since 2003), our prime resource stock, appears to have formed a double top over three years with peaks in May, 2008 and April, 2011.

Its unusually low PER, currently 11.5 (it should be double this if BHP were being priced for a coming boom) has been warning for some time that the stock is being priced down.

The current collapse in price could thus be a prelude to falls that may eventually take it down through a neckline at $20, last seen in November, 2008.
Attached Image



Interesting stocks

CSR has formed “island” base, having gapped down on Friday, August 5 and then spent the entire following week below the gap, complete with a “flagpole” thrust down on the 7th, probably indicating a short term bottom.
Prices usually move to “cover a gap” and, if this occurs, the price should rise to at least $2.56 and, eventually, we can hope for a rise through the five year trendline drawn in though I can’t see that happening until building materials are once again in great demand, or there is a takeover.
Attached Image



Santos would be a stock that one would think would be riding the energy and resources booms. The picture alongside shows the price has broken decisively down through a well-established eight year trendline. Its surprising, although one could argue that it was signaled with a “peep” through the line in 2008.
Attached Image


The question to be answered is whether Santos is being sold off because of problems unique unto itself i.e. has it bitten of more than it can chew with its planned capex, or is it endemic to the resources industry?



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Disclaimer: Please note that the writer, or associated parties, may have investments in securities recommended here and, as a matter of policy, do not trade mentioned stocks for three days either side of a published recommendation. Portfolio listings use real prices but do not account for transaction costs as these can vary as a percentage.

Recommendations for stock selection are purely made on the basis of technical analysis – i.e. a study of the accompanying charts - and does not fully consider the fundamentals of company accounts and broker research. Technical analysis is not a guaranteed forecasting method - otherwise all technical analysts would be rich - but it is a powerful tool in indicating ongoing trends. This is generalised advice and may not apply to your specific circumstances. You should request a broker's advice before taking, or not taking, any action on the basis of these notes. Data is sourced in good faith but no responsibility is accepted for its accuracy. Published by George Cochrane, AFS License 237380. T/A Cochrane Investment Services ABN 51 053 200 703, PO Box 3001, Tamarama, 2026
 
The Technician
post Posted: Aug 8 2011, 12:08 PM
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The Technician for Monday August 8

Interesting! Now we wait for amazing!

Last week was interesting. I suspect this coming week will be amazing, courtesy of Standard & Poors. Let’s take a look at the main financial sectors:-
Attached Image

Attached Image



In New York, the Dow Jones Industrials Average (top, above), indicated the market’s unhappiness with President Obama’s enforced agreement to cut Government spending, as the price of getting the debt ceiling raised, at a time when the economy is already slowing, thus causing all Keynesian economists to harbour thoughts of suicide!

The Dow was down 4.3pc on Thursday and closed up 0.54pc on Friday, closing the week at 11,444. Technically, it has fallen through strong support and a measured guesstimate sees a possible bottom at around 10,200 points, down 11pc but above the lows seen in July last year.

On this side of the Pacific, our All Ordinaries Index (below) followed suit, abandoned nearly all hope of a market rise over the second half of the year, and collapsed to close the week at 4,169.7.

A measured guesstimate sees a bottom at around 3,550 points, down a further 15pc from here, not as low as the 3,090 seen in March 2009. At this early stage, I would be expecting to see a double bottom forming over late 2011, early 2012.

The only world market to trade since Standard & Poor’s Friday night (NY time) announcement was the Saudi market and it fell 5.5pc on Saturday. That’s equivalent to 600 points on the Dow and 230 points on the All Ords. New Zealand has opened 2.5pc down.

Whither interest rates?
Last week saw interest rates fall and the relevant SFE futures contracts’ rise in price. (Australian Bond and Bank Bill futures are priced at $100 less the relevant yield. Thus a price of $95 indicates a 5pc yield.) Taking a look at the action to Friday 5th:-
Attached Image

Attached Image



Current SFE contracts: Australian Government T-Bonds (top) and 90 day bank Bills ® (below)
The picture on the top shows a continuous chart of the current SFE contract for Australian Government 10 year bonds since 2007. During the GFC, rates fell a whopping 2.985pc from June 2008 until January 2009 but have since been largely zigzagging sideways at lower price levels, until last week.

The jump in price last week is equivalent to an interest rate fall of around 0.4pc. The S&P effect may see a retracement back to the line, wiping out the gains but keeping the upwards breakout intact.

The current SFE contract for 90 day bank bills (below, since 2007) also showed a sharp fall in yields last week, around 0.6pc. This too could be partially and temporarily wiped out but, fundamentally, I can’t see (in this murky early stage) that S&P’s downgrading of US debt should have a long term effect on Australian interest rates.


