Forum Archive Index - June 2002

[Phaedrus <Phaedrus@techemail.com>]

Donald,
       Technically, RMG is currently OverSold. This means that right now would 
be a bad time to sell. You have lost about 70% of your initial investment - 
selling now is shutting the stable door after the horse has bolted. In fact the 
smoothed RSI oscillator in the attached chart is on the verge of showing a Buy 
signal, by rising up above the 30 level. The question is whether you should buy 
or not. While the idea of averaging down may carry some measure of 
psychological comfort, it is generally a bad idea, and best avoided. There is 
only one good reason to buy RMG. That would be if you believe that it 
represents the very best buying opportunity available in the entire NZ market 
right now. My advice therefore is to Hold.

  Donald, this has been a disastrous investment for you, a big mistake. We all 
make them. The important thing is to learn from them. So, what can you learn 
from this, so as to avoid a similar thing happening again?
 (1) If you bought some time in the last ten months, you bought while RMG was 
in a confirmed downtrend. Don't buy stocks that are in a downtrend.
 (2) If you bought prior to August 2001, you would have held this stock, 
ignoring a clear trendline break sell signal, and holding regardless of a 
developing downtrend. RMG had gone from 17 to 37 in about 4 months. The 
trendline break sell signal gave an exit at about 33 cents. Nothing goes up for 
ever. Monitor your stocks with a view to selling. Lock in your profits by 
selling when the trend moves against you.
 (3) Over the course of the last year or so, this stock has found good support 
at 22/23 cents. In fact, prices have bounced off one or the other of these 
levels 8 times in that period. So, when prices closed below both these levels 
for the first time in a year, alarm bells should have rung. Loudly. You had 2-3 
days to get out at 21, and if there was any doubt at all, this was dispelled 
when the next close was at 19.5. The lesson? Pay close attention to 
support/resistance levels - they really do mean something.
 (4) Consider the use of Stops if your broker supports them. A good place for a 
Stoploss is just under a confirmed support level.

       Regards,
                 Phaedrus.

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