Weekly Sector Reports

Downer Edi Limited (DOW)

The Commercial Services and Supplies is a struggling industry group that has occasionally enlisted the forces of hope to forge its fortunes recently but to no avail as rallies and trends have been flighty and for the most part short lived as these stocks live under the umbrella of an economy that may go forward of take another step back and we are left with that hateful term uncertainty and as we discussed last week that is something we buy – certainty - and when it is not on the table the buyers will be sparse to say the least.

That offers a pretty quick and dirty assessment of the group that is not without its pockets of hope. Yes we are at historically low prices across the board but the sentiment is just not yet there with a willingness to see it or take advantage of it and as we are momentum traders we need that emotion to return in a bigger and better way to drive all the lucrative trend behaviour. Our Stock Pick count has been sucked back to reality over the last two weeks from a high of 76 in mid June to a fairly insipid 38 qualified Stock Picks this week. A 50% reduction with the majority of those exits coming from the energy and mining groups that have recently had a period of lucidity. Again short lived and we are back to being a bit nervous again!

So the good times return is on hold again and we are back to sneaking pockets of inspiration from such unlikely candidates as the retailers! Today we review a trending stock in DOW, look at the potential PRG may be offering, we look at SEK’s failure to generate enough buying power to carry recent break higher, and BXB remains unloved and unwanted.

Downer EDI (DOW) holds its head high among the rabble of this group and as it picks up a new, long term, and lucrative contract that has the ability to underpin a certain earnings level for the stock.

To some degree this was a surprise to the market and that’s always a good motivator for a price advance as DOW now threatens to walk straight through its recent highs at $5.00, sustain that level, and advance further towards the highs of a long term trading range at $7.50-$9.00.

I touched on this briefly on the home page with our Stock of the Week this week and although we get caught up in the bumpy ride of the to’s and fro’s of trends and sentiment that would seem the high odds argument that may happen in six months or a couple of years, which matters little to us as either way its rings the bell of opportunity  whether this is achieved in one quick swoop or a year or two of bumps and grinds that will inevitably make available trending and trading opportunities for us.

It is sometimes hard writing about these, what would seem as longer term opportunities, when in fact they are current or existing opportunities which carry the tag of perspective. That unfortunately often doesn’t sate some stock market traders need for short term and random rewards to keep motivated. It is often the need for short term random rewards that lead us astray and it is the perspective that provides us with the controlled environment we need to keep our focus and succeed. There are times it is easy to make money and times it is not and now is the latter and as such you just can’t simply force or expect to generate high returns now. This effect clearly shows up in my subscription rates and how some are clearly influenced by market performance and those that are not. So there is a mismatch of rewards and perspective sometimes and thus in times such as these when rewards are harder to come by the focus and perspective remain the clear winners. A stock such as DOW, at odds with the majority of the market, is a clear winner with a current uptrend with the background perspective the Key Low of a longer term trading range being rejected and on this basis the normal price behaviour heightens the odds of the “other side” being tested and that points to the level of $7.50 to $9.00 maybe set for a challenge – eventually. Don’t get too distracted by the day to day paths the stock market follows at the moment as there is no dominant trend or sentiment in force but pick the eyes out of what we do have and you’ll unearth some inspiration, trading opportunities, with maybe some reward at the end of it all.     

Trend Intensity for DOW is at 8 out of a possible maximum rating of 10. The trend is up, volume supportive, the price is above the moving average, and price momentum (MACD) is starting to rise from the ashes as it moves above zero and begins to expand in its most bullish state.

At this stage this trend is one of our few friends!

Programmed Maintenance Services Limited (PRG)

Now we can see clearly how the Stockradar trading strategy works to ensure we sell at or near the highs of the previous stock market rally as we exit on the 13/8/07 not knowing what is ahead for Programmed Maintenance (PRG) apart from the degree of uncertainty that has triggered our stop loss and forced an exit.

Now for PRG we hope to duplicate that in reverse at the lows as demand interest finally shows itself allowing us to begin the process of qualification for a Trend Reversal back up with resistance at $3.00 being sized up as the potential trigger for a market imbalance, but the same rules apply so let’s see how it works and why it works, in both directions.

As we know there are only three outcomes from a break of a trend, or sentiment that has been triggered by a stop loss as was triggered in late 2007 for PRG.

1. Firstly the stock continues down and that outcome has little interest for us as uptrend traders. In PRG’s case that is what has happened since the trend break.

2. The second outcome is that the stock could simply travel sideways in a holding pattern and that too interests us little as the potential for price movement and profit is very low.

3. The third and only other outcome is that the stock simply turns around and rallies straight back up. Now that interests us and the simple signal we use for a high odds breakout and new trending move is a New High. This is a very reliable signal and was a great profit generator through the bull market. Alas we are not in a bull market and thus the Stockradar strategy has protected us from calamity as no New Highs have since been struck nor any qualified Trend Reversal structures because we have been in a bear market and the price has sallied is way down from $6.50 to a low of $1.65 with no signs of life. A 75% drop! There is a big difference between trading a stock successfully and picking its price direction!

Just as we may get stopped out during an upswing we always carry the upside insurance of getting every trend triggered by a New High because we take all the signals. If you think about that for a second – you must – mustn’t you? And for some of the new trends that develop they will extend and we will ride them as hard as we can and for some they will fail and we will get stopped out. In a bull market the majority work delightfully in a bear market rarely do they occur. It’s common sense!

