Quite excited to report that this blog is being migrated to our new website which should be up and running within the next week.
www.underdoginvestments.co.za
Tuesday, March 15, 2016
Monday, March 14, 2016
Underdog Perspectives: 14 March 2016
14 March 2016
We can see an interesting weekly candle painting off last week's trading action as the stochastic continued to move firmly upward towards the overbought zone (albeit not there yet). The candle in question has a relatively long tail and wick, reflecting a degree of indecisiveness as the bulls and bears struggled to take control. As a follow on to the previous week's strength, it was perhaps not unexpected and we included some commentary around envisaged consolidation in our post at the beginning of last week. The question now is whether the uptrend will resume or whether the bears will try to use this as an opportunity to start forcing a reversal of the past few weeks' worth of market strength.
To try and answer this we now drill down into the daily charts we can see the stochastic continuing its downward move from overbought conditions. Against this, Friday's candle was certainly more bullish than would be expected in a clear-cut retracement or reversal but again we see the relatively long wick and tail in almost a fractal imitation of the weekly candle. In fact with a couple of days of long wick candles being painted at the tail-end of last week, it could be seen as the bears really losing some momentum on their retracement journey with the bulls pushing back hard over the past 2 trading sessions.
Where we appear to find ourselves then is in a trading zone between about the 45,000 and 46,300 levels and our expectation is for continued volatility within that zone with a break above the red resistance zone or a break below the blue support zone being needed to provide some clues as to the next direction this market takes. Given the size of this trading zone, it could be a good opportunity for intraday trades to yield some positive outcomes.
On the portfolio front, no changes were made on Friday and with 2.3% downside risk in play at a 2.77 reward-risk target, we're fairly comfortably positioned. We do have an eye on a potential GRT trade though with watchlist stocks for the day being ZED and AIP.
**********************************************
We can see an interesting weekly candle painting off last week's trading action as the stochastic continued to move firmly upward towards the overbought zone (albeit not there yet). The candle in question has a relatively long tail and wick, reflecting a degree of indecisiveness as the bulls and bears struggled to take control. As a follow on to the previous week's strength, it was perhaps not unexpected and we included some commentary around envisaged consolidation in our post at the beginning of last week. The question now is whether the uptrend will resume or whether the bears will try to use this as an opportunity to start forcing a reversal of the past few weeks' worth of market strength.
To try and answer this we now drill down into the daily charts we can see the stochastic continuing its downward move from overbought conditions. Against this, Friday's candle was certainly more bullish than would be expected in a clear-cut retracement or reversal but again we see the relatively long wick and tail in almost a fractal imitation of the weekly candle. In fact with a couple of days of long wick candles being painted at the tail-end of last week, it could be seen as the bears really losing some momentum on their retracement journey with the bulls pushing back hard over the past 2 trading sessions.
Where we appear to find ourselves then is in a trading zone between about the 45,000 and 46,300 levels and our expectation is for continued volatility within that zone with a break above the red resistance zone or a break below the blue support zone being needed to provide some clues as to the next direction this market takes. Given the size of this trading zone, it could be a good opportunity for intraday trades to yield some positive outcomes.
On the portfolio front, no changes were made on Friday and with 2.3% downside risk in play at a 2.77 reward-risk target, we're fairly comfortably positioned. We do have an eye on a potential GRT trade though with watchlist stocks for the day being ZED and AIP.
To try and answer this we now drill down into the daily charts we can see the stochastic continuing its downward move from overbought conditions. Against this, Friday's candle was certainly more bullish than would be expected in a clear-cut retracement or reversal but again we see the relatively long wick and tail in almost a fractal imitation of the weekly candle. In fact with a couple of days of long wick candles being painted at the tail-end of last week, it could be seen as the bears really losing some momentum on their retracement journey with the bulls pushing back hard over the past 2 trading sessions.
Where we appear to find ourselves then is in a trading zone between about the 45,000 and 46,300 levels and our expectation is for continued volatility within that zone with a break above the red resistance zone or a break below the blue support zone being needed to provide some clues as to the next direction this market takes. Given the size of this trading zone, it could be a good opportunity for intraday trades to yield some positive outcomes.
On the portfolio front, no changes were made on Friday and with 2.3% downside risk in play at a 2.77 reward-risk target, we're fairly comfortably positioned. We do have an eye on a potential GRT trade though with watchlist stocks for the day being ZED and AIP.
**********************************************
Sunday, March 6, 2016
Underdog Perspectives: 07 - 11 March 2016
11 March 2016
Choppy day yesterday culminating in almost a spinning top type candle as the buyers and seller struggled for ascendancy over the course of the day and into the ECB press conference. With the stochastic still looking quite bearish and now starting to break to the downside, one would expect further selling pressure. But as noted yesterday, unless the bears can push this down to a break and close below below 45,000 , this is still viewed as a bullish retracement. And if yesterday's closing action was anything to go by, the bulls are eager to continue the journey north. With no major data outputs coming out internationally today, its looking like a straight continued response to the European stimulus announcement yesterday so we could be in for another choppy day defined by the 45,000 and 46,700 levels with the breaks of yesterday's high and low levels being key to the start of proceedings.
Two new positions were added into the portfolio yesterday. A BVT long and an SUI short. Both trades are entered on a similar basis as can be seen from the charts. The entry level on BVT was 344.57 with a 365 target and a stop around 334.
On SUI the entry was at 73.61 with a 65.50 target and a stop around 77.70.
Not looking to add to positions today unless some targets are met.
************************************************************************************************
Choppy day yesterday culminating in almost a spinning top type candle as the buyers and seller struggled for ascendancy over the course of the day and into the ECB press conference. With the stochastic still looking quite bearish and now starting to break to the downside, one would expect further selling pressure. But as noted yesterday, unless the bears can push this down to a break and close below below 45,000 , this is still viewed as a bullish retracement. And if yesterday's closing action was anything to go by, the bulls are eager to continue the journey north. With no major data outputs coming out internationally today, its looking like a straight continued response to the European stimulus announcement yesterday so we could be in for another choppy day defined by the 45,000 and 46,700 levels with the breaks of yesterday's high and low levels being key to the start of proceedings.