Attached Image


US 30 year Treasury Bonds

In the US, bonds are priced differently and the US 30 year T-bond closed at $132.19 on the CBOT on Friday, having risen strongly from around $124 in late July.

That’s how it was before Standard & Poors, waiting until markets closed in the US on Friday, announced it was downgrading US Treasury paper from AAA to AA+. Worse, it also said it was maintaining a negative watch, implying a further downgrade some months down the track.

So far, Moodys and Fitch have not followed suit but I would argue it is simply a matter of time.

The result will be a higher interest rate (and thus lower prices) demanded for US Treasuries and this will flow through to corporate and consumer debts. Technically, one could expect a retracement back from the top line drawn in above but the overall picture is that of a price ready to move up through the top line i.e. indicating a medium term fall in 30 year bond yields.

One way to translate that is to expect a temporary rise in yields before they begin to fall again, possibly due to the introduction of QE3 as the Fed thinks of ways to boost the economy.

Overall, S&P’s downgrade should not have been such a shock as the credit agency has been saying this since April 2011 and the possibility of such a move is hopefully mostly priced into current market prices. But there is a fear that the US sharemarket will still react savagely and I guess we’ll know by Tuesday morning our time.



--------------------
Disclaimer: Please note that the writer, or associated parties, may have investments in securities recommended here and, as a matter of policy, do not trade mentioned stocks for three days either side of a published recommendation. Portfolio listings use real prices but do not account for transaction costs as these can vary as a percentage.

Recommendations for stock selection are purely made on the basis of technical analysis – i.e. a study of the accompanying charts - and does not fully consider the fundamentals of company accounts and broker research. Technical analysis is not a guaranteed forecasting method - otherwise all technical analysts would be rich - but it is a powerful tool in indicating ongoing trends. This is generalised advice and may not apply to your specific circumstances. You should request a broker's advice before taking, or not taking, any action on the basis of these notes. Data is sourced in good faith but no responsibility is accepted for its accuracy. Published by George Cochrane, AFS License 237380. T/A Cochrane Investment Services ABN 51 053 200 703, PO Box 3001, Tamarama, 2026

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The Technician
post Posted: Aug 1 2011, 11:08 AM
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The effects of squabbling

Attached Image



In ancient Greece, debt was tied to bondage, so if a man was unable to repay his debts, he simply became the property of the lender. Unfortunately, this was outlawed in 594BC.

Otherwise, such a requirement today would help focus the minds of all those lawmakers in the US who are squabbling and prepared to squander their country's AAA debt rating rather than reach a sensible compromise. Almost certainly, there is one coming, at least from the way they have been talking over the past 24 hours.

However, fear that the US Government would run out of money on August 2nd has sent the All Ordinaries tumbling, along with most of the world's sharemarket indices. Let's hope that news of a compromise, should one be reached, will send markets soaring.

Technically, the Index has fallen beneath its June and July lows although it remains above the three month trendline seen above. Unfortunately, there have also been some low GDP figures released both here and in the US and there is some uncertainty as to the medium term effect these will have on market prices once any compromise is reached in Washington.

Stock of the week

Attached Image



Atlas Iron
featured here before when we looked at the price forming a triangle and later viewed the triangle as a "handle" to a three year cup. We suggested buying as it exited the triangle at $3.73, with a stop loss limit within 15pc at $3.17. The price has since risen to a peak closing price of $4.26, pulling the dynamic stop up to within 15pc, to $3.62.

We've also discussed the "Kilroy" behaviour that I've christened "peeking". We can see a classic example of that here where the price rose through the three year resistance line i.e. the "lip" of the cup, at $4.09 and, after three days, fell back through the line, closing on Friday at $4.05 after trading as low as $3.92 on the previous day.

I interpret this as a signal as to the future direction of the price and expect the price to now climb back through the line and rise further. An alternative outcome may be that, in the presence of market uncertainty, the price will bounce around, over and under the line between $4.00 and $4.25, for some time, before heading up and away, so I still think this a good means to make money.



--------------------
Disclaimer: Please note that the writer, or associated parties, may have investments in securities recommended here and, as a matter of policy, do not trade mentioned stocks for three days either side of a published recommendation. Portfolio listings use real prices but do not account for transaction costs as these can vary as a percentage.

