Getting into Cascades

chartimageCascades (CAD.TO) is showing a bullish techical indicator – a hammer.  Previously this indicator has heralded rallies in this stock.  I want to make a speculative investment.

  • Buy CAS.TO @ $4.57

POSTMORTEM

Writing today, 15th April, the hoped for rally has not emerged and the stock is essentially flat.  My thesis is no longer valid so I sold.

  • Sell CAS.TO @ $4.54

I lost a couple of pennies on this trade so we’ll call it a bad call.

Is Apple bottoming?

Yesterday I wrote that Apple (AAPL) might be bottoming and setting up to complete the right shoulder of a head and shoulders top.  If true, then the stock should be bottoming at the neckline, which should be around $530 (the May low).

How do we know that the stock has bottomed: can we infer this from a string of down days and then a single up day? Well, let’s look at the May 2012 bottom (see chart below).

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In May the stock saw a string of five down days that saw the stock fall from ~$560 to ~$530 (~5%).  This was followed by a single-day reversal that recovered the previous 5 days’ losses (i.e., the stock went from $530 back to $560).  The stock then held above this support line at $560 for a further four days before moving higher.

Fast forward to this week.  We have seen three days of declines from ~$590 to ~$540 (~8%), which is a more violent decline than we saw in May.  Today we are seeing gains of ~3% (it is 1pm EST right now) but the stock is only at $553; a long way from recovering recent losses.  If the May pattern is repeated the stock will close down (below yesterday’s close of $537), but near the bottom (a buy signal for Monday).  If the stock closes up then we should wait to see if support forms over the next couple of days before buying.

UPDATE

Writing today, 13th November, the stock does appear to be bottoming.  Since it’s 4% fall from $560.63 to $537.75 on 8th November the stock has been stabilizing (see chart below).

The daily lows for the last four days were:

  • 8th November $535.29
  • 9th November $533.72
  • 12th November $538.65
  • 13th November $536.36

The support that we were looking for seems to be forming at $533-$538.

UPDATE

Writing today, 1st April 2013, Apple has continued to fall reaching $428 today.  Clearly my prediction did not come true this time.

Screen Shot 2013-04-01 at 11.33.08 PM

Is Apple setting up a head and shoulders top?

Last week I wrote that Apple might be about to fall through resistance at the 200 day moving average of $590.  Well, did it ever.  The price is currently $546 and falling.

Last week’s post I noted another possibility: that Apple is setting up for a head and shoulders top.  This week’s decline supports this theory.  If true, this would see Apple retreat to it’s 17th May low of $530.12 (down a further 3%) before running up to around $630 (a 19% advance).

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If this is true then the trade would be to wait until the stock has put in a bottom around $530 (shown as a black horizontal line in the chart above) and then buy.  Then sell when the price puts in a top around $630.  The top should come two or three months after the bottom.

Getting Back Into Apple

After buying Apple (AAPL) at $521 in February I became concerned about the pace of its growth.  I used a stop loss to protect my profits and in mid April I was stopped out on at $600 (a 15% profit).  The stock then fell to a low of $530.  I had hoped that the stock would fall into its long-term channel at around $500, but it is now back up to $580.  I think the stock has bottomed and there is some upside.

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I wish I had timed the bottom better but timing is very hard and, hey, I still made a nice profit on the last trade.  It’s time to get back in.

  • BUY Apple @ $573

POSTMORTEM

Writing today, 4th July, this looks like a good trade.  Apple is at $599.41 (up 4.6%).

The End of Risk? Black Scholes

Great documentary on Black Scholes, the mathematical model that suggested that risk could be eliminated from a portfolio of investments and options.

 

When implemented by Long Term Capital Management this model began by producing a large volume of small gains, leading to huge returns.  But then, when confronted by large and unexpected real world events, the model collapsed.  It is my belief that Black Scholes enables a form of gambling similar to the double-down strategy, or Martingale.

http://en.wikipedia.org/wiki/Martingale_(betting_system)

Increasing S&P Exposure

I can see a large Cup and Handle pattern forming in the S&P500 (^GSPC). This is a very bullish sign.

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This formation also formed in November 2010 and triggered a three month long rally that saw the index rise from 1,200 to 1,340 (12%). Based on this I am going to rebalance my bonds from 30% to 25% (the minimum in my policy) and transfer those funds to my S&P fund. The S&P fund will now make up around 18% of my portfolio, which is still quite modest, and in line with my Investment Policy.

  • Sell Bond Fund @ $216.85
  • Buy S&P Fund @ $115.03

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The 50 day moving average is above the 200 day. The index also broke above the 50 day. These are bullish signals also.

The net result of this trade is that my asset allocation will be:

  • 25% cash
  • 25% bonds
  • 6% gold
  • 44% stocks

POSTMORTEM

Writing today, 25th May, this looks like a bad call.  The S&P500 is down 6% and my bond fund is up around 1%.  This is a 7% loss on this trade.  Every time it try to predict when to move from bonds to stocks (or vice versa) I get it wrong.  I should probably stick to a more simple bond allocation (e.g. bond percentage = age).

Enerplus is a Value Trap

In my January 2012 and March 2012 portfolio updates I noted that Enerplus (ERF.TO) was one of the biggest losers. Enerplus has continued its decline since then, with no sign of stopping.

When I bought Enerplus in February 2011 it had good fundamentals and a healthy dividend of 7.1%. That healthy dividend has now bloated to 12.1% as the price has fallen. This is not a sustainable level of cash distribution and, if the dividend is cut, the stock will likely fall again. Time to get out.

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I am selling Enerplus here:

  • Sell ERF @ $18

It is worth noting that David Stanley deliberately excludes former trusts from his Beating the TSX system. I chose to ignore his advice when I adopted his system in October 2011. Oops!

POSTMORTEM

Writing today, 18th May, Enerplus is at $14.00 (down 22%).  This was a great call.