Friday, 27 November 2015

Gold - finding a bottom

Another post from my Essex FTA course which is coming to an end now. If you are thinking of taking this course, these blog posts should give you an idea of the work involved.

Sadly, my gold trade did not hit the target of $1105 mentioned in my post of November 16th, but after reaching $1088, promptly reverse and hit my stop. I should have re-set my stop to break-even to avoid a loss, but I didn't.
I have stayed out for the last week, expecting a reversal, but instead saw the metal break long-term support of $1080, reverse at $1064, and now find $1080 as resistance.
A re-examination of the chart shows a clear descending triangle, which is 5th out of 23 in success in Bulkowksi, 2005:711-729[1] as shown below.

Now is maybe not the best time to enter, as the pattern allows for a possible $5 bounce before resuming it's downward trend. But on the other hand, the trend is very strong. I have therefore placed a trade at market
Size           : 5 units
Entry         : $1068
Stop Loss  : $1076 (above the descending line)
Target       : $1032
The target is difficult, as the instrument is at 7-year lows and so we are into uncharted (no pun intended) territory. I have taken the March 2008 top of $1032 as support, the last time it did something major, shall we say a $500 round trip.

Gold 2006-2010. Source
I have added a line for the current price, and the case for this level of support is instantly made, visually.
The price/action in February 2010, and the round point show a possible pause in decline at $1050, and this would be a good point to take, say, half the position off and move the stop loss to break even.
David Atherton

[1] Bulkowksi, T., Encyclopaedia of Chart Patterns, 2005, Wiley

Wednesday, 25 November 2015

More Gandalf's pub than the famous marque

On 25 October I wrote about Ferrari's $60 IPO. You can check the post here.

In fact you must read it to get the most of this posting. Anyway, as you know I was pretty negative. So what happened to the shares?

Well after starting in pole position, they entered the race badly, and have fallen behind. The price took a brief pitstop on 31 October, and then entered the race to the bottom again. They have managed to lose 25% in a month, closing tonight at $45.64. This is in a month when automotive share have soared, following a little problem in Germany, home of Ferrari's chief competitor on the track, Mercedes, owned by Daimler AG (DAI.GY). How have they done in the same period?

Up by nearly 10%. You can see the difference even more markedly in this chart for the last week.

Now at the IPO, Ferrari's price was 72 and Mercedes was 60. So Ferrari were in the lead. Pole position on that ludicrous PE. Now Mercedes are at 80 and Ferrari is at 45. How much less than 45 is 80. 56% less. Why is that figure significant? Let's look at the F1 Constructor tables for the 2015 season so far from the website.

What's 401 divided by 660. 60.7%. Pretty close if you ask me. In fact, a racing certainty that RACE share price is going to fall another 4%. At least!

Did you get the reference in the title of the article? If not click here

Tuesday, 24 November 2015

UK Supermarkets - FA vs TA

Another posting from my Essex FTA course. This one is completely counter-intuitive for a fundamental analyst, and is designed to prove the superiority of technicals in the short-term (1-2 weeks). We shall see!

I was alerted to this study initially, because I noticed that TSCO and MRW were right their support levels once again, and before leaping in with a buy, decided to do some fundamental research as well.

On 17 November, respected retail research company Kantar WorldPanel produced their regular report on supermarket market shares. It comes as no surprise to find that upstart competitors Aldi and Lidl had taken their market share of the UK sector sale to over 10%.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, comments: “If you look back as recently as 2012 Aldi and Lidl only held a 5% share of the market, and it had previously taken them nine years to double their combined share from 2.5%. In the last 12 weeks the two retailers have attracted another additional million shoppers compared with last year[1]

In other words, the trend that has been observed a few years now is not only continuing but accelerating. Sadly for investors Aldi and Lidl are private companies.

The public companies in the sector are Tesco (LON:TSCO), J Sainsbury (LON:SBRY), and Wm Morrison (LON:MRW). The Asda chain is part of the US Wal-Mart behemoth (NYSE:WMT), but the UK Asda operations are not significant enough to affect the overall share price.

Looking further into the Kantar report, we find that “Sainsbury’s has seen its fourth consecutive period of growth, flying in the face of tough market conditions. It’s 1.5% increase in sales was sufficiently ahead of the market for the retailer to increase its share by 0.2 percentage points – the first share gain registered by any of the ‘big four’ retailers since October 2014.[2], but that “..sales fell at the rest of the major retailers – at Tesco they were down by 2.5% while Morrisons saw sales fall by 1.7%.”[3]

So Sainsbury’s have not lost market share, whereas the other two FTSE-quoted players have. Let us see how this has affected their share prices.

 It is clear that TSCO having already fell sharply the week before, actually rose slightly on November 17, and fell again. At the time of writing the price is 164.50p, a support level which held in October, and indeed in December 2014, subject to a one-day outlying spike (to 155.40 the old 2003 low).

Immediately, I am attracted to the strength of that technical support, notwithstanding fundamental bad news.

MRW shows an almost identical pattern. A low reached in December 2014, was again touched in October, and we are at this support level, the round point price of 150p, for a third time today. Once again November 17 showed a small rise.

So what of SBRY, the ‘winner’ in this report. As you might expect, their share price is slightly stronger. The price rose a little more than TSCO and MRW following this report, but it is notable this share too exhibits the pattern shown by the other supermarkets. The SBRY support line is at 223p, and was touched, like TSCO and MRW in December 2014 and October 2015, with an additional touch in October 2014.

However, the price today of 248p is 25p (10%) above the support line. Also unlike the other supermarkets, the share price chart contains a large gap on September 30, following a 10% leap on an earnings report[4]. This gap has been partially but not wholly filled.

My contention is that the good news for Sainsbury’s from this report is ephemeral, and the share is in fact a week behind TSCO and MRW, and is therefore doomed to fall to the 223p support level again before advancing. On TSCO and MRW, I think the support is so strong that it will hold, and those shares will now rise. My timeframe is a week or two, and certainly no later than the end of the year, as trading statements are delivered from MRW, SBRY and TSCO on January 12, 13 and 14 respectively[5], and technical movement needs to be unimpeded by fundamental data.

It is not possible to check P/E ratios as of today, because TSCO and MRW’s last earnings report showed losses. The less used ratio of book value to market cap, and dividend yield shows

Book Value(£M)
Market Cap (£M)

which would confirm MRW as a buy, for yield alone, but mark TSCO as a sell, and SBRY, as the only one making a profit and valued below book as a strong buy.

Nevertheless this trade is a test of the superiority of short-term technicals over fundamentals, and so I have today placed the following trade

I will review the position in about a week.

David Atherton
827 words, 129 words directly quoted, 15.6% (within guidelines)


[1] Fraser McKevitt, Kantar Worldpanel website, retrieved 24 Nov 2015 -
[3] Fraser McKevitt, ibid.
[4] The Motley Fool website, retrieved 24 Nov 2015 -
[5] Event calendar from Google Finance