Recommendations for stock selection are purely made on the basis of technical analysis – i.e. a study of the accompanying charts - and does not fully consider the fundamentals of company accounts and broker research. Technical analysis is not a guaranteed forecasting method - otherwise all technical analysts would be rich - but it is a powerful tool in indicating ongoing trends. This is generalised advice and may not apply to your specific circumstances. You should request a broker's advice before taking, or not taking, any action on the basis of these notes. Data is sourced in good faith but no responsibility is accepted for its accuracy. Published by George Cochrane, AFS License 237380. T/A Cochrane Investment Services ABN 51 053 200 703, PO Box 3001, Tamarama, 2026
 
The Technician
post Posted: Jul 25 2011, 11:41 AM
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The Technician for Monday July 25

Peeping Kilroy

You won’t find this in any textbooks but it is an aspect of chart behaviour I’ve noted over the decades.
That is, when a price is bouncing below a downtrendline (or above it in the case of an uptrend), it will sometimes rise to make a brief penetration of a line, often for only a day, before falling (or rising) away from the line again.
It can then move quite some distance away from the line before returning to it for a final penetration, in the same direction. Attached Image
That brief penetration often signals the eventual direction of the price.
I’m uncertain whether to christen the behaviour a “peep” or a “Kilroy”, after the WWII cartoon painted on walls from New York to Berlin. (The Australian equivalent to the phrase is "Foo was here" which might even pre-date Kilroy.)
“Peep” has certain shady connotations but is shorter to write, so I’ll stick with “peep”.
Here’s a frinstance, the five month chart of St Barbara Mines (SBM).
Attached Image


Drawing the trendline to connect as many candles as possible, we get two contacts in April, then one each in June and July. The June contact “peeped” through the line briefly, with a high at $2.10, before falling back as far as $1.77 later in the month.
Then, on July 15, it “peeped” through again and, although it closed lower, the Parabolic SAR gave its first buy signal.
By this time, a potential trader would be starting to get interested. July 18 saw the price fall away and there was a possibility the Parabolic was giving a false signal.
However, the 19th saw the price peep through the line again, with a high of $1.96 before closing at $1.955, showing a healthy white candle.
The 20th and 21st saw the price open and close above the line for the first time but closed below its open each day, yielding two black candles and causing some uncertainty.
The sharp move up on the 22nd indicates the price has now broken clear away, closing at $2.03 on the day.
While we might see a retracement back to the line, the stock has clearly broken its downtrend as the “peep” had signalled back in June. (However, not all “peeps” give correct signals, otherwise we could all be rich.)
At this stage, and looking at a longer chart, this could run for a while. If bought at $2.03, the stop could be placed at $1.76, below the June low, and thus less than the usual 15pc.
Attached Image


Acrux (ACR), according to its website, is an Australian drug delivery company, “developing and commercialising a range of pharmaceutical products …..to administer drugs through the skin. (Its) fast-drying, invisible sprays or liquids provide a delivery platform with low or no skin irritation, superior cosmetic acceptability and simple, accurate and flexible dosing. Acrux has two products approved for marketing in the USA, one product approved in Europe, one product in registration in the USA and Europe …...”
Acrux’s licensee Eli Lilly stated on July 1 that it is happy with the three month launch of its Axiron product to the US testosterone therapy replacement market, worth $1 billion per year market and growing at approximately 20pc pa. Boosting testosterone across the US may or may not prove to be a useful Australian contribution to world progress but let’s hope its profitable for Acrux.
Technically, the price has spent seven months forming a “handle” to the eight month “cup” formed from March to October last year.
The resistance line drawn in was hit four times, nearly five, between November 2010 and June 2011, with a distinct “peep” through the line in March.
The price broke through this resistance at $3.96 on July 19, 2011, with no causative announcement to the ASX, and followed it with three successive daily climbs of 0.75pc, 2.5pc and 1.7pc to close at $4.22 on the 22nd. I suspect the stock could be picked up a little lower on Monday 25th following the breakdown in the Washington talks on the US debt situation.
We might even see a retracement back to the line, which might allow a purchase at, say, $4.05 and I would aim for that.
Even if purchased at $4.22, the stop placed at 15pc below this, at $3.59 could be improved on.
The week-long sideways movement in mid-July, which preceded the late July run up, shows a low of $3.74. If the price should fall below this, then we would concede it is in trouble, so our stop loss limit could be tightened to $3.73.
Watch’n wait for the price to hopefully drop to $4.05 before buying.



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Disclaimer: Please note that the writer, or associated parties, may have investments in securities recommended here and, as a matter of policy, do not trade mentioned stocks for three days either side of a published recommendation. Portfolio listings use real prices but do not account for transaction costs as these can vary as a percentage.

Recommendations for stock selection are purely made on the basis of technical analysis – i.e. a study of the accompanying charts - and does not fully consider the fundamentals of company accounts and broker research. Technical analysis is not a guaranteed forecasting method - otherwise all technical analysts would be rich - but it is a powerful tool in indicating ongoing trends. This is generalised advice and may not apply to your specific circumstances. You should request a broker's advice before taking, or not taking, any action on the basis of these notes. Data is sourced in good faith but no responsibility is accepted for its accuracy. Published by George Cochrane, AFS License 237380. T/A Cochrane Investment Services ABN 51 053 200 703, PO Box 3001, Tamarama, 2026
 
 


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