, 20202020/06/12 · parabolic trend this saucer pattern trade has a price target. This is...

June 12th, 2020 A publication of Algobot Pte Ltd CRN201604500D. Copyright © 2020

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Weekly for Saturday June 12th, 2020. Based on Thursday’s Close

CONTENTS

BEYOND SMOKE AND MIRRORS pg1 PLAYING WITH PATTERNS pg6

SLOW UPTREND, RAPID EXIT pg11 SNAPBACK pg14

SUPER SEARCHING pg16 NEWSLETTER OUTLOOK: SNAPBACK BREAKS TREND pg21 PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg24

BEYOND SMOKE AND MIRRORS By Daryl Guppy Effective analysis rests on the accuracy of the underlying information.

Accurate information is always found in the open, high, close and volume figures provided at the end of each day. These figures can be trusted, displayed on a

chart, and analysed with confidence. Not so with almost all the fundamental information about a company other than the company name and stock code. The relevant figures are fudged, delayed,

and massaged. We have an entire brokerage industry built around interpreting this information because it’s so unclear.

In the current situation our analysis rests on economic information that is as accurate as possible, but this is difficult to obtain. The unemployment figure is

a key metric but what has been provided by Government is simply laughable. Writing in a letter to the Financial Review, Marcus L’Estrange explores the deceit around these numbers.

“How the ABS can claim an unemployment number of 823,000 for April when there are 1.4 million on the dole (not including those unemployed who

cannot get the dole due to their partner working, and those on the JobKeeper allowance – 3.5 million) is beyond me. Similarly, the ABS claimed an increase of only 118,000 unemployed for April when 600,000 jobs were lost.


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The basic ABS headline unemployment rate is a mirage and only treasurers and political party spin merchants on both sides bother to point to it. There are

many reasons for this, including: 1: The ABS regard you as unemployed only if you are “actively looking for

work” in the week prior to the survey period. But just what work is there to look for right now?

2: JobSeeker (dole) & Youth Training Allowance (dole) recipients, due to

COVID-19 restrictions, did not, until June 9, have any mutual obligation requirements. So, no one on JobSeeker allowance (1.4 million early June) or on

the JobKeeper allowance (3.5 million), will be counted as unemployed. 3: If you work one hour in the week before the survey period you are

regarded as being employed.

4: If you are not ready to start work during the week after the survey you are not counted as being unemployed.

5: People stood down who receive even a week or two of annual/long service leave will also be counted as employed. Additionally, people who have been laid off are not counted as unemployed if they believe they have a job to go

back to within four weeks. 6: A falling rate of participation in the labour market. If people simply give

up looking for work, that reduces the actual number of officially unemployed Australians. Half a million workers dropped out of the workforce in April and were

not counted as unemployed. When you allow for these factors, the real figure for May could be about

20% with 1.3 million underemployed. All up, about 30% plus. “

This dishonesty goes well beyond the usual smoke and mirrors. It makes it difficult to act with confidence on the official ABS figures. The dramatic

understatement of the unemployment and underemployment figures by the ABS causes major distortions in handling COVID-19 economic planning and the economic and market reaction. US figures are subject to the same manipulation,

although the detail of the manipulation differs. We have little choice but the trade what we see on the charts but against a

background of caution. We trade the balance of probability.


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.

EXPERT UPDATE We like experts, not because they are often correct, but because they draw

in a crowd that provides liquidity and trading opportunities. Last week we used

the Australian Financial Review featured list of 20 top stock picks from the Future Generation fund managers forum.

The OPC triangle breakout retreated and has developed a smaller weak equilateral triangle pattern. A move below the upper edge of the upsloping triangle is an exist condition because it shows the breakout has

completely failed. This has become a weak pattern so should the rally continue traders will look to exit at just below the target level.


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OPC has what looks like a well-defined upward sloping triangle pattern. Its

not a perfect pattern because the base of the triangle is difficult to identify. Its

made up of 7 days of trading, but the trading contains up and down days rather than the bulk of days moving in a single direction. That said, the pattern is

otherwise well defined with good resistance and a clear uptrend.


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The case study entry is taken near $4.73 and close to the uptrend line stop

loss at $4.58. This puts $634.25 at risk, or 0.06% of total trading capital. The pattern target is $5.37.

You can download the ATR indicator for MT4 at

https://www.mql5.com/en/market/product/29683 Use this to improve your trade risk management.

