August 24,2011- A Little Common Cents Corner #6 – Analyses on Parabolic Rises (LC,MA)

“You don’t want to be caught holding the bag (unless the bag is a Prada?).” – Faceless Trader

No time limits can be set for any phase.  For example, the third stage of a Bull market, with excited speculation and great public activity, may last for more than a year or run out in a month or two. 

The typical characteristics of Primary trends are well worth keeping in mind.  If you know the symptoms which normally accompany the last stage of a Bull market, for example, you’re less likely to be deluded by its exciting atmosphere.  

– Edwards & Magee, Technical Analysis of Stock Trends (9th Edition)

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Fast Disclaimers:

I was afraid of writing this post, especially when it’s a post about caution.  I was going to write it yesterday, but nixed it because I had other things to do.  Every market participant (at least those who intend to make money in the long run consistently) should know this: You anticipate and make decisions in real time,independently and not in hindsight.  Look, everyone is a great trader/investor with twenty-twenty hindsight.  Uncertainty is our constant companion.

This is one reason why I wrote in my About section –that I am not writing this blog to make any buy/sell/hold recommendations.  My analyses are my personal thoughts meant to archive how I think.  I archive snapshots of my predictions for the very short term horizon (3days to at most 2 weeks) here.  My thoughts can change from bearish to bullish intraday depending on what product it is I’m trading.  My thinking may not be in sync with you, and it doesn’t have to be because we have the market that integrates all our thoughts into one single event- the price we both transact it with.

Every trader hunts for his own food.  I’m not selling equities or paid to do any marketing for any stock I analyze although I may be holding and talking my books about them (when I sound bullish) or selling them (when I’m cautious) at any point in time.  It doesn’t matter what I do, unless I’m handling your money (in which case, you are entitled to view my ledger, else, it’s only for my eyes).  What matters is what you do on your own portfolio.  Mind your own business.

The Philippine Markets (LC/MA/Gold)

A lot of people are making money these days.    Just ask your retail brokers since the volume activities have been rising and broker commissions’ profits have been swelling too with the surges in volume.  I guess the markets agree as CitisecOnline (COL) ;Philippines’ largest online retail brokerage firm just recently breached a nice round number of 20 awhile ago.  Okay, maybe not a lot of people made money.  Perhaps, not a lot booked their profits yet.  It’s probably still floating in paper but I suppose a handful of people are happily rejoicing in their seats with their huge profits especially on LC, MA for a very short period of time. There have been other stellar rises such as BHI,NI,ORE with pretty good volumes, which the market participated with as well.

Let me tell you a brief story: (Taken from Edwards and Magee, Technical Analysis of Stock Trends, Chapter 3)

Phases of Bull Markets:

1.)    Accumulation – a phase during which farsighted investors, sensing that business, although now depressed, is due to turn up, are willing to pick up all the shares offered by discouraged and distressed sellers, and to raise their bids gradually as such selling diminishes in volume.  Financial reports are still bad- in fact, often at their worst- during this phase.  Activity is only moderate but beginning to increase on the rallies (Minor Advances).

2.)    Fairly Steady advances and increasing activity- improved tone of business and a rising trend in corporate earnings begin to attract attention.  This phase is where the “technical” trader normally reaps his best harvest of profits.

3.)    Market Boils with activity as the “public” flocks to the boardrooms – all financial news is good, price advances are spectacular and frequently makes the front page of the papers.  Volume continues to rise, but “air pockets” appear with increasing frequency; the “cats and dogs” (low priced stocks of no investment value) are whirled up, but more and more of the top-grade issues refuse to follow.

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Personal Comments:

Being contrarian is fashionable, but most of the time, bravery to be the first to call the short term top or short-term bottom isn’t needed for successful trading or investing.  Reversals take time.  Bottoms take time. Short term tops take time as well. Use a one day reversal (such as what happened in ORE awhile ago to make your decision to sell systematic and rule-based).

I’ve been hearing the 2.00 target for LC/LCB for quite some time now, in just 3 days, we’ve traveled almost 10 cents on the upside daily for a 1.50 stock, reaching 1.79 and 1.90 respectively awhile ago.  If you ask me, I’ve been checking the broker transactions on whether there are still brokers accumulating at these higher prices or just adding a little and propping up prices, only to sell them as well short term. You have to think about that.

See below:

LC/LCB are providing so many conflicting view points.  For the past 3 days of continued upticks from Lepanto Consolidated Mining,

1.) Phil Equity Partner (338) has net sold 166 Mil worth of LC at 1.76 average price.  This same broker bought the most Lepanto B shares  (36 mil worth at average price of 1.82).

– Notice— selling more than bought

2.) Macquarie (121) has net sold 69 Mil worth of LC at 1.75, and bought 34 Mil of LCB at 1.72 average.

– Notice— selling more than bought

3.) Asia Sec (118) net bought the most this week on LC (98Mil worth) at 1.78, but is also the biggest seller of LCB ( 31 Mil worth) at 1.73

-Notice- bought more LC, and sold LCB

— there are many conflicting signals and I’m not even sure if my time period of 3 days is suitable, or even relevant.  Do the same analysis on MA/MAB (though I think this is less frothier from an extended technical action compared to LC/LCB).

As I write this post, gold has just dropped almost 120 dollars in just two days, but these indicate a general positive tone to the equity markets as well.  Also, a drop in gold does not mean LC/MA will stop rising, only that it may be short-term overbought, but still headed much, much higher.  A further move higher is a distinct possibility.

Traders must constantly deal with the unknown. It’s just part of the job. If you want to play in this wild game, then don’t be discouraged if you sell early sometimes, it’s just part of your trading system.  This will protect you during free falls and huge profit taking.

You want to be a seller when markets are rising and getting extended you want to be a buyer when people think that world is coming to an end – Roberts

For the markets to work great, we need participation, not blind mutual fund investing, but real participation. People owning shares in companies. I have spent thousands of hours investing, mentoring and reading about web and now mobile entrepreneurs. They are not investing in the stock market. They are investing in other entrepreneurs. They want to own things and take part in decisions. The new breed of investors, trusts SecondMarket more than the Stock Market. To be honest, so do I. It has worked for me a few times. – Howard Lindzon

For the markets to work, we need less marketing from Wall Street and more investing. We need less technology for trading and more technology for schools. – Howard Lindzon

Trade accordingly.

– The Faceless Trader