Two new positions were added into the portfolio yesterday. A BVT long and an SUI short. Both trades are entered on a similar basis as can be seen from the charts. The entry level on BVT was 344.57 with a 365 target and a stop around 334.
Not looking to add to positions today unless some targets are met.
************************************************************************************************
10 March 2016
The reversal/retracement continued yesterday with another solid red candle being painted. The stochastic remains overbought but has now crossed below its signal line. The 21/89 bullish crossover has however taken place with this positive relationship having last been on the charts at the beginning of December 2015. Price has now retraced to the 23.6% level but with downward momentum still in place, one could continue to look to the 45,000 level and the 38.2% retracement zone. A close below 45,266 would also be significant as it would represent a daily 3-line break.
We closed out the balance of our HAR long position yesterday on some intraday weakness which violated the trailing stop level. While profits were fairly modest, the stock had been felling a bit sluggish and with PAN still in the portfolio mix - albeit fairly flat to date, we're still comfortable with the level of our gold exposure at the moment.
Our NPK short trade opened yesterday moved slowly but steadily out of the block and we entered a new -although very small due to a lack of fill- short position on RMH as set out below:
We'd noted that the stochastic had moved overbought and although he 21/89 was in danger of rolling over to the upside, following the huge reversal On Tuesday, we identified an opportunity to get short with a view to a move down to the most recent lows. We managed an intraday entry at 59.02 (although only filling 20% of our target position) before the market fell away to close well on it sway to target.
With some decent momentum behind this mvoe, we'd expect this target to be met during today's trade which would open some more portoflio capacity for watchlist items which have setup - BVT and SUI. We're aso eyeballing MRP, ZED, TSO and PPC.
********************************************************************
The reversal/retracement continued yesterday with another solid red candle being painted. The stochastic remains overbought but has now crossed below its signal line. The 21/89 bullish crossover has however taken place with this positive relationship having last been on the charts at the beginning of December 2015. Price has now retraced to the 23.6% level but with downward momentum still in place, one could continue to look to the 45,000 level and the 38.2% retracement zone. A close below 45,266 would also be significant as it would represent a daily 3-line break.
We closed out the balance of our HAR long position yesterday on some intraday weakness which violated the trailing stop level. While profits were fairly modest, the stock had been felling a bit sluggish and with PAN still in the portfolio mix - albeit fairly flat to date, we're still comfortable with the level of our gold exposure at the moment.
Our NPK short trade opened yesterday moved slowly but steadily out of the block and we entered a new -although very small due to a lack of fill- short position on RMH as set out below:
We'd noted that the stochastic had moved overbought and although he 21/89 was in danger of rolling over to the upside, following the huge reversal On Tuesday, we identified an opportunity to get short with a view to a move down to the most recent lows. We managed an intraday entry at 59.02 (although only filling 20% of our target position) before the market fell away to close well on it sway to target.
With some decent momentum behind this mvoe, we'd expect this target to be met during today's trade which would open some more portoflio capacity for watchlist items which have setup - BVT and SUI. We're aso eyeballing MRP, ZED, TSO and PPC.
We closed out the balance of our HAR long position yesterday on some intraday weakness which violated the trailing stop level. While profits were fairly modest, the stock had been felling a bit sluggish and with PAN still in the portfolio mix - albeit fairly flat to date, we're still comfortable with the level of our gold exposure at the moment.
Our NPK short trade opened yesterday moved slowly but steadily out of the block and we entered a new -although very small due to a lack of fill- short position on RMH as set out below:
We'd noted that the stochastic had moved overbought and although he 21/89 was in danger of rolling over to the upside, following the huge reversal On Tuesday, we identified an opportunity to get short with a view to a move down to the most recent lows. We managed an intraday entry at 59.02 (although only filling 20% of our target position) before the market fell away to close well on it sway to target.
With some decent momentum behind this mvoe, we'd expect this target to be met during today's trade which would open some more portoflio capacity for watchlist items which have setup - BVT and SUI. We're aso eyeballing MRP, ZED, TSO and PPC.
********************************************************************
09 March 2016
And at last we see the long-anticipated reversal candle painting as the bears finally acknowledge a resistance level. Or is it a reversal? Yesterday's trading action was relatively tight in the context of the rest of the month and even with the stochastic now crossing below its signal line from overbought territory, the T40 has moved so far above its 21/89 moving averages that its's almost inevitable we see crossover taking place in that space as we noted at the beginning of the week.
So any weakness we see coming through in the short-term needs to acknowledge recent strength which points to a higher probability of a short-term retracement versus a full on bearish reversal being the the order of the day at this juncture. Again, not a bad position for the bulls and a move back down to around support at the 45,000 level which lines closely with the 38.2% retracement level might be an area we could look to run some short setups down into.
Yesterday saw us close out our long position in SAP as it closed just below the trailing stop level. End to end it was virtually a break-even to small loss close as we'd been ratcheting the stop up over the past 2 weeks. Given a relative sluggishness in SAP's response to the recent market strength, we're not uncomfortable moving onto fresh opportunities.
We did add an NPK short into the mix to supplement the portfolio With NPK we can see the pullback its put over the past couple of weeks in a continued longer-term downtrend. With the stochastic moving overbought and starting to reverse, we looked to a entry at R19.02 intraday yesterday setting our stop level at R20.32 and aiming for a move back down to the swing low at R16.44
On today's watchlist we have RMH followed by RDF ad PPC
**************************************************************************************************
And at last we see the long-anticipated reversal candle painting as the bears finally acknowledge a resistance level. Or is it a reversal? Yesterday's trading action was relatively tight in the context of the rest of the month and even with the stochastic now crossing below its signal line from overbought territory, the T40 has moved so far above its 21/89 moving averages that its's almost inevitable we see crossover taking place in that space as we noted at the beginning of the week.
Yesterday saw us close out our long position in SAP as it closed just below the trailing stop level. End to end it was virtually a break-even to small loss close as we'd been ratcheting the stop up over the past 2 weeks. Given a relative sluggishness in SAP's response to the recent market strength, we're not uncomfortable moving onto fresh opportunities.