CASE STUDY EQUITY CURVE

The AZJ* case study trade is closed for a profit of $1673.32 or 8.37%. The case study portfolio return is $66252 or 66.2% for the period starting July 1,

2019 and ending June 30, 2020. For the year starting July 1, 2018 – 2019 the case study portfolio return is

$91,794 or 91.79%.

For the year starting July 1, 2017-2018, the case study portfolio return is $115,330 or 115.3%. For the year starting July 1, 2016-2017, the case study

portfolio return is $92,464.15 or 92.5%. For the year starting July 1, 2015- 2016, the case study portfolio return is $156,450 or 156.45%.

https://www.mql5.com/en/market/product/29683


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Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years.

Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best

reasonable price on the day after the stop loss is triggered. Warrant and CFD trades are generally kept constant at $10,000. Warrant

and CFD trades are closed on an intraday basis using a guaranteed stop loss as

this is a primary method of managing derivative risk. FX trades are generally kept constant at $5000. Stops are managed

intraday. This capital allocation reflects the risk in each of these asset classes.

PLAYING WITH PATTERNS By Daryl Guppy

Not all trend line are straight lines. Some trend lines are curved but they

fill the same function as straight lines. They define the limits of price activity. A move below the line signals a potential exit because the trend has faltered or changed. This is the principle applied to parabolic trend lines and saucer pattern

trend lines. Whenever we look at charts and for whatever the reason, we are always

alert for chart patterns. These offer high probability outcomes and well-defined risk parameters. We know the exact stop loss conditions. Some patterns also provide trading exit targets.

This week’s searches highlighted two pattern trading opportunities which rely on curved trend lines. They are GDI with a parabolic trend and RIC with a

saucer pattern. GDI is a disappointment because it’s a pattern we would have preferred to

pick up two weeks earlier. However, it didn’t come up on any of our search lists.


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The parabolic trend is well identified at point A, but we do not make an entry until four days later because that’s when it appeared on our search list.

Entry is made near $1.13 with the stop loss near $1.11. This puts $353 at

risk or less than 0.03% of total trading capital. This trend does not have an exact target. It has an exit condition. The exit

is signalled when price moves below the value of the parabolic trend line. This is

managed on an intraday basis because these moves can result in a rapid fall. Price falls are often in excess of 50% of the original breakout move so tight stops are

essential.


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These are the trading tactics we apply to these types of trades.

Enter during the middle of the trend development, exit on a close below the

trend line As the trend approaches the end date, exit on any intraday move below the

trend line Exit on the day prior to the inevitable move to the right of the trend line Use the value of the trend line as a stop loss. This changes every day.

RULES

This pattern is traded without reference to any other indicator. It is a stand-alone indicator.

Moves to the right of the trend line signal an exit

Curve must hit at least 2, but preferably 3 initial low points to start the trend line plot. Once plotted on these three points, the position of the curve

does not change The curve starts from a ‘best fit’ point and not necessarily at the start of

trend.

When the curve moves towards vertical it sets the day on which the next price bar will inevitably move to the right of the trend line.

ADVANTAGES

Captures fast moves.

Identifies accelerating trends Sets an exact day of exit

Most effectively used with price or derivative leverage DISADVANTAGES

Trends often collapse rapidly Difficult to identify this type of trend in the early stages of trend

development RIC offers a longer and steadier pattern development. This is a saucer

pattern that has developed at the end of a long downtrend. Its taken nearly 12 weeks to develop. The placement of the curved trend line defines the down limits

of the price fall and recovery.


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At this stage of development, the pattern looks like a saucer pattern, however it may develop a handle. This is a pullback that breaks the saucer trend

line and generally consolidates in a pattern that can be defined by two parallel trend lines. This handle can be traded as a new entry, or if stops are not hit, it can

be allowed to develop following an earlier entry.

For case study purposes the entry is taken near $0.78 with a stop at $0.76.

This puts $512 at risk or less than 0.05% of total trading capital. Unlike the

parabolic trend this saucer pattern trade has a price target. This is calculated by measuring the depth of the saucer and projecting this value upwards above the

lip of the saucer. This gives a target near $0.91. These are the trading tactics we apply to these types of trades.

Trade from the bottom of the saucer to the lip of the saucer

Trade from the lip of the saucer to the projected saucer target Stop loss is the value of the saucer line


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Management of the lip breakout trade will depend on the nature of the trend shown in the breakout. They have no common characteristics.