Now we have to make sure the uptrend breaks that work are far greater in value than the ones that don’t and stop us out. As per our portfolio results we have averaged a 35% profit per successful trade and a 10% loss per unsuccessful trade and with a win/loss ratio of 1.5 to 1 that is a recipe for success. Remember the Portfolio member discount ($1600) is only available until the September price increase to $2500.

So that’s how we approach a market with a prevailing up trend but that (stock) market will not do that all the time and yes these are tough times and because we are focused on trading up trends, and although there are some out there, there are just not as many as the period between 2003 and 2007 when our strategy works best. And for the stock market who spends the majority of its time trending higher we play the law of averages as we know the cycle is turning back to its prevailing direction, which is up, and when it does our profit potential must be greater.

The strategy is focused on trading up trends and thus stocks such as PRG we cash up at the highs, let bear markets play out primarily from a cash position waiting until the up trends we trade begin to appear again and ready to re-use that leverage to buy back at the low end of sentiment and stock valuations which is where we are at now. There have been some cautious takeoffs but most have cut and run and that is a typical bear state so it seems we haven’t shrugged it off completely yet. For PRG all we need is the price trigger at $3.00 to signal the completion of its Trend Reversal and the potential resumption of an upside demand controlled trending move. It may happen, it may not, but we await prepared if the market presents us with an opportunity!

The current Trend Reversing price action began with the high volume (demand) support at the Key Low of $1.65 which triggered a brief rally in prices but note the pullback to a higher and very well supported low at $2.00 or just above. Now having those key three legs of a reversal unraveling we focus on the peak it reached between those two lows ($3.00) and there lies the potential trigger for a market imbalance that can drive prices quickly higher and more importantly add another stake in the heart of that awful downtrend.

The Trend Intensity rating for PRG has now clawed its way back up into the neutral zone at -3 ready to confirm any breakthrough $3.00. The trend is still down/neutral, volume bullish, the price is chipping away at moving average resistance, and price momentum (MACD) tells us the downside pressures have certainly all but gone but now for the key upside violation of the zero level to confirm a turn.

Once eagerly sought after the little office maintenance contractor looks set to finally turn the tables on those sellers. $3.00 holds the key. Sooner or later Stock Picks will begin to accumulate again and the indices will trend higher again and there has to be a starting point somewhere so this is a time to clench your fist and take the bites as they appear.

Seek (SEK)

Seek (SEK) qualified above $3.00 and then shortly thereafter failed the trend test so this week we hit the exit button and sadly stand neutral with little to show for it!

How does our strategy work when the skies are blue from an analysis point of view but they have been clouded by an untoward price contraction?

A simple Trend Reversal breakout that began to move but by hitting resistance and shying away the sellers have jumped on another potential trend and stymied its potential and thus we neutralise as the stock drops below our stop loss at $4.10. Remember there is no right or wrong, only profits and losses.

An analysis entry, and a money management stop loss, thus we must still be set to go again primarily in response to the valid Trend Reversal qualities that still exist namely the huge volume build up during this year of rising prices so we set our re-entry level at the most recent high at resistance of $4.50, as that level again being the recent high, has the catapult potential a market imbalance offers should $4.50 be violated.

Yes sometimes it is an exhausting game of yes and no that isn’t easy but there is a science in all the madness and if you follow it, and trade by it, the rewards will come. Just keep your focus, discipline, and I know it’s hard sometimes, but confidence in your trade plan is vital. If you’re not making money now don’t be too hard on yourself – you’re not alone!

The Trend Intensity rating for SEK has dropped to -4. The price has returned to down but volume remains basically bullish. The price holds above the moving average, and price momentum (MACD) is ripe and ready to advance further given the right push by price.

SEK has done the hard work of establishing a base and attracting the buyers again but the battle still remains as to whether we are in a real bull market again of sustainable advancing prices again and SEK like many others over recent weeks just seems a bit unsure. 

Brambles (BXB)

Brambles (BXB) is popped in the bag with the other blue chips that are just unwanted and unloved at the moment and no matter what they do buyers just aren’t buying it. A horrible environment for trending behaviour and BXB is exhibiting none of it.

Again the ingredients of a good base to leverage a rally from and higher and demanding volume all point to a recovery but it seems BXB and the market are just not ready to move on. Market bottoms are littered with false starts prior to the big one so we shouldn’t be surprised and nor should we let this behaviour cost us to much money and of course that doesn’t mean we have to like it either we just have to accept it as reality and not try and take shortcuts . Finding the balance between having exposure should the market take off but also have in place the risk barometers that protect us from falling prices it’s at times a hard one to match but despite the longer term attributes prices are offering at current levels there is no ground swell of optimism and this leaves the price where it is – flat.

We are hopeful of a rally showing itself above $6.60 but at a current price of $5.70 that hardly seems imminent. Back to the gym for more strengthening work because the market is demanding more evidence before we buy the BXB story.

The Trend Intensity rating for BXB is at -4. The trend is down, volume more bullish than bearish, the price is being capped by the moving average, and the price momentum (MACD) is flattening out on its approach to the zero level which is reflective of the current impasse.

BXB will tell us when it wants us to buy it so we’ll just wait and hope, rather than buy and then hope!

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Weeky Sector Reports Summary