Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: STOCKGURU who wrote (4934)	1/19/1998 10:19:00 PM
From: Chris	Respond to of 42787

stockguru (great name): i generally agree with your post... let me add a couple thoughts: 1) for buy/selling purposes, shouldn't you worry about the price forecast now rather than the price projection for 1999? when you're looking for a entry point, it's the price now that you're conerned with. as you know XYZ price forecast of $70, doesnt mean it will go there in a straight line and even right away. TA will let you know when XYZ will rally... thus allowing you to allocate $$ when it rallies and switching over $$ to other stocks that are rallying while XYZ bases. 2) TA can tell you mkt conditions and possbily forewarn a correction (which did for oct 28 and hang seng crash (my chart)) 3) objectivity... if you look at too many factors (external), then who you going to believe? 4) dont fall in love with a stock: getting caught up with the workings of the company will lead you to emotional attachment and the common phrase "i believe in the management" gotta go eat dinner.. enjoyed your post and i hope everyone knows there is no right/wrong answer. it's what YOU believe in and the ability to use the TOOL effectively.. I know a great friend named Sonki that knows no TA but still makes great trades... <g> best of luck and hope to hear more from you.. Chris Chang

To: STOCKGURU who wrote (4934)	1/19/1998 10:45:00 PM
From: Chris	Read Replies (1) \| Respond to of 42787

excellent post on FA by Rainier Subject: The Rational Analyst \| Previous \| Next \| Respond \| To: Al Greenleaf (177 ) From: Rainier Trinidad Monday, Jan 19 1998 10:39PM EST Reply # of 247 [ Growth Valuations ] Hi Al, Thanks for being patient on the valuation question. I use the basic premise that an approximate "fair value" for a stock is one with a P/E ratio that is in line with its future projected growth rate. If it's going to grow by 20%, then a P/E of 20 would be a rough approximation of a "fair value" for that issue. With this in mind, it becomes important to understand what the projected earnings are for future periods, and the relative position of the current quarter to the company's fiscal year. Let's say a company is projected to have in 1998 cumulative earnings of $1.35 per share, with a Trailing 12 month EPS of $1.12, and earnings are growing by 20.5%. Also, we know from analyst projections that in 1999, the company will be expected to grow earnings by another 20%, for a cumulative per share earnings of $1.62. From this data, I can roughly project an annualized growth rate from the first quarter of 1998 to the last quarter of 1999. From that growth rate, I can look ahead and assign a fair P/E multiple to that company. The reliability of the projections depend of course on the analysts who create them, the company's history of meeting or exceeding estimates, and various economic developments. This brings me to another subject that I wanted to touch upon: Very often, a not-too-knowledgeable investor will scoop up shares of a company for the sole reason that it has a depressed P/E ratio. He or she might think, "Wow! I'm getting a stock for only 7 times earnings! What a steal!" What that poor fellow or fellow-ette doesn't realize is that the company had lost, and had been continuing to lose, major contracts to more nimble companies who have been outflanking the company in every category. Where is the growth? It could very well turn out to be 0%, or even negative. Where's the value in all of that? The important point here is that one needs to understand the context under which the company is experiencing a low P/E ratio. Quite often, companies will have depressed P/E ratios because their projected earnings growth is either null or even negative. What we need is a reference point to establish whether or not that P/E is "cheap" or "expensive." And what can we use? The projected growth rate! Putting the two side by side, we can judge whether or not a stock is cheap relative to its growth rate. To make an analogy, let's look at two drivers: one is driving 45 miles an hour, and one is driving at 65 miles per hour. You may think that the 45 MPH driver is slow, and that the 65 MPH driver is fast, but you need to look at the context in which they are driving. If the 45 MPH driver is doing that in a residential zone, you know that he or she is going way too fast for one's safety. Also, if that 65 MPH driver is doing that on the Autobahn (the German expressway), then he better get out of the way for other drivers who are zooming past 100 MPH. The point here is that the entire context must be understood! Just having a low P/E ratio does not mean that the stock is a good value. We need to understand the P/E relative to its future growth rate. If you don't, you can buy a stock that's figuratively going 65 MPH on the Autobahn. That's not a good value. Hope this helped. Regards, Rainier

