[ E-mail correspondence regarding DTOP and other matters ]
Al, thank you for letting me post our correspondence regarding DTOP.
Note: items not relevant to the analysis have been edited out
The inquiry:
Date: 98-01-10 16:33:12 EST
From: *-*-*-* (Alan R. Greenleaf)
To: ETr8der@aol.com
I have enjoyed your analysis, and wonder if you would take a look at two stocks that seems to be moving into an uptrend, but with very different charts. I would also like to know if you think my analysis is reasonable so far.
First, DTOP: 8 5/8
Long term downtrend broken on 7/1/97.
Mild uptrend defined by lows on 4/24/97 and 12/19/97.
OBV climbed above it's LT 90 dma on 12/30/97 and has stayed above it.
LT MACD 13,34,89 crossed over signal line on 12/30/97 and crossed zero on 1/5/98
LT Stochastic 55,21 crossed it's 21 dma on 12/30 but has not yet crossed 20
Volume has NOT increased appreciably.
The lowest low since April was on 12/22/97 and was followed by a higher low on 1/6/98
Moving averages: 10 is above 20. 20 is now crossing the 30 to the
upside. 10 and 20 are still below 50 and 50 is below 130 pma.
Short term indicators:
Stochastics 13,8,8 is around 70 and looks to be turning down.
MACD 12,26,9 is way above signal and is above zero.
RSI 14 is right at it's 19 dma.
MoneyFlow turned positive on 12/22/97 for the first time since 8/12/97.
Our new trendline from 4/18/97 to 12/11/97 says support is at 6 1/2,
recent high is resistance at 9 1/4, then 12mor so.
Bollinger bands are expanding with the central 20 dma forming IT'S
support at about 7 5/8, band resistance at 9 5/8 to 9 3/4.
Trailing PE is about 21.
Strategy: Wait for pullback and new turn that brings ST stochastics
down, then points it up, likely at one of the two supports mentioned
above. Do you agree? When would YOU buy this?
The second one is LTI:
Last uptrend formed by close on 4/16/97 and 7/1/97 (the sustainable one). Most recent trendline from 7/21/97 to 1/6/98. Basing pattern after rapid rise broke all uptrend lines associated with that rise.
Three month basing period formed slight downtrend that was violated to the upside on 1/7/98.
OBV has been above it's 90 dma since 6/11/97 except a brief dip under on 1/5 and a recovery on LT on 1/8/98.
MACD 13,34,89 has been above zero since 6/6/97 except for a brief dip 11/11/97 and recovery 11/28/97. It is currently above signal line and above zero.
LT Stochastic 55,21 crossed it's 21 dma on 12/16 and is now 60 or 70.
Volume has been greatly increased for the last 5 days, , and for the last three days it has grown daily and has been accompanied by rising prices.
The second-last low was 11/2/97 with a higher low on 1/2/98.
Moving averages: 10 is above 20. 20 is above 30, 30 is above 50 they
are well above the 130 pma.
Short term indicators:
Stochastics 13,8,8 is around 35 and is pointing up and is above it's ma.
MACD 12,26,9 is way above signal and is above zeroand less than recent past highs.
RSI 14 is above it's 19 dma at about 80.
MoneyFlow is negative but improving.
Our new trendline from 11/19/97 to 1/2/98 says support is at about 31 1/2, and there is no resistance, as it is at new highs.
Bollinger bands are expanding with the central 20 dma forming IT'S
support at about 33. Price has been above the 2/2 bands for two days.
Trailing PE is about 9.6.
Strategy: Wait for pullback and new turn that brings price into the
bands, then turns up again, likely at one of the two supports mentioned above. Do you agree? When would YOU buy this?
Do you LIKE these two?
My response:
Subj: Re: DTOP and others
Date: 01/12/98
To: *-*-*-*-*
...For now, I am uncomfortable with only a half-sided analysis of a stock, which is what a pure-TA approach is. The fundamental picture needs to be considered as well, for I believe the long term price action of a stock is dictated by fundamental analysis, not technical analysis alone. I suppose I would get that from my Peter Lynch/Warren Buffett training...lol.
We don't want to be put into a stock if it is to trade sideways for an indefinite period of time. Since the time value of money-concept is present, there could potentially be some opportunity costs if we were to be trapped in such a sideways-trading stock. Therefore, I would first like to look into the current and future prospects of the company's fundamentals to see if a rising valuation would indeed be justified and in the waiting.
On a quick note, it is encouraging to find that DTOP has indeed bottomed out. In fact, it could be in the process of forming a pattern called a Double Bottom. A close above 12 would be encouraging, but the price action on 10/16/97 would make the potential for true breakout to be questionable at best. DTOP appears to be breaking out of a Bullish Flag, which would make the next trading week an interesting time to follow this stock. There is an Inverted Hammer, however, as of the last trading day whose interpretation could be read either way(bullish or bearish) depending on the relative position one assigns to the pattern. Indicators are currently bullish. Resistance exists at 9.75 and 12.
Al's follow-up:
Subj: Re: DTOP and others
Date: 98-01-11 20:30:38 EST
From: *-*-*-*-* (Alan R. Greenleaf)
To: ETr8der@aol.com (ETr8der)
Hello again Rainier!