We did add an NPK short into the mix to supplement the portfolio With NPK we can see the pullback its put over the past couple of weeks in a continued longer-term downtrend. With the stochastic moving overbought and starting to reverse, we looked to a entry at R19.02 intraday yesterday setting our stop level at R20.32 and aiming for a move back down to the swing low at R16.44
On today's watchlist we have RMH followed by RDF ad PPC
**************************************************************************************************
08 March 2016
And yet another relentless push by the T40 on the back of continued resource price squeezing saw the market extend its winning form and move to a close well within the resistance zone we highlighted yesterday. The anticipated short-term consolidation has not materialised with some practical lessons in fighting against string trends being the order of yesterday's trading action.
The overbought stochastic does appear to be losing momentum though as is threatening its's signal line - if not quite yet looking ready to drop out of the overbought zone and it now becomes a case of whether the bulls can hold these levels and push through resistance towards 47,000 and higher or whether we start to see the long anticipated consolidation pullback starting to play out. Either way its going to pay to be cautious at this stage caught between the lack of oxygen in chasing a further breakout at this juncture versus fighting a string trend on the flip-side.
Meanwhile we continue to look for solid additions to the portfolio. Both the GND short and the T40 pattern short entered fell victim to the strongly rising market yesterday with stops being triggered. A lesson learnt from both f these was the importance of the final intraday trigger confirmation before making final entry decisions on a position. This was something we enacted with the entry into the PAN long yesterday:
Note how price had pulled back in the strong uptrend pushing the stochastic oversold. after setting our stop levels below the previous swing low and outside this stock's daily range, we looked for an intraday confirmation of the move back up and managed to get an entry at R2.70 yesterday. We are now aiming for a move back towards the previous swing high at R3.00 for a 2.14-1 setup.
Stocks on today's watchlist are NPK, ROC, RES, RMI and RDF. With our downside risk now at 1.9% (1.7%) and a depleted RaR at 1.19 (2.35) we will be looking to at least one of these setups for entry today.
*****************************************************************************************************
And yet another relentless push by the T40 on the back of continued resource price squeezing saw the market extend its winning form and move to a close well within the resistance zone we highlighted yesterday. The anticipated short-term consolidation has not materialised with some practical lessons in fighting against string trends being the order of yesterday's trading action.
07 March 2016
The upside we anticipated at the beginning of last week certainly came to fruition as can be seen by the very thick bullish weekly candle, which took the market north by some 2,300 points. This has also alleviated some of the pressure on the 21 week/89 week EMA relationship as the T40 closed above the 21 week EMA for the first time since Christmas last year. At the same time it's clear that the weekly stochastic has room for further upside potential at the moment as it crossed bullishly above its signal line.
Drilling down the daily chart we can see last week's strength manifested in a series of strong daily candles. What's interesting is that while the stochastic has moved into overbought territory, price has progressed to well above the 89 day EMA and we could see the 21 day EMA rollover bullishly in the week ahead.
The upward sloping channel and lateral resistance we highlighted last week has now been broken to the upside. However, with overhead structural resistance now expected to manifest from around the 46,400 level, and with the daily stochastic flattening in overbought territory, we may see some short-term consolidation to start the week ahead and potentially a throwback to the channel ceiling and previous lateral resistance (now support) around the 45,500 level. From a bullish perspective that would not be the worst outcome as it would give the market a chance to regroup before making an assault on overhead resistance - a break of which would necessitate some longer-term thinking in respect of market direction.
A bearish alternative would see the market punch back down and close below 45,500 level potentially opening up the door to some further downside off overbought conditions.
***
Our CFD portfolio is reflecting open downside risk of 1.7xR (1.6xR) with RaR at 2.35 (3.55). We have a long position on PAN as a potential entry for tomorrow with an NPK short and a RDF long also on the watchlist*. *One of the learnings which has manifested over the past few weeks has been the importance of refining entry triggers and levels to below the daily time-frame as these allow for superior confirmations and also provide the opportunity for getting into positions in a more timely fashion. This may change our journalling format slightly in that there will be more shorter-term decision-making which would only be commented on retrospectively but importantly our systematic approach to trade setups remains unchanged.
Monday, February 29, 2016
Underdog Perspectives - 01- 04 March 2016
04 March 2016
Another advance painted the 3rd consecutive strong bullish daily candle. We are now well above the 89 day EMA and the probability of a bullish crossover of the 21 day EMA above the 89 day EMA is increasing. The stochastic is well overbought but is still maintaining its positive shape. With the close above the channel ceiling and lateral resistance (now support) we could be seeing some new structural development (assuming the bulls can hold this level).
We would now expect some consolidation above the 45,350 level as we head into the weekend allowing the bulls to refresh for an assault on the 46,500 level. Failing that a break back below 45,350 and 45,000 could be indicative of this being a failed breakout. In a nutshell, the hard work has been done by buyers - they just need to maintain these levels for now.
Overall with these additions and some stop changes on existing positions, our overall downside risk has increased to 1.6xR (1.0xR) at a target reward-risk of 4.81 (4.96)and the RaR has put in a big advance to advanced to 3.55 (1.55). Now this may seem slightly anomalous in that our RaR is well above the desired benchmark and yest the downside risk exposure is so low and in a sense it is. With new positions like GND and the T40 in the red from early on , this reduces our open downside risk while enhancing the potential return on these trades. This is acceptable to us because (a) the trade setup criteria remain intact and (b) we need to give our positions the opportunity to work within the predefined risk parameter framework. While its naturally desired that trades work off the bat, one should not panic and start changing setup criteria simply because this has not been the case. Should stops be breached or setup conditions change, then these things can be revisited but not before.