RULES

The curved lines must define the bulk of the price action. This may be

symmetrical or asymmetrical The upper edge of the pattern is the ‘lip.’ The height of the saucer from the base to the lip is measured. This height

is then projected upwards to set a breakout price target.

ADVANTAGES Reliable saucer targets from the base to the lip. Upside projection targets are reliable, particularly if they match existing

resistance levels. Short term patterns tend to hit the projection targets more rapidly.

Sets the context of trend recovery – useful for confirming investment decisions.

Gives early warning of up trend collapse

DISADVANTAGES

A long-term pattern, so the achievement of any of the price targets may also take a long time. This may be weeks or months.

Breakout above the lip of the saucer may turn into a handle pattern and

this increases initial trade risk. The breakout above the lip does not have a clear trend pattern. Subsequent

price activity may be very difficult to manage and trade. We will follow the development of these case study trades over the next

few issues.


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SLOW UPTREND, RAPID EXIT By Daryl Guppy

The main conclusion from this exercise is that ‘expert’ advice from brokers should always be assessed against your own chart analysis of the

stock. Several weeks ago, we assessed the stocks that Goldman Sachs has

identified its top underappreciated defensive stock picks that should perform well

through the coronavirus crisis. These Aurizon, Freedom Foods, Charter Hall Social Infrastructure REIT, Cleanaway Waste, St Barbara, and Telstra. Not all of these

made the cut when examined from a technical perspective.

AZJ* This is such a weak breakout from a weak pattern that an exit is

taken as soon as the target level is hit at $5.05. The base of the triangle

is projected upwards from the very apex of the triangle gives an upside target near $5.05. This delivers an 8% return.

Equilateral triangles are weak chart patterns because they do not clearly indicate the direction of a breakout. . The breakout on the upside is often slow


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and tentative. The downside breakouts can be very rapid. This pattern has no well-defined breakout, so the lower trend line is projected forwards. This will act

as the stop loss. Note that the trend line has been adjusted to include the down day that moved below the previous trend line plot.

On a purely discretionary basis, this trade would be closed. However, our purpose is to show the full consequences of disciplined trading, so this trade remains open until the exit signal is confirmed.

The dominant feature on the chart is the equilateral triangle. This is a pattern of indecision because it gives no clear indication of the direction of the

breakout. However, breakouts are often very strong and reach the projected targets quickly.

The triangle is not perfect and includes some overshoot bars. The entry

signal is given near $4.66 by the move above the upper trend line. The upside target is the width of the base projected upwards form the point of breakout. This

gives an upside target near $5.17. Stop loss is the value of the trend line near $4.56.

This puts $429 at risk, or less than 0.05% of trading capital. As the trend

develops a different stop loss method will be applied. This may be an ATR or a trend line.

The trade may be executed as a CFD, although the available leverage is low. It may also be used to add to an existing longer-term open position in AZJ for those who already hold this as an investment.


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https://academy.traderwave.com/a/26985/weZJ436F


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SNAPBACK By Daryl Guppy

We were incorrect in identifying and waiting for a dead cat bounce. Our concerns about a snapback were more well founded. The big danger for investors

is a violent snapback where the market rapidly retreats to match the economic outlook. Some politicians would have us believe the economy will catch up to the market with a snapback. Others believe the market will correct back to the

struggling economy and this underpins the snap back analysis.

As I noted in the interview on Squawk Box on CNBC on Friday morning, this

snapback is not unexpected. On the daily chart the pullback, although dramatic, is testing support near the upper edge of the long term GMMA.


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The S&P 500 duplicates the DOW behaviour with a test of GMMA support.

The strongest support is around the consolidation area at 2800. This was the peak that we first thought was the top of the dead cat bounce.


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The NASDAQ has a stronger uptrend with excellent separation in the long

term GMMA. The fall has not yet tested this as a support level. In this sense the NASDAQ offers a safer entry opportunity for those who believe this snapback is a

temporary interruption to the uptrend.

SUPER SEARCHING By Alexander O’Malley

Spreadsheet of ASX300 dividend paying stocks list available to subscribers. Email

[email protected].

As markets look to rise it is a great time to look to add to your self-managed

super or to set up, or extend your dividend streams. Setting up good dividend streams on a long term basis is tricky. Yes we have to ensure that the dividends

we are getting are a reasonable amount, and yes we are in for the long term – but we do want to get capital growth as well. It is a case of having your cake and

mailto:[email protected]


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eating it. If we can get capital growth while also having a consistent and profitable dividend stream we are essentially double dipping into the market.