RE: DTOP, I have been reviewing the chart and have been thinking about:
1. A DTOP move from 8 1/2 to 12 would be fine with me, and it seems likely(since you agree that it has bottomed), so why not buy it earlier?
2. What was it about the Doji on 10/16 that makes a real breakout unlikely?
My response:
Subj: Re: DTOP and others
Date: 01/12/98
To: *-*-*-*-*
Hi Al,
I would like to answer your questions in reverse order:
"...2. What was it about the Doji on 10/16 that makes a real breakout unlikely?"
If you review the email message I sent you, you will notice that you have interpreted my wording to incorrectly assume an unlikely breakout based on the doji on 10/16/97. What I did say was that the 10/16/97 action would make a breakout questionable. Questionable because on a daily bar chart, the true boundaries of the daily fluctuations are different than when compared to that of a close-only chart. On a close-only chart, a close at 12.5 would be seen as a breakout, but would it really be able to spark a rally that could carry it further upward?
The true height of the overhead supply lies at 13.125, as evidenced by the High of the trading day on 10/16/97. When some traders tried to create a breakout past 12, the stock quickly became active and reacted against the rally to create that Doji. Note that the volume for the day was 10 times the average volume. If it were to try and break out past these levels again, one cannot be certain that the selling pressure would not again make itself present.
And for the next question:
"...1. A DTOP move from 8 1/2 to 12 would be fine with me, and it seems likely
(since you agree that it has bottomed), so why not buy it earlier?"
I agree that it has bottomed, but I did not imply that a move to 12 would be likely, at least not anytime soon if all we were considering were the fundamentals. It can happen, but based on the reports of the fundamental outlook that I am currently reviewing, and the value-perspective that I hold, I wouldn't pay current prices for this stock for at least two quarters. In addition, the market environment is unhealthy. I am trying to take the broad market trend into consideration when I open a position. However, since the market is a discounting mechanism, it could be anticipating (as shown by the potential double bottom being formed) better than expected forecasts.
There is a very real possibility that I would be left out of a rally if the fundamental outlook were to catch up too late to the technical outlook, but I would compromise my discpline if I acted on a trade without first having coinciding signals from both the FA and TA perspective.
...and another inquiry:
Subj: Re: DTOP and others
Date: 98-01-11 22:50:13 EST
From: *-*-*-*-* (Alan R. Greenleaf)
To: ETr8der@AOL.COM (ETr8der)
Yes, I agree that the resistance is higher in reality that a chart based on the closes would suggest. In fact there is overhead resistance from 10/1 and 10/28 that would limit any significant move to 10% or so, so maybe this is not so great a pick.
I guess what I need is to be able to learn how to look at fundamentals in such a way to make a conclusion like the one below. I subscribe to Zacks, and can get S&P or Baseline reports through my broker. I see that the Price-to-sales range is 1 to 13.7 and it's 1.85now. Price-to Cash-flow range is 7.8 to 64.3, and now it is 17.4. So far, so good. (These are 5-year ranges) PE range is 9 to 84 and currently is 21.9. First Call says 0.28 earnings in '97 and 0.35 in '98 (25%). This information tells me that I'm probably looking at the wrong information! What should I be looking at that would tell me that the stock is not going to worth current prices for two more quarters? What will happen in two quarters? What else should I be looking at?
Response:
Subj: Re: DTOP Valuation
Date: 01/12/98
To: *-*-*-*-*
Hi again Al,
As I can potentially go through hundreds of stocks in a week, I very often have to make quick judgments about a company's fundamental outlook. Baseline allows me to get just that in one quick look, subject of course to calculation and cross references from other sources like Market Guide or Zack's, or any other decent investment service. The main development that I found unattractive with DTOP for the next two quarters was that its earnings were projected to decline. To a growth/value investor like myself, I see little value in holding stock of a company that is projected to have earnings shrink. In the meantime, I can figuratively ride a fresher horse.
Based on future growth expectations from the end of the fiscal year for DTOP, it will have an approximate "fair value" of $7, almost 20% below the current market price.
Don't be quick to discount the usefulness of the services you are currently using. They are very good, and will allow investors to make sound investment decisions, if used properly and in conjunction with good common sense : )
And upon asking for permission to post our correspondence:
Subj: Re: DTOP correspondence
Date: 98-01-12 09:03:22 EST
From: *-*-*-*-* (Alan R. Greenleaf)
To: ETr8der@AOL.COM (ETr8der)
Rainier - Of course you can post our correspondance on the R/A thread. Feel free to edit out failed humor breakouts, or anything else. While your emails have been most instructive, you always leave me with a question:
You explained the 10/16 price action with great clarity, then said fair
value was $7. Now I have to ask"how did you get that fair value?". I hate to bug you but this sounds important. VectorVest? Also, what did you think of using LT stochastic, LT macd, and OBV with 90 dma to identify a change in longer term trends?
My response:
I didn't write one. I'm hoping to complete the response sometime tomorrow, now that my short term projects are finished.
I hope the readers have been able to learn something from this conversation.
Regards,
Rainier |