On a new setup basis, there were a few breakout of options with SOL being in the mix following yesterday's move but the one which came out as the highest probability from our analysis was the breakout on IMP (Note that given our commentary on caution around chasing breakouts in the current market, we'll be trading this at 50% of our normal size)
In essence, its a standard 3LB breakout of its previous swing high and with the trend shifting positive (21>89 EMA) we'll look to enter on a pullback to the previous swing high at 41.60 with a stop as a close below the candle low at 37.50 and upside targets as indicated 49.75/53.85 and 55.90
And the rather relentless surge continues with another solid bullish candle. However we now find ourselves in and interesting space. The stochastic is overbought (although it can remain so for an extended period). Price has rolled above the 89 day EMA which last happened at the end of December last year. When in this space, it's generally a case of the market starting to roll over to the upside or a break back down again (as we saw towards the tail-end of December and into January). And perhaps most importantly, we are now near or at the top of the channel and the lateral resistance level at around 45,350- which we've been noting over the past few days.
The bulls now need to comprehensively break and close above this level in order to start eyeballing the 46,500 level which represents the right shoulder of a massive head and shoulders formation going back to around September last year. Breaching that level could seriously impact on the longer-term trend evaluation. Alternatively, the channel ceiling and lateral resistance will prove too much in these overbought conditions and we could see the market now starting to fall away again.
Firstly we have a structural pattern short on the T40 which we've been eyeballing for a while and which triggered in overnight trade. To refresh, we had identified a potential Gartley pattern setup based on the trading action over the past couple of months and what we were waiting for was a move back into the "shorting area" at point D which coincided with a 78.2% retracement of the major impulse move down from end December 2015. What added to our case for this short was the channel and lateral resistance levels noted in the T40 analysis above and so we had a standing order to sell at a level of 45,450 (which triggered overnight). Our stop is set above the 'X' level at 46,700 and we are looking for a move back to around the 43,000 level for close to a 2-1 reward - risk (the final target levels will be refined based on today's trading)
The second trade we'll be looking to enter is also a short - and again its on GND which we traded successfully earlier in the year. What we can see here is that the stock remains in a strong downtrend trend but the stochastic has now moved into overbought territory. At the same time price has moved into the "sell zone" between the 21 and 89 EMA and yesterday saw the formation of a long-wicked potential bearish reversal candle. Combining this with the fact that we have the price reversing off some overhead structural resistance, we would look to enter our short at current levels looking for a move back down to the swing low at R8.50 and then R8.00 as a secondary target. The stop would be a close above resistance at R10.30. This yields a 2.63-1 target reward-risk.
********************************************************************************
The anticipated short-term positivity played out strongly yesterday with a very strong 800 point bullish candle being painted and the market managing to break and close the 44,500 level. With such strong momentum and the stochastic still not in overbought territory, it now looks set to challenge the strong overhead resistance and channel ceiling form around the 45,350 level.
In order for the bears to come back into the equation it looks like we'd have to see a reversal off around the 45,350 - 45,500 level and using the context of the potential Gartley pattern formation, that's where we'd be looking to put a potential swing trade in place. We already have the order in place with a short entry at 45,450 and a stop in as a close above the X high at 46,700 (reference yesterday's post for the actual chart) and a target in at 43,050 (about a 1.9-1 reward-risk)
But that's on a longer-term time-frame. In the short-term its the bulls that have the bit in their teeth and so we'll continue to respect that.
We've been keen advocates of the value of using 3LB charts in our analyses and so thought it apt to kick-off with a monthly 3LB chart of the T40 going back just over 20 years. Looking at those instances where the 3LB shifted into negative territory, we can easily attribute this to very specific global events or at least events with a global impact. What is of interest is the speed with which the market recovered in isolated 3LB breakdown instances. However, it's also worth noting that sustained negativity has been self-enhancing leading to longer and deeper retracements (for want of a better term). This is relevant as we have now just painted the 2nd consecutive negative monthly 3LB candle in February - something which has only happened during the Asian crisis, the sustained stock market fall which saw the collapse of Enron and co (among others), and most recently the global financial crisis. In all these instances the fallout has continued for at least 4 months with varying depths of market retracement.
Having noted this we can now also look to a monthly price chart we highlighted last month noting that once again the T40 has managed to paint a very long wick with a rally into the month-end. This appears to be a recurring trend popping up over the past year and again it provides us with a notion that we should look to perhaps lightening our short positions leading into month-ends. Once again its something we'll bear in mind during the month ahead.
Drilling down to the weekly level, we can see how the bearish divergence noted at the beginning of last week played out but then the market put in the reversal to push off its lows into the month-end. The weekly stochastic remains relatively bearish and the 21 week EMA continues to just hold off on a cross below the 89 week EMA. On balance, the weekly charts are exhibiting dangerously mixed signals.
And finally we look out our daily charts. Here we can see how the T40 continues to respect the upward sloping channel as the stochastic crossed back up over its signal line. With the 21 day EMA still below the 89 day EMA, we would still be looking of a reversal in the direction of the major trend but for now the short-term bulls appear to have the lead as we continue to eyeball the 44,500 and then the 45,350 level near the channel ceiling.
And lastly, we'll post and reference the chart highlighted yesterday with respect to a potential Gartley pattern in the making providing further support to a the case for short-term bullishness towards the 45,350 level.
In summary, the month ahead still looks to offer plenty of challenges with mixed signals and volatility being the order of the day. In the immediate future upside appears to be on the cards so we would need to factor that into our intraday approach. We also need to potentially cutting back on end of day breakout positioning as there is a definite lack of follow through in the making on that front. Balanced non-correlated portfolio performance is also going to be key in negotiating the choppiness ahead.
Portfolio:
We had quite a bit of turnover with the SUI short triggering a trailing stop and closing out its balance for a 2.6xR average profit. HAR also moved up strongly and we managed to take 50% profit at the T1 level while de-risking the balance by moving the stop to open. Lastly a switch stop was triggered intraday on the RES long which was underpinned by a dividend payout so we ultimately only lost about 0.5XR. A number of stops were also tightened. We also managed to enter a short on DTC as noted in yesterday's setup.
Consequently we move into March with a rather modest 2.2% open downside risk and a target reward-risk level of 3.7-1. The RaR has also dropped off to 1.79 (3.22). However, for now with no new setup signals we will continue to simply manage our open positions as the new month commences.
