Forum Archive Index - April 2002

[Phaedrus <Phaedrus@techemail.com>]

 I received the following comments by direct email - the answers may be of some 
interest to others.

<<<< I have been trying to look for a correlation between how the market 
behaves in relation to the company fundamentals and charts. >>>>
 Good luck to you. I have given up expecting the market to react rationally to 
fundamental information. How many times have you seen a share price fall on 
good news, or rise on bad news? All too often. This is usually "explained" by 
statements such as "The profit increase was less than the market expected, and 
the share was sold down heavily during the day....."  The market is full of 
stocks that any rational analysis would define as grossly undervalued or 
overvalued. They can (and do) stay that way for years. Logic does not always 
prevail, especially in the short to medium term. 

<<<< Have you looked at FBU's fundamentals and do you see anything in them that 
might have triggered the volume/price activity we have just seen? >>>>
 Yes, I have looked at FBU's fundamentals, and no, I am unaware of anything 
that may have triggered the recent activity. This is not my area of expertise 
though, and others that follow this stock more closely than I may be aware of 
some new information.
 
<<<< I'm a long term Buy/Hold investor. I am also very aware of the markets 
massive mood swings and how they might help me and give me an opportunity to 
top up my holdings as opposed to sell out to make short term gains. >>>>
 This is a fairly simple problem. If the stock in question is not in a trend, 
all you need to do is add to your holdings whenever a suitable oscillator gives 
a buy signal. These will all be relatively good entry points (as opposed to 
looking for the BEST entry point, which is of course much harder). For FBU, the 
best oscillators are (in order) RSI Relative Strength Index, CMO Chande 
Momentum Oscillator, and RVI Relative Volatility Index. I have plotted the 
Buy/Sell signals from a few common oscillators on the attached chart of FBU. I 
am sure you will agree that they all mark good entry points (and exits, should 
you need to free up some cash up at any time). 
 Used alone, the RSI (unoptimised, using default values) has signalled only 6 
trades in three and a half years, though I understand that this level of 
activity is unacceptable to you. These six trades gave a total profit of 186%, 
as compared with the 20% buy/hold gain. I would argue that this was also with 
much less risk, in that you would have been out of the market for 60% of this 
time.
        Regards,
                  Phaedrus.

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