Weekly Sector Reports

Just Group Limited (JST)

I have been trying to work how to offer the un-offerable and have chosen the wise decision of straight forward honesty as amongst our plummeting retail stocks, oh how things can suddenly change, there is simply no sign of upside life just yet from our point of view but don’t worry as soon as there is we will be on it straight away. For now it is perhaps best to ponder some educational adages and how and why they came about and how and why they are needed to quell our thirsty appetite for profits which in many cases can lead to losses ands we wonder why…………!

Read on for more adages and rules for you not to follow so you can lose more money. Now is the time and opportunity to get it right, and if you have already, skip this bit!

1.     Trade your Plan. This is a good one. The problem with a trade plan is that when you move outside the rules for any reason you are back in that horrible state of indecision and wondering what you should do desperately pleading with your broker, analyst, information provider, or even ye old independent price analyst, to HELP, please! What is my best advice? The first three words of this paragraph. Outside you plan  is inevitably where the big losses come from that’s why trading your plan is in fact the easiest and most comfortable way to generate above market returns and as for big question the market asks you, do you have an answer?

2.     Buy and Hold. Not our favorite! Unfortunately for the comfortable ”buy and hold the big up trend players”, and there are many of them and they are primarily the buy, buy, buy brokers, they have now been seriously rattled from their cage which is a fact of life we like to forget during rampant up trends but it does happen every now and then with reasonable regularity and reflects exactly our nature of building expectations which are more often than not never met and thus the ensuing savage deflation, and this is why it is imperative that if you are potentially exposed to these falls, and we all are, your trading strategy needs to be able to deal with it, survive it, and accept the fact that you won’t know when it is going to happen nor how serious it will be. We just ride the swings these days without ever seriously damaging our capital when punishment as savage as the current one gets dished out with hedge fund strategies, short selling activity, overleveraging and thus margin calls all colluding to give in what we now have. Our stop loss strategy has largely limited any serious exposure to this fall. Damage yes, disaster an emphatic no and we are ready to rebuild again for the next upward wave whenever it occurs. Whatever type of trader you are, and most of you are actively managing your own super fund because you agree thus the plan to protect is vital and a buy and hold strategy can work over time if you pick the right stocks but for those with a real interest – we can do far better as we locked in some excellent profits during 2007 cleaned out our Stock Picks and a ready to go again not from a “buy and hold” black hole but from a fresh start ready to generate those positive returns again!

3.     The Trend is your Friend and when in doubt – get out. Love this one. I feel like a text book talking or an Edwards and Magee clone but I have learnt over the years the trend is your friend if you let it be and it is our own fallibilities, mostly expectations, that don’t allow us benefit properly from these incredibly repetitive and lucrative patterns. There I’ve said it; hear it loud and clear if you want to succeed with a trading exercise that is going to allow you the freedom and lifestyle to do what you want. Maybe we are a bit light on right now for trending stocks but the stock market does spend 95% of its time rising so let’s prepare for that in this 5% window where it is not. The only way to capitalise on a trend is to have a quality high odds entry point and then manage the trade to its utmost return. Why manage the trade? Because a lot can go wrong which is a real opener for the newcomer to this game and we have to ensure that no matter what analysis, argument, or your guru says get out when your predefined stop is hit, but when it does go your way then your having fun and you simply raise your stop in the same planned way each time be it by using an average, %, or fixed stop loss. There is no right or wrong stop loss only one that makes money. Ride the trend and raise your stop loss is the simplest yet best advice I can offer. Oh yes and then there are those expectations to deal with!  

4.     Expectations – A tough one. Rid yourself of them as despite what we know to the contrary they are a pungent sticky odour anathema to successful trading. That’s if you listen to them. Sure have your opinions, talk the talk at the meetings and seminars, but when it comes down to it our opinions are rarely right. Why, you know the story, accelerating stock trends breed accelerated targets (in our minds) as something happens that turn us from tentative traders into trading monsters as three years of easy money breeds many experts and inflated ego’s. Now we are all brought to task by the market as it reminds us of our duties and as we look back now we may see things in a different light as our expectations seem to have changed! What coulda been, shoulda been, didn’t quite a been, can cost you a lot of money. We know why we have rules and that the easy bit but following them, now that’s the hard bit, but if you do a new world will open up.

5.     Analysis – Bringing your focus to the “strategy” is all important but we forget there is the enjoyable bit and that is developing one of more trade plans that make money. The process of building objectives and strategy around a philosophy and then working with your charts, deciding your time fame, working with indicators, finding an edge is not only enjoyable for most of us but a vital starting point and one essential supporting leg of your trade plan. We try to weight the importance of all the legs of a trading plan and usually most purveyors of the trade bias it towards the management of the trade but in effect each is vital as without a quality edge to enter on you are starting from behind. Each leg of the plan helps maximise the return for your efforts so yes understand the market workings from a trading perspective but remember to enjoy your self with your charts as there are always ways to improve any one of those legs of the trade plan to boost returns. Every bit helps.