Another advance painted the 3rd consecutive strong bullish daily candle. We are now well above the 89 day EMA and the probability of a bullish crossover of the 21 day EMA above the 89 day EMA is increasing. The stochastic is well overbought but is still maintaining its positive shape. With the close above the channel ceiling and lateral resistance (now support) we could be seeing some new structural development (assuming the bulls can hold this level).
We would now expect some consolidation above the 45,350 level as we head into the weekend allowing the bulls to refresh for an assault on the 46,500 level. Failing that a break back below 45,350 and 45,000 could be indicative of this being a failed breakout. In a nutshell, the hard work has been done by buyers - they just need to maintain these levels for now.
***
Some whiplash in the afternoon session mainly off the 3LB intraday session saw us drop 3xR for the day. It was unfortunate that our early morning setups didn't trigger on cue to take advantage of the bulk of the daily move. Still results aside, we executed well on our system setups for the most part and that's the critical focus area.
***
On the portfolio front we go the short entry in GND at our target entry level. It didn't have the greatest run during the day closing well up on the back of broader market strength but we are comfortable that the setup criteria remain intact. Similarly, our T40 short setup we entered yesterday remains intact albeit quite a bit above entry for now. Based on yesterday's high watermark (which may be surpassed today), our provisional target based on a 61.8% retracement is 43,100. Overall with these additions and some stop changes on existing positions, our overall downside risk has increased to 1.6xR (1.0xR) at a target reward-risk of 4.81 (4.96)and the RaR has put in a big advance to advanced to 3.55 (1.55). Now this may seem slightly anomalous in that our RaR is well above the desired benchmark and yest the downside risk exposure is so low and in a sense it is. With new positions like GND and the T40 in the red from early on , this reduces our open downside risk while enhancing the potential return on these trades. This is acceptable to us because (a) the trade setup criteria remain intact and (b) we need to give our positions the opportunity to work within the predefined risk parameter framework. While its naturally desired that trades work off the bat, one should not panic and start changing setup criteria simply because this has not been the case. Should stops be breached or setup conditions change, then these things can be revisited but not before.
On a new setup basis, there were a few breakout of options with SOL being in the mix following yesterday's move but the one which came out as the highest probability from our analysis was the breakout on IMP (Note that given our commentary on caution around chasing breakouts in the current market, we'll be trading this at 50% of our normal size)
In essence, its a standard 3LB breakout of its previous swing high and with the trend shifting positive (21>89 EMA) we'll look to enter on a pullback to the previous swing high at 41.60 with a stop as a close below the candle low at 37.50 and upside targets as indicated 49.75/53.85 and 55.90
************************************************************************************************
03 March 2016
And the rather relentless surge continues with another solid bullish candle. However we now find ourselves in and interesting space. The stochastic is overbought (although it can remain so for an extended period). Price has rolled above the 89 day EMA which last happened at the end of December last year. When in this space, it's generally a case of the market starting to roll over to the upside or a break back down again (as we saw towards the tail-end of December and into January). And perhaps most importantly, we are now near or at the top of the channel and the lateral resistance level at around 45,350- which we've been noting over the past few days.
The bulls now need to comprehensively break and close above this level in order to start eyeballing the 46,500 level which represents the right shoulder of a massive head and shoulders formation going back to around September last year. Breaching that level could seriously impact on the longer-term trend evaluation. Alternatively, the channel ceiling and lateral resistance will prove too much in these overbought conditions and we could see the market now starting to fall away again.
***
A mixed T40 intraday session yesterday saw us net 0.5xR of profit - mainly off the back of a solid overnight long session but then we made some judgmental errors so didn't capitalise fully on the day's trading action. Lesson: Chasing the last few cents and as a result losing all the rands - horrible strategy!
***
The portfolio exposure continues to dwindle and yesterday saw a stop out on the RMH short for a 0.9xR loss on a trailing stop trigger - 14 days/ R57.91->R59.86. The resultant portfolio now only has 1.0% downside risk and the RaR continues to decline - now at 1.55 (2.79). So there's definitely scope for some new trades and we've identified 2 such setups.Firstly we have a structural pattern short on the T40 which we've been eyeballing for a while and which triggered in overnight trade. To refresh, we had identified a potential Gartley pattern setup based on the trading action over the past couple of months and what we were waiting for was a move back into the "shorting area" at point D which coincided with a 78.2% retracement of the major impulse move down from end December 2015. What added to our case for this short was the channel and lateral resistance levels noted in the T40 analysis above and so we had a standing order to sell at a level of 45,450 (which triggered overnight). Our stop is set above the 'X' level at 46,700 and we are looking for a move back to around the 43,000 level for close to a 2-1 reward - risk (the final target levels will be refined based on today's trading)
The second trade we'll be looking to enter is also a short - and again its on GND which we traded successfully earlier in the year. What we can see here is that the stock remains in a strong downtrend trend but the stochastic has now moved into overbought territory. At the same time price has moved into the "sell zone" between the 21 and 89 EMA and yesterday saw the formation of a long-wicked potential bearish reversal candle. Combining this with the fact that we have the price reversing off some overhead structural resistance, we would look to enter our short at current levels looking for a move back down to the swing low at R8.50 and then R8.00 as a secondary target. The stop would be a close above resistance at R10.30. This yields a 2.63-1 target reward-risk.
********************************************************************************
02 March 2016
The anticipated short-term positivity played out strongly yesterday with a very strong 800 point bullish candle being painted and the market managing to break and close the 44,500 level. With such strong momentum and the stochastic still not in overbought territory, it now looks set to challenge the strong overhead resistance and channel ceiling form around the 45,350 level.
In order for the bears to come back into the equation it looks like we'd have to see a reversal off around the 45,350 - 45,500 level and using the context of the potential Gartley pattern formation, that's where we'd be looking to put a potential swing trade in place. We already have the order in place with a short entry at 45,450 and a stop in as a close above the X high at 46,700 (reference yesterday's post for the actual chart) and a target in at 43,050 (about a 1.9-1 reward-risk)
But that's on a longer-term time-frame. In the short-term its the bulls that have the bit in their teeth and so we'll continue to respect that.
