Forum Archive Index - May 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus,


>
> 
>I give up! 
> 
>All I was trying to do was pick a good entry 
>point into this stock. 
> 
>I thought I did quite well.
> 
>Silly me!, Phaedrus.
> 
>
>


Not like you to give up so easily Phaedrus!   I am not saying that 
the chart constructed as I have proposed would necessarily give you a 
better or a different decision to yours.  I'm not saying that your 
entry point was wrong.  I *am saying* that if your chart better 
reflects the real picture of the shares you are trading you are 
likely to make better decisions in the future.

For the record I would like to wrap this up, which I will now do.

Sure you got a good entry point into AUO, but you didn't buy in at 
45c did you?    So I don't think you can make a case that there were 
not two markets operating during the period that the new shares were 
being issued.   If you accept that there were indeed two markets for 
the shares at that time, then what follows is the natural consequence 
of that.  

>
>
>>
>>*So here is the point I want you to ponder.*
>>
>>If you agree that all AUO shares are now the
>> same, THEN:
>>
>>How can you look back on the AUO chart 'that 
>>has been' and 'know' that those shares you now 
>>own followed the price trace on your chart, 
>>*which only applied to the pre-existing shares*?
>>
>>

What was the purpose of my asking you this question?  I wanted to 
make you realise that the share chart you are using based on end of 
day quoted prices *is not representative of the shares (the mixed 
basket of new and old shares) that you bought in May*   
Because of this, the medium term trend lines and long term trend 
lines you draw that go outside the period 22nd February to the 
present are liable to contain considerable inaccuracies.  This may or 
may not matter to your decisions.  It won't affect turning points in 
share price trends from now on - true.  But it will affect what you 
see as long and medium term trendlines.  If you use long and medium 
term trendlines as part of your decision making then you definitely 
have a problem if you ignore this issue.

In many case you can get away with ignoring the issue of a 
share placement because the number of new shares issued is so small 
relative to the total already out there.  But this is not the case 
with AUO (or AIR).   You say you are only interested in what the 
market is telling you, rather than the reasons behind why things 
happen.  That's fine, but why do you not stick to this principle?   
You are happy to accept what the market in the public domain is 
telling you, while ignoring what the second market that runs parallel 
to the first is telling you.  You can stick an ear plug in one of 
your ears if you like.  But don't blame anyone else if you only hear 
half the story.

Nick is saying that the falling wedge formation in the share price 
that you observed in the publicly quoted market after the share 
placement was announced is a natural consequence of the new shares 
being issued.  In the same way the jump in price of the new shares 
being issued at 45c to around 55c is a natural consequence of the 
same event.  You can choose to look at only one of these concurrent 
events if you like.  If you look only at the publicly traded 
market then you will see the falling wedge pattern.   But it is only 
when you see the combined effect of both charts added together that 
you will see this falling wedge pattern is not real.  Or as Nick put 
it, what you see is simply a natural consequence of the share 
placement.

So where to from here?   You can choose to ignore this and continue 
to trade as you have always done - not a bad option.   After all, 
there is every case for choosing the simplest tools you need to get 
the job done.  Complication has no merit in itself, unless you see it 
offers some benefit.   Your other option is to choose to sharpen your 
charting tools and use the method that I describe in my long rambling 
answer to Gerry (the one that no-one read) to see how to overcome the 
share placement problem.   It's your call and I won't lose any sleep 
for myself nor respect for your strategy and discipline whatever path 
you choose.  I think this is all I can usefully say on this matter.

Regards,

SNOOPY



---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



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