Click chart to enlargeEver wonder what would happen to the stock chart of a company whose top brass all liquidate their positions in unison, followed by a nearly 10% correction in the indexes in just 9 sessions?
The chart above is just that. RBCN is the perfect example of why you should listen to the chart and not the headlines.
We updated our performance on the left side of the blog today, and while we basically have the same amount of capital we had in mid June, the market has fallen approx 5% since then. We consider this a substantial gain for us, as all performance is judged relative to the indexes.
RBCN remains the relative strength leader in the LED space. There may be other companies with lower P/E's, higher EPS's, higher PS ratios, etc, but compared to the importance of relative strength, none of that matters. If you make your approach to investing as simple as Nick Darvas did, you will find that all of the information you need about a company is in its chart. Fundamentalists completely reject this thinking, preferring to live in an ivory tower of complex formulae and psychological theorem. Most of the strict fundamentalists that we know are no longer investing in the market. They just couldn't beat it on a consistent basis. Instead, they publish books on how to beat the stock market... go figure.
34 comments:
Your theories have proven to be correct so far since I've followed you. Boggles my mind why people would rather stress over day trading. I can see the benefit once in awhile to a day short or purchase, but for consistent results it doesn't make sense to me. Would say that RBCN is in a clearly defined channel? You say there's no right or wrong way to draw trend lines, but there can definitely be wrong ways... Thanks for thoughts
Anon, RBCN is in a well defined trend channel going back to February. We like when channels extend a full year, but truth be told, that's when the stock is ready to break down anyway. So RBCN, being 5 months into its channel, is at a great point in its growth cycle. Possibly still 4 to 6 months of upside on it. If it can remain in its channel, it could reach as high as $60 before breaking down. That, of course, all depends on its earnings. That's about as much fundamental analysis as we plan on doing on RBCN... it needs decent earnings. Any research into its supply chain, its margins, its competition, etc, is just wasted time. You'll only start hearing about all of the negatives of the company once it's well on its way to zero.
Icon, how much further would gold or miners need to drop before you would go long?
It's not a question of how far they fall, it is a question of when the charts start looking good.
According to this rsi chart of EGO, it is still selling off. I would expect one more rally up to the top red line, then another leg of selling. After that the chart will be fleshed out to the point where it could signal a buy. A long term weekly chart of HMY looks better than this, looking like it could actually break out any minute (or any week rather). But until the rest of the sector looks poised to break out like that, I will hold off. If HMY does break out to the upside, a 50% gain is not out of the question.
Article with 6 pages of chart after chart after chart with support and resistance lines.
article on light volume with charts
Conclusion of the author? - "The news doesn't support a rally but that's what we've had the past few days. Perhaps there's something in the future Mr. Market sees that he really likes--great earnings, new Fed actions, an end to oil spill, the war ends...what? We'll find out eventually. If there's nothing, we'll head south once again."
Thanks for the article, Joe... great charts! The indexes look to simply be bouncing off the bottoms of their downtrending channels. The big question is are we just heading back to the top of those channels (S&P 1100), or will we break through the top of the channels and resume the bull trend that started in Feb 09?
Snot, you, like me, think that those who see complex, multiple patterns and shapes (e.g., doji stars, hammers, flags, heads and shoulders) in the random numbers of charts and think that those shapes can predict what a stock is going to do are seeing an apparition that isn't there. The only patterns worth noting are a few simple ones based on price, buying and selling at key levels, such as upward, downward or sideways channels; support; and resistance. I think you will like the humor of a guy in a message board who posted this: "Watch out for double nut grabin' cross over MACD head and shoulder short jumpin' out the window loss reversal breakout squeezer pattern today."
Lol, Joe, reminds us of someone on the LDK board once saying that LDK's chart showed signs of an erectile rocket formation.
Just re-reading Darvas's "How I Made..." what a great book. Wonder if "Wall Street, the other Las Vegas" is still available. Maybe used it can be found somewhere.