***
Intraday trading was solid yesterday as we managed to nett profits of 3.9xR while leaving one position long overnight. A decent way to start any new month and we're happy to found a step into the bullish momentum.
***
The portfolio remained and remains unchanged with open downside risk now down to 1.6xR (2.2xR) at a 5.3-1 potential reward-risk level. The RaR has however improved to 2.79 (1.79). All in all we need to get some more balance into the equation but there's very little appealing to us at the moment so we're not going to rush into any new positions until we see some attractive setups on offer.
************************************************************************************************
01 March 2016
And as the new week and the new month (and for the tax-year inclined folk the new year) kicks off it would be appropriate to reflect back on the trading experiences of the past week/month/year but in a sense these are artificial beginnings and ends we impose on ourselves to provide a frame of reference to operate in. The reality is that the flow of the markets don't really cease. So while we'll definitely be doing some reflection on our trading journey in time, for now we'll continue on our journey of analysis and execution as we move forward using some reflections on the overall market as s starting point.We've been keen advocates of the value of using 3LB charts in our analyses and so thought it apt to kick-off with a monthly 3LB chart of the T40 going back just over 20 years. Looking at those instances where the 3LB shifted into negative territory, we can easily attribute this to very specific global events or at least events with a global impact. What is of interest is the speed with which the market recovered in isolated 3LB breakdown instances. However, it's also worth noting that sustained negativity has been self-enhancing leading to longer and deeper retracements (for want of a better term). This is relevant as we have now just painted the 2nd consecutive negative monthly 3LB candle in February - something which has only happened during the Asian crisis, the sustained stock market fall which saw the collapse of Enron and co (among others), and most recently the global financial crisis. In all these instances the fallout has continued for at least 4 months with varying depths of market retracement.
Having noted this we can now also look to a monthly price chart we highlighted last month noting that once again the T40 has managed to paint a very long wick with a rally into the month-end. This appears to be a recurring trend popping up over the past year and again it provides us with a notion that we should look to perhaps lightening our short positions leading into month-ends. Once again its something we'll bear in mind during the month ahead.
Drilling down to the weekly level, we can see how the bearish divergence noted at the beginning of last week played out but then the market put in the reversal to push off its lows into the month-end. The weekly stochastic remains relatively bearish and the 21 week EMA continues to just hold off on a cross below the 89 week EMA. On balance, the weekly charts are exhibiting dangerously mixed signals.
And finally we look out our daily charts. Here we can see how the T40 continues to respect the upward sloping channel as the stochastic crossed back up over its signal line. With the 21 day EMA still below the 89 day EMA, we would still be looking of a reversal in the direction of the major trend but for now the short-term bulls appear to have the lead as we continue to eyeball the 44,500 and then the 45,350 level near the channel ceiling.
And lastly, we'll post and reference the chart highlighted yesterday with respect to a potential Gartley pattern in the making providing further support to a the case for short-term bullishness towards the 45,350 level.
In summary, the month ahead still looks to offer plenty of challenges with mixed signals and volatility being the order of the day. In the immediate future upside appears to be on the cards so we would need to factor that into our intraday approach. We also need to potentially cutting back on end of day breakout positioning as there is a definite lack of follow through in the making on that front. Balanced non-correlated portfolio performance is also going to be key in negotiating the choppiness ahead.
Portfolio:
We had quite a bit of turnover with the SUI short triggering a trailing stop and closing out its balance for a 2.6xR average profit. HAR also moved up strongly and we managed to take 50% profit at the T1 level while de-risking the balance by moving the stop to open. Lastly a switch stop was triggered intraday on the RES long which was underpinned by a dividend payout so we ultimately only lost about 0.5XR. A number of stops were also tightened. We also managed to enter a short on DTC as noted in yesterday's setup.
Consequently we move into March with a rather modest 2.2% open downside risk and a target reward-risk level of 3.7-1. The RaR has also dropped off to 1.79 (3.22). However, for now with no new setup signals we will continue to simply manage our open positions as the new month commences.
Sunday, February 21, 2016
Underdog Perspectives 22 - 29 February 2016
February 29th
The point of interest we'd like to analyse a bit more is around some advanced pattern analysis we've started exploring. We appear to have the makings of a potential Gartley Pattern on the daily T40. Without going into the pure mechanics of it (a useful reference for that can be found here), we are currently in the process of completing the final leg of the pattern which would see a move back to the 78.2% retracement of the initial X-A leg. This would present a shorting opportunity on a fairly high probability completed formation.
What's interesting is to see the confluence between this pattern and the major resistance we noted above. This adds to the case in favour of the bulls pushing this market towards the 45,500 level before the next major down move and in the short-term allows us to favour long-side positioning on an intraday basis.
***
Not much to report on the intraday trading - A grinding 0.8xR profit on the T40 played out on Friday with us leaving 1 long position open for the weekend.
***
On the portfolio side we closed out our T40 short position on a close above the trailing stop level netting 0.2xR profit on that trade. We also entered the HAR position highlighted late on Friday at the anticipated target entry level. On balance we now have 4.5% (4.6%) open downside risk exposure at a target reward-risk of 3.42-1 (3.31-1) and a RaR which has advanced to 3.22 (3.15). All-in-all a very solid position to be in and while its difficult at these levels to identify complementary positions, one which does add to the whole is a setup on DTC which actually triggered a few days back but remains valid.
Now we did trade DTC a few weeks back on breakout basis to the short side and stopped out on our position as it reversed upwards. We can however see that the reversal has moved price into an overbought position from where it's starting to now reverse downwards. The last week of trading has also seen a number of bearish candles being formed - although these are yet to see a follow through to the downside.
Setups details are as follows: Entry at R46.91 with an initial stop set as a close above R52.58 and downside targets at R38.30 and R34.40.