Following on from our previous article last week looking for new searches we expand on the concept of finding trades who are recovering and generating

new trend signals, to narrowing those down to only stocks who pay a dividend. This allows us to not only set up a dividend stream strategy but gets us in at the trend change allowing us to capture the capital growth as well. We use the same

search parameters, in this search we are look for charts that are coming out of a downtrend. This is a Metastock formula:

Fml("deaddays") AND Mov(C,15,E) < Mov(C,60,E) AND CLOSE > Mov(C,60,E) AND CLOSE > 0.50 AND CLOSE < 2.00 AND VOLUME > 50000

Fml("deaddays") Gets rid of any stock that did not trade today

Mov(C,15,E) < Mov(C,60,E) The 15ema is lower than the 60 ema CLOSE > Mov(C,60,E) Todays close is greater than the 60ema CLOSE > 0.50 AND CLOSE < 2.00 Sets our price range

VOLUME > 50000 Ensures there is liquidity

The hard part is finding a list of the stocks that pay a dividend so our search only looks at those. We were able to eventually find one but for some reason it is

not generally available to the public. We had a spreadsheet of all the stocks on the ASX300 who pay a dividend. It is available to subscribers, please email [email protected] and we will send this to you.

When we are looking for dividend trading options our analysis needs to be slightly different to when we are looking for a trading option. There are other

factors at play. We are looking for generally the same types of charts (at this point in time).

- We want a chart who was previously in a good uptrend and is recovering

from the February flash crash. We do not want charts who have been in a down trend for months prior to the crash.

- We want strong breakout behaviour, to push our trades quickly into capital profit. This relieves a lot of stress on the portfolio as well as gives price some wiggle room for the ex-dividend drop.

- Chart patterns are not necessarily better. Though a chart pattern is great for trading as it gives a price target, after the pattern has finished it can

be a gamble on whether price continues for rapidly retreats. We are looking for strong consistent long term trend development.

- How much the dividend pays and how often? This you won’t be able to

find on the chart but should be easily accessible on your broker screen or the ASX website.

- Check the weekly chart as well. We are looking for long term success. We want to avoid any potential short term bias.

- Lastly, though we are technical analysists who shun that filthy

fundamental stuff – sometimes it does some into play especially during times like these. Find a great looking stock but it’s a flight travel agency?

Have a good think about how that is likely to go in the next few years. We are looking for longer term dividend success and capital growth.

mailto:[email protected]


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This is a good example of the type of chart we are looking to find. Prior to

the flash crash at the start of the year this chart was in a strong consistent up trend. Pull backs into the long term GMMA group were buying opportunities and the trend was strong and well supported. Then the flash crash happened and it

was hit hard, however price then rallied strongly into the long term GMMA group. Price found support and has subsequently rallied through the long term GMMA

group and given a breakout signal. This particular stock pays a dividend twice a year at around $0.36.


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Here is a good example of why we check the weekly chart. Though this chart

pattern does not apply to an entry today it serves as a warning. If we were looking to get into this stock back in February before the crash and looked at the weekly

chart we would though this chart away in a heartbeat. This is a classic head and shoulders pattern. The head and shoulders pattern

is best seen on a weekly chart and is an end of trend pattern. Price has been

moving upwards steadily and then falters creating the left shoulder. Traders think this is a temporary hurdle and pile back in, thinking this is a buying opportunity.

However what they are buying is the investors leaving. Price rallies and traders discover that the steam has in fact run out. Price falls, creating the head. In one final attempt to kick start the trend price rallies but it is too late. The last of the

long term investors have left and price falls, creating the right shoulder. We measure the distance from the top of the head to the next line and project that

downwards. This is a very consistent and accurate pattern and is one of the reasons we check the weekly chart when looking at longer term investments.

Another type of chart you will find when looking for dividend opportunities

are like this one, where prior to the flash crash price had reached a resistance level. Under normal circumstances we would avoid this type of chart as it was

evident that price would be unable to push higher, and wait until a breakout was proven. However in our current situation this type of chart gives a good opportunity. The resistance level is an agreement on price. Both traders and

investors agree that is a fair price for the stock and no one is bidding above it. Therefore after the flash crash there is a high probability that evaluation of price

remains, increasing the chance of the trend breakout reaching that level again. This gives this investment a clear target and even if price does not push higher we still capture good capital growth from $1.18 through to $1.58. It pays a modest

$0.038 dividend twice a year.


