Thursday, September 29, 2016

Market Cycles and Outliers



The Philippine Stock Exchange Composite Index (PSEi) tracks the performance of the most representative companies listed on the PSE. When this index is in a bearish cycle and treks down, it means that players who control majority of the money in the market, are fearful. And the thing with fear, as with greed, it's contagious. So expect most of the other stocks to follow this sad cycle as most traders and investors sell their positions in exchange for cash. 

Anything that doesn't follow the major trend and goes the opposite way is an outlier.

According to Merriam-Webster Dictionary, an outlier is a statistical observation that is markedly different in value from the others of the sample.

Let me help you visualize that.



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Now take for example DD (Double Dragon). The PCOMP from Late May of 2015 to early March 2016 was a bear cycle. But this wasn't the case for DD as shown in the lovely chart below. It  even made new 52 week highs during the bear season. If you don't call that strong I don't know what is.



*Market Cycle based on the position of the 100MA.
100MA below prices = Bull
100MA above prices = Bear


This is what market veterans call...

 "A bull, in a bear market." 

And the best thing about outliers? When the bulls return and everything becomes rosy again for the index, outliers can go on a rampage of gains!

But not everyone gets to ride outliers. Majority even stay out of it because...

 "It just doesn't make sense." 

"Why buy a stock that is making a series of new 52-week highs when you can buy a stock that just made a new all time low? Wouldn't that be better since that would translate to bagger gains if it goes back to it's all time highs?" 

-Nakamura San



Sounds familiar? 

It's because Nakamura San is every amateur trader you know - who buys at "cheap" prices para makamura but ends up ipits and nagmumura.




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People fear what they don't understand. But let not fear cripple you to the path of enlightenment. So the next time you see a stock making new 52 week breakouts during a bear market, think very carefully before you ignore it.

Who knows? You might end up with something like this...




As always, Caveat.
After all, I'm just a Fictional Character.





16 comments:

  1. The day you answered my question was gold!!!! Thanks, Zee!

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  2. Idol boss zee. . As always galing. :-)

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  3. Idol boss zee. . As always galing. :-)

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  4. Hi Zee, I see you can tolerate a paper loss of more than 10% when Prmx had its retracement. How wide is your stop loss for tfs? Thanks :)

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    1. I didn't incur a -10% loss on PRMX. It was always set to -5%

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  5. My apologies sir. I mean, from its highest point last 8/2/16, it retraced more than 10%. How did you manage to keep your existing position up until the end of month. How wide is you trail stop for tfs?

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    1. I used the 50ma as my next trail stop as it was consolidating its gains. Used 50ma because I had a low average price - I could afford the correction.

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  6. Sir may i ask how many buy tranches you used for this play? And at what level? I would like to understand how you got your average price. God bless

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    1. Bought at the pre split at 11 breakout then another tranche at 15 breakout. 200k shares. After the split, bought 400k shares between 3.25-3.4 consolidation.

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    2. Sir do i understand it right that you mean 1.1 and 1.5 break out? Meaning you'v been holding this stocks since 2015???! Or what do you mean by 11 and 15? hehe sorry i'm confused.

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    3. That is not a typo. I really mean it as 11 and 15 (pre split) - on August 17, there was a stock split for PRMX. 1:5. Which means, For every Share you have, it will be split/multiplied into 5 but that also means the stock price would be divided by 5.

      I've been holding my original core of PRMX since June 29 this year. Added positions on the breakouts.

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  7. Thanks boss now i understood how you got that aep

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