********************************************************************************************************
February 26th
One for the bulls is that they managed to keep the market within the rising channel boundaries as the stochastic continues to worm its way down towards the oversold territory. However, at the moment its a bit of a holding action as the attempt to push the market above the 43,000 level was met with some strong resistance forcing the daily candle to close well of its intraday high. So on balance, very little changes from yesterday with the buyers still needing to move beyond 43,000 and then 43,400 and the sellers needing to break the channel floor and then the 42,000 level.
***
Nothing much to report on intraday with a net 0.6xR loss. A bit disappointing after plugging away fairly well for most of the day we faltered with a few errors into the close.
***
We're pretty comfortable with the portfolio composition and balance at the moment. We took the long setup into SAP as per yesterday's setup and this has helped in moderating short-side exposure. With 4.6% (4.6%) downside exposure at a potential 3.3-1 reward-risk and an RaR improvement to 3.15 (0.89) we'll be standing pat for today.
***LATE AMENDMENT***
So much for standing pat..A setup which did come across the table and we were a bit late in analysing but feel it would supplement the portfolio quite well is a long in HAR:
Setup is a 3LB breaking previous structure high with an entry at R49.10 and targets at R53.20 and R57.80. Stop is a close below R46.30.
And NOW we'll stand pat
***********************************************************************************************
One for the bulls is that they managed to keep the market within the rising channel boundaries as the stochastic continues to worm its way down towards the oversold territory. However, at the moment its a bit of a holding action as the attempt to push the market above the 43,000 level was met with some strong resistance forcing the daily candle to close well of its intraday high. So on balance, very little changes from yesterday with the buyers still needing to move beyond 43,000 and then 43,400 and the sellers needing to break the channel floor and then the 42,000 level.
***
Nothing much to report on intraday with a net 0.6xR loss. A bit disappointing after plugging away fairly well for most of the day we faltered with a few errors into the close.
***
We're pretty comfortable with the portfolio composition and balance at the moment. We took the long setup into SAP as per yesterday's setup and this has helped in moderating short-side exposure. With 4.6% (4.6%) downside exposure at a potential 3.3-1 reward-risk and an RaR improvement to 3.15 (0.89) we'll be standing pat for today.
***LATE AMENDMENT***
So much for standing pat..A setup which did come across the table and we were a bit late in analysing but feel it would supplement the portfolio quite well is a long in HAR:
Setup is a 3LB breaking previous structure high with an entry at R49.10 and targets at R53.20 and R57.80. Stop is a close below R46.30.
And NOW we'll stand pat
***LATE AMENDMENT***
So much for standing pat..A setup which did come across the table and we were a bit late in analysing but feel it would supplement the portfolio quite well is a long in HAR:
Setup is a 3LB breaking previous structure high with an entry at R49.10 and targets at R53.20 and R57.80. Stop is a close below R46.30.
And NOW we'll stand pat
***********************************************************************************************
February 25th
Another bearish candle saw the T40 breach the channel floor intraday but the bulls managed to rally the market off the 42,000 support level and the index closed well off its lows back inside the channel. The daily stochastic remains pointing firmly downwards though and buyers will need to force the follow through on this bounce firstly through the 43,000 and then the 43,400 levels. Its critical that the bulls not falter here for the channel to hold its shape.
Alternatively, a move back down to breach the channel floor and the 42,000 support level could open the door for further downside.
For now we will respect the 42,000 support and any short setups will need to be capped at that level. Conversely any longs will be capped at 43,000 unless this level is breached.
***
Not the best intraday performance yesterday with a 3xR nett loss. The main issue this week has been our overnight positioning where we've missed some profitable opportunities. We need to develop some better consistency in setting up these positions and then executing on them. The point has been made in this blog that very often profits foregone tend to be more frustrating than losses incurred and that has certainly proven to be the case this week.
***
An unfortunate missed entry on BIL after the stock gapped down was another example of profits foregone and following some strongly positive moves on the balance of the portfolio, we now find ourselves with open downside risk of some 4.6% (4.3%) which is perfectly fine. However, our RaR - which were looking to supplement with the BIL entry has now dropped off to 0.89 (1.77) which is below our threshold. What this essentially means is that we are too heavily exposed to risk relative to the potential return we can generate and at the same time our short-side exposure remains too high. To remedy this we've identified a long-side setup on SAP for potential entry today:
It's not been long ago since we attempted a similar setup on SAP which we stopped out on when it failed to follow through. But with the setup conditioning again aligning, this remains one of the more resilient stocks on the market and so provides fairly rare long-side exposure against the backdrop of a falling market.
With the 21 day EMA still above the 89 day EMA on a daily and weekly basis, we regard the longer-term trend as being bullish. Price had flushed below the 89 day EMA but with the painting of yesterday's bullish candle, it managed to close back inside the 'buy zone' between these moving averages. The stochastic remains oversold but has now crossed up above its signal line.
We'd look to enter on a break of yesterday's high at R63.07 with a stop in as a close below R59.18 and upside targets at R79.40 and R84.70 as indicated yielding a 4.9-1 target reward-risk outcome.
****************************************************************************************
Alternatively, a move back down to breach the channel floor and the 42,000 support level could open the door for further downside.
For now we will respect the 42,000 support and any short setups will need to be capped at that level. Conversely any longs will be capped at 43,000 unless this level is breached.
***
Not the best intraday performance yesterday with a 3xR nett loss. The main issue this week has been our overnight positioning where we've missed some profitable opportunities. We need to develop some better consistency in setting up these positions and then executing on them. The point has been made in this blog that very often profits foregone tend to be more frustrating than losses incurred and that has certainly proven to be the case this week.
***
An unfortunate missed entry on BIL after the stock gapped down was another example of profits foregone and following some strongly positive moves on the balance of the portfolio, we now find ourselves with open downside risk of some 4.6% (4.3%) which is perfectly fine. However, our RaR - which were looking to supplement with the BIL entry has now dropped off to 0.89 (1.77) which is below our threshold. What this essentially means is that we are too heavily exposed to risk relative to the potential return we can generate and at the same time our short-side exposure remains too high. To remedy this we've identified a long-side setup on SAP for potential entry today:It's not been long ago since we attempted a similar setup on SAP which we stopped out on when it failed to follow through. But with the setup conditioning again aligning, this remains one of the more resilient stocks on the market and so provides fairly rare long-side exposure against the backdrop of a falling market.