I am not enthusiastic about this rally like I was the last one. I am betting we dont repeat the excellent opex week performance from last month. Since I'm already holding alcoa 11 puts, I'm just going to add to those. And for giggles I'm adding Ford $11 July puts, which are oddly significantly cheaper than the alcoa puts.
Snotwheel: Just an update on Vu1's situation. They have submitted their first product for UL testing which should be completed in August, at which time they will be running a channel evaluation. After that, product introduction. They have also received their first preliminary order from a distributor in the Pacific Northwest, to be finalized after UL testing is completed. In case you're interested they will be holding a conference call this coming Wednesday, July 14th at 6:00 EST. A recording of the CC will be available 2 hours after it takes place.
It's impossible to say what the company will do in the long run, but I can all but guarantee that the share price will move significantly upward leading up to product launch, and hopefully for a good bit afterward. The odds greatly favor a good profit making opportunity. I don't feel like I'm going out on a limb at all by saying you can at least double your money by the end of the year.
Ginchinchili
APKT, PANL & PPO are charts making new highs, similar to RBCN, which look promising. We'd like to find a screener that can scan all 8,000+ stocks each day and pick out charts like this so that we can possibly use them to find out which sectors are up and coming. Does anyone know of a good resource for this?
Good idea snot. I think it'd be in anyone's best interest to be in two different sectors with strong stocks that meet your criteria, sort of a diversification. The only screening I can think of is looking for stocks above 20 day MA or 50 day MA during a severe drop in the broader markets
Google screener
Morningstar screener
CNBC create your own criteria
I am working on a program that will load a chart in my browser, take a bmp screenshot of the chart, then do some rudimentary analysis of the candlestick pattern to look for an uptrending channel. I already have a program that can load any list of charts I want, and getting the screenshots is easy too. The hard part is the ocr-type algorithms. I've written an ocr program in the past that I used in a game to scan a text box and pull text out of that box. (This is real ocr by the way. I'm not talking about hacking into the memory space of a program and "stealing" string data. I wanted to do true ocr, which is pixel-by-pixel scanning and comparing with a series of structures representing characters, and using statistical analysis to determine which character it is.) So I know I have all the skills I need to do it, it is just taking more time than I have. Of course what I'm really after is an rsi analysis algorithm, but that is much more difficult from a programming standpoint.
Gee, what a "helpful" post Cliff.
What is Vu1 that doggydaddy mentioned?
Anon: Vu1 (VUOC) is a R&D company that has developed a new kind of lighting technology called electron stimulated luminescence (ESL). They have quality people involved in this and they don't put out fluff PRs like most R&D companies. I mention that because it is one thing that really impressed me about them. I usually walk away from companies that play that game. Management didn't give themselves a bunch of stock then set out to pump it.
They just recently developed their first light bulb, an R30 for recessed lighting, and are working on a florescent tube style bulb using ESL. Their bulbs are fully dimmable, contain no mercury, are cheaper than LEDs, don't suffer from droop like many (all?) LEDs, and the light quality is indistinguishable from incandescent light.
I made an error in my earlier post. The CC will be held at 5:00 EST, not 6:00.
The company has a lot of people watching it. The NYTimes has already run a big article on it. They will make a sizable splash when they introduce their product and their technology to the world later this year. All I'm saying is that there's little doubt in my mind that the share price will rise between now and product launch. After that, it depends on the reception their technology gets.
All that for a lousy penny stock that trades on the pinks?? (The ticker is really VUOC.OB)
I predict VU1 will be a 10 bagger by the end of 2011. I'm up 26% already on this lousy penny stock. It was up 9% today in anticipation of the CC, lousy pink sheet stock. Tomorrow we'll see if it is really lousy or if the upward trend continues.
LOL! So you bought at 0.38 cents and now it's at 0.48 cents. Look out Warren Buffet!!
Watch and learn, anony. Watch and learn. I promise you, we'll be the ones laughing at you.
Are you one of VU1's 38 employees pumpydaddy?
That lousy penny stock! They announced approval received today of their first patent.
