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ASX Investor Update
June 2012
more information


Bargain buys?

The June 2012 edition of the ASX Investor Update newsletter featured an article from Robert Brain with reviews of four stocks: CBA, TLS, WOW, WAN.
Here is more information to supplement the article, including larger charts,
and a special offer for Investor Update readers.
You can see an archived copy of the full article here...
Please read on for more details...
 

Introduction

The day-to-day and week-to-week performance of companies in the share market depends on the underlying mood and sentiment of all the investors and traders who participate in the market. And this sentiment may, of course, be influenced by fundamental data. When a company's share price rockets upward, or dives downward, it is because enough of the market participants have a strong enough view of the stock, or of the market generally, to cause the share price to move.

The underlying sentiment of market participants is reflected in the share price charts, and in the volume bars on the chart, and in the relative height of candlesticks on a candle chart, and the presence and length of tails on the individual candlesticks. And successive days or weeks of price movement can form patterns on the chart which also reflect the underlying market sentiment.

It is the emotions of fear, greed and hope which drive share prices (in addition to fundamental data), all of which are reflected in the price charts. The field of Technical Analysis is the study and interpretation of the price action of financial instruments and the “statistical prediction” of future behaviour. In Technical Analysis there is a substantial body of knowledge ranging from price charts (described here) to complex mathematical and computer studies. In the case studies below we look at the key concepts of trends, support/resistance, and the capital protection tool known as the Stop Loss.

Trends

A company's share price fluctuates up and down as people's views change from a perspective of over-sold (i.e. cheap) to over-bought (i.e. expensive). Over time, we would all like the share price to tend to rise, resulting in an increase in our investment capital.

The concept of a trend is a very important principle in this regard. An uptrend is defined on the price chart as a series of higher peaks and higher troughs, and once a rising trend is in place, it is considered to remain until it is confirmed to have finished. Hence the saying “the trend is your friend”. Once a trend is established, the statistical probability of it continuing is well proven.

Conversely, a downtrend is a series of lower peaks and lower troughs on the price chart, and is considered to be in place until it is confirmed to have finished. So we should not be buying a stock while the share price is in a downtrend — often this would be buying on hope rather than evidence. Those with some wisdom might tell us to buy a stock while it is cheap; but we need to understand that it might get even cheaper. There were many examples of this in 2008.

Read more about trends...

Stop Loss

The principle of the Stop Loss is that we identify a price level on the chart below which we believe the stock should not trade, or below which our loss will be more than we want to bear. If the stock does trade below this level, then we should sell the stock to limit any losses, lock in any profit that we might have earned, and to preserve our investment capital.

One precaution that we should take is to set our Stop Loss a little bit below the obvious Stop Loss level. Many investors might choose the same price level for their Stop, in which case we should have our own Stop a few cents further down. Sometimes the price can spike low during the day or week to take out the obvious Stop Loss positions, and then return to a rising trend.

How do we determine where to place our Stop Loss level? Within Technical Analysis theory there are many approaches for this, with only one simple approach described in the text below.

Read more about stop loss...


The June 2012 ASX Investor Update

For the text of the article, and initial price charts, see the ASX article here...
Also see (and download) a PDF version of the original contributed material here...
And larger versions of the charts are included below.

The Investor Update charts

Commonwealth Bank (CBA)

Commonwealth Bank (CBA)
Commonwealth Bank weekly line chart - September 2011 to 2012
(click on the chart for a larger image)

Woolworths (WOW) (with regular linear price scale)

Woolworths (WOW)
Woolworths weekly line chart - 2000 to 2012
(click on the chart for a larger image)
 
COMMENT: Notice the key difference between the above chart of Woolworths, and the one below.
The upper one uses the conventional linear vertical price scale, while the lower one uses a logarithmic vertical price scale (hence the lower chart is a semi-log chart). The semi-log chart can be better as it better indicates the percentage changes in price over time. With the linear scale above, the price jump in late 2007 seems to be rather over-done; but in the log version below we can see that the percentage change in price is only about twice that of the earlier moves (perhaps still over done?).

Woolworths (WOW) (with logarithmic price scale)

Woolworths (WOW)
Woolworths weekly line chart - 2000 to 2012
(click on the chart for a larger image)

Telstra Corporation (TLS)

Telstra (TLS)
Telstra monthly line chart - 2000 to 2012
(click on the chart for a larger image)

Telstra (TLS)
Telstra weekly line chart - 2011 to 2012
(click on the chart for a larger image)

Qantas (QAN)

Qantas (QAN)
Qantas monthly line chart - 2006 to 2012
(click on the chart for a larger image)

Qantas (QAN)
Qantas daily line chart - 2011 to 2012
(click on the chart for a larger image)

More Information?

Want to understand more about how to interpret the price charts? See the details at top right...
To print this web page - in your browser select the printing option "Shrink to fit".
View larger versions of the charts below by clicking on the chart.

More information

To understand more about how to interpret the underlying mood and sentiment using the price charts:

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Last revised: 28 May, 2015.