With the 21 day EMA still above the 89 day EMA on a daily and weekly basis, we regard the longer-term trend as being bullish. Price had flushed below the 89 day EMA but with the painting of yesterday's bullish candle, it managed to close back inside the 'buy zone' between these moving averages. The stochastic remains oversold but has now crossed up above its signal line.
We'd look to enter on a break of yesterday's high at R63.07 with a stop in as a close below R59.18 and upside targets at R79.40 and R84.70 as indicated yielding a 4.9-1 target reward-risk outcome.
****************************************************************************************
February 24th
And an early break of 43,400 put us solidly into the bear zone yesterday as a solid downward candle painted on the day. On an intraday basis, the 43,000 level offered some support but that level eventually capitulated as well and we now look set for a move towards the bottom of the channel floor and with the stochastic still having plenty of falling room, we could also start eyeballing further downside towards the major 41,500-42,000 zone.
The bulls need to pull a rabbit out of the hat to catch this market at the moment and this would need to start with some form of consolidation action above 43,000 and then 43,400. Failing this we could see a bounce off the channel floor.
On an intraday basis we maintain our short bias as we look to a potential channel break being on the cards.
***
On a nett basis yesterday's intraday trading saw an accumulation of 1.6xR profits. A bit disappointing not to have followed through on some positioning that was in place but still comfortable with the momentum coming through in this space as we move towards the month-end.
***
From a portfolio perspective, we' managed a long entry at R128.67 into RES as planned yesterday and we also scaled back on our SUI position taking 50% of the profits off the table. The rationale was around the fact that with all the bad results now out in public, the further catalysts to downside in SUI were reduced - although we are comfortable holding the balance of the position with a profit-locking stop in place - and that we needed to open up some capacity for fresh positions.
Overall, our downside risk exposure has now increased to 4.3% (still well within our threshold) at a potential reward-risk of 2.8-1 (previously 4.8-1) and our RaR has dropped to 1.77 (2.63). To bolster these a setup which came across the table is a short on BIL:
While this stock, along with resources generally have been starting to move off their lows lately, the overall trend on BIL remains down. We can also see how the stochastic has moved into overbought territory and has now started to reverse with a cross below its signal line. Yesterday, post-results, a thick bearish engulfing reversal candle was painted in the sell zone between the 21EMA and 89EMA. All of this is a recipe for a short setup with an entry on a move under R161.31 with a stop in as a close above R173.71 and downside targets of R136.50 and R126.50 yielding a 2.4-1 target reward-risk level.
From an overall portfolio perspective, entry here may necessitate some more balancing during the course of the day as our downside bias is still marginally overweight and while this isn't a critical concern as the market continues to fall, we'd not want to be as heavily positioned as we start hitting oversold territory - regardless of the bearish trend in place.
********************************************************************************************************
February 23rd
A rather uninspiring attempt at a rally materialised yesterday as the T40 managed to eke out a small gain. The shape of the candle however suggests that the bears had the last word as the market ended down on its intraday high. All-in-all it was a relatively tight-range day though as the stochastic continues to worm its way down.We remain above the 43,400 level for now but this level needs to hold today to prevent further downside towards 43,000 and the bear channel floor at around 42,400.
On balance we again will favour the short-side on an intraday basis especially below 43,400. Broadly we'd look at the 43,400 to 44,000 as the consolidation zone, below 43,400 as a zone where the bears have control and the bulls would need to regain 44,000 to put in a case for further upside.
****
Yesterday's intraday action was fairly slow and after a late US rally triggered a number of stop positions, we ended up eking out 0.1xR profit for the day - pretty much a break-even performance.
****
On the portfolio we had an end of day stop out on our SAP long position for a 1xR loss as the trailing stop was triggered and overall open downside risk is now at 3.0% with a 4.8 potential reward-risk. Our RaR decreased marginally to 2.63 (2.72) and with us a bit heavy on the short-side exposure, we identified another long setup to add into the mix to balance things a bit more and to bolster the RaR:RES has had a good run since mid-January and on 15 Feb it managed to generate a 3LB above its previous swing high close achieved in November 2014. This was confirmed yesterday and we would now look for an entry at around R127.18 with a stop in as a close below the previous swing low at R122.00. We are looking for projected targets at R134.50 and then R144.00 yielding a target reward-risk of 2.33-1
*******************************************************************************************************
February 22nd
The T40 actually had a positive week but ended substantially off its high watermark as can be seen by the long wick on the weekly candle. The stochastic now appears to have peaked forming a higher high and again, similarly to last week, the market would need to put in a massive effort to surpass the 45,000 last week's high to prevent the emergence of a negative divergence lower high price peak in the medium-term. Also, slowly but surely the negative crossover of the 21 week and 89 week continues to approach as price remains below the 89 week EMA.
On the daily chart, we can see the overbought stochastic starting its move down again following Thursday's reversal candle and the follow through with Friday's bearish move with bearish divergence.
There appears to be some momentum behind this move and the expectation is for follow through to the downside in the new week. However, it worth noting that its not all necessarily a straightforward down-hill run from here. There are support zones and levels along the way down and the T40 could see some early week support off the 43,400 and the 43,000 levels as a starting point. (Again we must also bear in mind the potential for a late month rally as this has been the norm over the past few months as we noted last week)
But on balance, we will start the week with a bearish bias and consequently our focus will be on maximising exploitation of short setups - particularly below the 43,000 level with an eye on the major support zone between 41,500 and 42,000.
***
The CFD portfolio as at the end of last week now has 3.7xR open downside risk with a 4.1xR potential reward-risk. The RaR has also improved to 2.72 (2.27). Being well-positioned in this way is allowing us to explore another short setup on VKE which actually came online a few days back but now provides an even better entry opportunity for a smallish position which is very complementary from an overall portfolio perspective providing an attractive risk and reward proposition:
********************************************************************************************************
Subscribe to:
Posts (Atom)