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This is a great example of what we do not want to see. This chart is in a sustained downtrend even before the flash crash. Just like in our previous trading

opportunity search we do not want to get into charts who are rallying from a weak base. This chart has on multiple times failed to rally and continues to move down.

There is a low probability that in the recovering it will be able to change its long term direction. There are much better opportunities available.

NEWSLETTER OUTLOOK: SNAPBACK BREAKS

TREND By Daryl Guppy

Obviously, we know what happened on Friday, but these notes are

prepared on Thursdays close. The first chart-based upside target for the XJO is 5960 and this has

been achieved. The next target is 6120 and this was also achieved. The ATR applied to the XJO shows a clear uptrend downside break.

This is the early warning signal for Friday’s collapse. Support target is

near the upper edge of the previous consolidation at 5500.


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A simple trend line applied to the XJO further defines the progress

of the uptrend. The market can fall all the way back to the trend line to find the main support level. This is near 5600 but horizonal support is near 5500.


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The GMMA relationships show the long term GMMA compressing

and turning upwards. However, this group has not begun to separate and

this shows trend weakness. The short term GMMA has moved completely above the upper edge of the long term GMMA. The value of the long term

GMMA may provide temporary support near 5700.


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PORTFOLIO CASE STUDIES: MONEY MANAGEMENT

Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000

NOTE Entered date is the newsletter date which contains the case study discussion.

OVERALL PROFIT TO DATE The AZJ* case study trade is closed for a profit of $1673.32 or 8.37%. The

case study portfolio return is $66252 or 66.2% for the period starting July 1, 2019 and ending June 30, 2020.

For the year starting July 1, 2018 – 2019 the case study portfolio return is

$91,794 or 91.79%. The case study portfolio return is $156,450 or 156.45% for the period

starting July 1, 2016-2017. Note that this includes 6 to 21 trade results. The case study portfolio return is $92,464.15 or 92.5% for the period starting July 1, 2015-

2016. Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years.


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Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best

reasonable price on the day after the stop loss is triggered.

CUSTOMER CAUTION NOTICE AND COPYRIGHT Algobot Pte Ltd (CRN 201604500D) Pte Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the Singapore Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product

advice. These analysis notes are based on our experience of applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can be applied to a chart example based on recent trading data. This newsletter is a tool to assist you in your personal judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs because readers come from diverse backgrounds, with diverse

objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The publication should not be construed by any reader as Publisher's (i) solicitation to effect,

or attempt to effect transactions in securities, or (ii) provision of any investment related advice or services tailored to any particular individual's financial situation or investment objective(s). Readers do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or monitoring of the reader's individual investment portfolio or

individual particular needs. Therefore, no reader should assume that the Publisher serves as a substitute for individual personalized advice from a licensed financial professional of the reader's choosing. The decision to trade and the method of trading is for the reader alone to decide. The reader maintains absolute discretion as to whether or not to follow any portion of our content. Publisher does not offer or provide any implementation services, nor does it offer or provide initial or ongoing individual personalized advice. It remains the reader's exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any strategy and to

correspondingly determine whether any such strategy is appropriate for a reader's individual situation. Publisher expresses no opinion as to whether any of strategy contained on this publication is appropriate for a reader's individual situation. The author and publisher expressly disclaim all and any liability to any person, whether the purchase of this publication or not, in respect of anything and of the consequences of any thing done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Neither

Algobot Pte Limited nor its officers, employees and agents, will be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained in this publication. The information contained in this newsletter is copyright and for the sole use of trial and prepaid readers. It cannot be circulated to other readers without the permission of the publisher. Each issue now incorporates fingerprint protection that enables us to track the original source of pirate copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the length of your paid subscription by the value of the multiple copies we believe you are

circulating. Share with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and analysed in real time on a weekly basis. Any past investment-related performance . referred to may not be indicative of future results, and therefore, no reader should assume that the

future performance of any specific investment, investment strategy will be suitable or profitable for a reader's portfolio, or equal historical or anticipated performance level(s). Algobot Pte Ltd does not receive any benefit or fee from any of the stocks reviewed in the newsletter. Algobot Pte Ltd is

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, 20202020/06/12 · parabolic trend this saucer pattern trade has a price target. This is...

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