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It is a common misconception that when the general market heads south that all shares must follow. Selecting the right sector by using charts, fundamental or even macroeconomic information is one way to start your investigation for the ‘black swans’.
If one runs a scan on ProfitSource it is easy to see that there are plenty of stocks still making all time highs. More importantly, the result will show that there are great long opportunities to be found, even in a bear market. Often it is prudent to look for confirming factors from other styles of analysis and ensure that the move is supported by other evidence.
It so happens that I conducted such a scan using the ‘New Highs’ filter in ProfitSource. Macarthur Coal Limited (MCC) is one stock that the scan results produced.
The chart below shows a weekly chart of MCC going back as far as 2004. For ease of reference, I have highlighted the bull and bear cycles for this market. There is no doubt that the more recent share price movement represents a bull market which commenced in November 2006 after making a double bottom at the 50% retracement level of the previous bull run.
Chart 1
click chart for more detail
Once the market confirmed the start of a new run from the 2006 Bear market low, the first real hurdle was the price of $7.76 being the all time high at that point in time.
As you can see from the next chart, this price was to form a significant level of resistance. During the run up from the Bear market low, MCC’s share price tested this level again in July of 2007 after failing to penetrate it in its first attempt in June 2005. It was finally able to penetrate at it’s forth attempt. Multiple tops were broken and a vigilant and shrewd trader would have quickly placed MCC in their watch list waiting for a signal to enter. As energy prices rise because of global demand and supply constraints, coal becomes an attractive commodity. MCC is well placed from an integrated investing perspective. Now a trader can safely go back to the chart to look at timing.
Chart 2
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At this point all Safety in the Market student would have taken the advice of David Bowden and avoided being ‘anticipatory stupid’. Rather than jumping in without a plan just to avoid the pain of missing out on the move, they would do what all great traders would do: be patient and wait for an entry based on their entry rules as taught in the Safety in the Market course.
One approach to take a trade would have been to wait for the swing chart to indicate the trend is up on the weekly chart. Once the major trend was confirmed, a long trade could be taken on a daily chart by waiting for the first ABC set up.
However, using some advanced techniques as taught at the 3 day Interactive Trading Workshops, an entry could have been achieved at a better price. Not only would this have resulted in larger potential profits, but the risk could have also been reduced with tighter stops.
Chart 3
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The final chart above shows the most recent action for MCC on a daily chart. As at the date of this article (28 April 2008), the share price MCC is showing no signs of weakness. This is definitely reassuring for those investors holding MCC as part of their portfolio with so little to cheer about over the last few months.
In terms of the next opportunity, all we need to see now is one ‘down’ day for point B to be confirmed and for a potential point C.
Trade Wisely,
Rick Akdagcik
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