Respect this forum, Anon. No pissing matches here. If you aren't interested in the company, don't invest. It's that simple.
Anonymous, thanks for the 3 screeners. After re-reading Darvas's book and watching the action on APKT, PPO and PANL recently, it's very hard to argue with the "stocks making new highs" method of investing. Maybe Gary the Chimp was on to something!
Snot,
Is this style of investing what you've always done? What did you do in the past? I found this blog from the old LDK board a few yrs ago..wow did they hate you haha. I always found what you said to be intriguing but I never really paid attention until now.
Snot, would you mind saying a word to relatively new readers of your blog (I'm a charter reader from LDK days.) about diversification. Some readers might get the idea that you are 50% invested in a one trick pony here with twin sister stocks, which could be very dangerous. Your real estate firm's retirement account is actually a single digit of your overall worth, isn't it? Most of your investment is in real property like raw land, correct?
VX6000,
We always did look at the market in technical terms. At one point, LDK looked to be the near perfect stock. It was in a leading sector, had prospects of increasing earnings, and had a strong chart making new highs. Once disaster struck, we tried our best to help LDK investors let go. The market is a popularity contest, and once a stock becomes unpopular, there's no reason to stick around. It always amazed us how many die-hard LDK fans did not sign on to that advice when LDK slipped to $30, or $20, or even at $10. Now that it's at $6, maybe they will look for new approaches to investing. As they say, you can lead a horse to water, but you cannot make it drink. We have an unexplained drive to help others hone their own investing styles using some of the things we've learned (often the hard way). Glad you found this blog... hope it helps you profit!
Joe, you're right that what we're doing here is at the liberal end of the scale. A portfolio made up of one or two stocks is dangerous. However, it isn't all that far from what we would consider perfectly reasonable... a portfolio of 4 to 5 stocks with promising fundamentals in industries that stir people's imagination for the future which are currently making new highs. In a nutshell, if you keep your capital invested in a small handful of stocks like that, you will do very well. RBCN, APKT, PPO, and PANL are stocks that currently meet that criteria.
It's true that we play a little more recklessly in the market than we would advise others to. This is because we primarily invest in real estate. Our stock market portfolio is equal to approximately 4% of our investments in real estate. Therefore, RBCN accounts for less than 2% of our investments. We would not advise anyone, with the exception perhaps of very young people, to invest more than 10% of their money in the stock market. In today's day and age, it's just not a good idea. Today's market is not your grandfather's Oldsmobile!
Hi Snot!
IMO the best screener is Finviz.
http://www.finviz.com/
Hope this helps.
Thanks, seeer, will definitely check it out!
Veeco Instruments (VECO) shares are trading lower this morning after Piper Jaffray analyst Ahmar Zaman took over coverage of the LED lighting companies for the firm, reducing Piper’s rating on VECO to Neutral from Overweight. He also chopped Piper’s target for the stock to $69, from $44.
Zaman writes that checks find bookings for LED manufacturing equipment likely peaked in Q2; he contends a significant percentage of orders from its biggest customers are likely already in backlog. He sees a risk of bookings declining sequentially in the second half. He says that the stock looks cheap at 10x forward earnings, but that “uncertainties around order momentum in the second half … move us to the sidelines at this time.”
Zaman cuts his 2010 EPS estimate to $3.35, from $3.96; for 2011, however, he goes to $4.05, from $4.01.
Zaman also picks up coverage of Cree Research (CREE), keeping the firm’s Overweight rating and $88 price target, and he launches coverage of Rubicon Technology (RBCN) with an Overweight rating and $39 target.
wow, http://www.finviz.com/
is intense. Can do amazing things if you put the time into it
And stocks like VVUS and AFFY are good examples of why you shouldn't put all your eggs in one basket. Granted, they are pharmas, but the same thing happened to VECO on a lesser scale due to the downgrade, GS on SEC actions, from which it is bouncing now with the settlement (news matters?!?), and GOOG on a miss. Yeah, preservation of capital actually has something to do with capital appreciation.
Post a Comment