6.     Commissions – Anathema to the trader (Costs, costs, costs), and a life blood to the market place, the exchanges, the brokers and the overloaded research teams that inevitably pedal the face of the company and like our 95% trending and 5% non trending rule for the stock market, they will be right most of the time but unfortunately you need quality, not quantity. For the brokers, the exchanges allow 1000’s of stock price quotations a day on stocks. How can a company’s fortune alter so violently you ask? They can’t, and don’t, but going back to our human instinct heritage as gamblers and dreamers we can’t resist the lure of a flutter and there are many ready to pounce on that weakness and this is to a large extent why markets have existed for so long. One day the exchange is listing CFD’s the next it says “we need to look at the borrowing and short selling issue” yeah sure – not while your making money out of it. There are so many ways to lose our money these days and with leverage it just makes it quicker – unless you smart, get educated and prepared properly. So to trade our stocks we must turn to the brokers who get the fees for trading on the exchange so they pay the exchange for the privilege. Not once but twice. In and out! Why do stock prices move so much in scant regard for a companies worth, because we all want to have a flutter be it big or small. So the exchanges, or more correctly THE exchange, and the brokers have set themselves up as guardians of the gate and live off this desire and it is their major source of income! Not advice and profits as you would think for what we all perceive to be knowledgeable advisors, but bare ass commissions! Amazing. So what do the research houses do? Laugh 95% of the time and cry very loudly for the rest offering you jelly and ice cream if you’ll just come back please. Do it your self and go internet based! All a bit cynical I know and they do all perform a function but what I don’t like is the way they give the impression they know, when the don’t, or can’t. It must be a selling technique. So the inevitable conflicts still exist, and always after the horse has bolted do murmourings about margins, short selling, and company director disclosures of margining into shares which all becomes standard rhetoric that characterises the aftermath of the storm like the one we are currently in. But don’t worry when prices turn up again, the nice cycle will return, and we will all be friends again but we just have to have get through this 5 % per center first. Let’s not give “them” too much of our money through commissions, they have enough already.

Just Groups (JST) down trend remains firmly intact but over the shorter term we are seeing evidence of a small battle raging just above $3.50, but this can simply be a tentative play of interest, which we detect, but unless higher levels are penetrated it is more likely a pause in the down trend.

Long shadows on both end of the candles portray the testing of upside and downside pressures with neither yet being successful so we assume the trend remains down.  However it does become the starting point for some constructive price action with new lows negating any constructive developments here. This down trend has clearly brought down the last few years of up trending behaviour and where the next one starts will remain a mystery.

The Trend Intensity rating for JST is in the down trending zone at -4. The price trend is down, volume turning neutral, the price is below the moving average, and price momentum (MACD) is still weak and heading down.

Little to say, little to add, so let’s not!

JB Hi-Fi Limited (JBH)

JB Hi-Fi (JBH) shows little sign of stopping its free fall and the damage is bad if you’re still holding. That’s for you to answer however a clear Trend Reversal down defined the end of this trend early this year.

Now we are in downtrend status the trending filter is switched off thus our interest here is benign. Post the Trend Reversal JBH has unleashed a down trend of lower lows and lower highs with no sign of stopping yet.

JBH’s Trend Intensity rating sits in the down trending zone at -6. The trend is down; volume heavy, the price is well below its moving average, allowing plenty of space for a bear rally, and price Momentum (MACD) is unbelievably yet to complete a break by both MACD lines below zero, a testament to the strength of the last rally.

JBH has just about extended its fall to 50% this year, an almighty calamity.

David Jones Limited (DJS)

Everyone loves the new work ethic provided be the David Jones (DJS) helmsman Mark McInnes and it is good to hear a company trying to capitalise on a cycle down turn rather than pull in the horns and retreat till the weather changes but all this is unable to stop a free falling share price.  

With bottom line always the poignant issue unfortunately the DJS price is suffering as times will get worse before they get better but the wholesome spirit he has injected into a tired old company is I’m sure standing the stock in good stead if only by preventing further falls now but especially when the tick up finally does occur, I’m sure the supporters will be there.

A nice comment but not really telling us to rush out and buy as the share price is still suffering that free fall also as the margins get called, the hedge funds jump on the shaken spirit, and sentiment takes a battering. Not in the mood for buying?  

The Trend Intensity rating for DJS has plummeted into the strongly down trending at -9. The trend is down; volume bearish, the price is below a falling moving average and price momentum (MACD) is back on the decline.

Not a good look for a buying strategy but our stops have held us in good stead and we are happy for the price to roam where it will for now.

SPECIALTY FASHION GROUP LIMITED (SFH)

A review of the Specialty Fashion group (SFH) shows clear boundaries of resistance at $2.00 and support at $1.40 and in doing so defines the trading range, of which the low end is being tested but so far during the rout it has held as selling seems limited here. As to upside what do we look for?

In a word support! Evidence of support at this Key Low of $1.40 is vital if it is to hold and prevent a potential free fall below the support. If support appears, identified by a stalling of price lows and an increase in volume, and where not there yet unfortunately but while support holds that is what we firstly look for. Support and evidence of a turn will take three forms; a Trend Reversal, Spike Reversal, or the Key Low at $1.40 confirmed then by follow through buying.

We all know the retail environment is “busted” so it is not our favorite sector but we continue to monitor all stocks for a change in those downward pressures.

The Trend Intensity rating for SFH sits meekly in the strongly down trending zone at -9. The price trend is down, volume indifferent, the price is below the moving average, and price momentum (MACD) is still weak after having tried to break above the zero line recently it is back in down ward mode.

Weeky Sector Reports Summary