To: STOCKGURU who wrote (4934)	1/20/1998 12:04:00 AM
From: Robert Graham	Read Replies (5) \| Respond to of 42787

This is not an accurate view of tehcnical analysis. Unfortunately, many technicians work from this viewpoint. Technical analysis is really not about predicting the future price of the stock. It is about assessing probabilities and inclinations of the stocks future movement based on what is occuring in the present time, which also involves what had lead up to the present time. This relationship between the present and future is not necissarily as directly related as A + B = C. This is where experience is helpful. For there may be what appears to be conflicting indications that have to be appropriately weighed in order to arrive at a decision. So the past does not need to directly relate with the present and future, even though there usually is a connection here. For instance, it is possible for a stock to just sit there not doing much of anything for a good part of its past. But a time can come where there can be seen evidence of accumulation which seperates it from its past. Because accumulation can lead to price appreciation of the stock in the form of a trend. This price action when it comes alive can attract other players,which will be revealed also be their "footprints" in the price action of the stock. This price action will form a type of basing pattern. If the demand for the stock increases as the result of this accumulation, the price of the stock will end up breaking out of this basing pattern into a trend that will last for a period of time. Through furthe application of TA, the technician can get an idea when the trend is slowing down and the goes into a consolidation patter (original purchasers are taking their profits). If the demand for the stock is not there during this distribution phase, the stock can end up moving into a correction which can retrace part of its previous uptrend. Applying this to a specific situation, suppose two companies were in merger talks that are suppose to be "secret". As soon as a deal is struck, some insider lets this news tidbit slip to an "outsider". That outsider calls their stock broker and starts purchasing shares in an agressive way. After all, it is just a matter of time before everyone find out about this deal. Meanwhile, other people are told about this "opportunity", like those hair dressers in that "Barbarians at the Gates" movie that was on television. This causes unusual activity on the stock's price. This unusual activity attracts others who make it their business to follow stock which encourages them to start moving their money into this stock. The technician sees on his chart that something is up and then is eventually able to determine that strong accumulation is being made of this stock. So when enough interest grows in the stock to support the likelihood of higher stock prices, the price of the stock will indicate this by breaking out of its basing pattern and starting a trend. This "rings" many technician's "bells" where they start moving into the stock. So as you see, technican analysis need not have anything to do with "cycles" and other predictive tehcniques that are derived from the stock's past. And TA is more of an art of tracking stock then of predicting where it will be tomarrow. In some ways it is like following a puppy dog around a house. After a while, you end up being able to get an idea of where the dog will go next by seeing what attracts it at a give moment, and also part of this is understanding its behavior patterns that can render what it is next inclined to do predictable to an extent. Sometimes you are 1/2 of a step ahead of the dog, other times 1/2 of a step behind, and there are times when you may not have a clue where the dog wil go next. This does not mean that TA does not work for the long term. By being able to help the tehcnician assess the probabilities, the technician can follow the stock until it looks like the stock is showing signs that a correction is likely. Once the stock's price action confirms in some fashion this prognosis, then the technician can respond by exiting the stock. Those who are watching the stock without having TA as a tool may see the stock taking a momentary pause. After all, the price went up this far, why should it not go further, right? Wrong! The stock then can start the retrace of its previous uptrend. The signs were there, so the technician is already out of the stock. Those who are still on this "train" are thinking: "the stock will turn around any time now". After the stock moves down further, they start thinking: "I cannot take this loss. I will have to wait fot the stock to move back up here". And so forth. Also, markets themselves have "patterns" as money moves from sector to sector in response to the changing economy and the business cycle. What can happen after the stock has been in a downtrend for a period of time is that it can stop its downtrend, "regroup" by basing once again, and then start an uptrend. If this were to happen lets say after a few months have went by, guess what will happen if this stock were to reach the price where it started its original downtrend? By that time, there are many traders that became investors who are still holding onto the stock and are ready to sell at break even. They begin to sell when the stock comes back to them in price. This creates what technicians refer to as a resistance level. Here is where some technicians can choose to reenter the stock when the price action is showing the likelihood that the stock will continue its recent uptrend. This is where those traders who became investors are more than willing to give their shares over to that technician who actually sees another profit opportunity. So goes the stock market: traders chasing after their vision of success which turn into memories of missed opportunities and losses. Bob Graham