Noel Campbell
Noel Campbell 		Recently during a discussion with a couple of new traders they shared with me their fascination with the run up in the stock Caltex, CTX. If you haven’t come across this example you will be amazed at what you will find. You should also listen carefully to your internal dialogue and sense if some greed comes into your mind when you see what has unfolded.

CTX had been listed on the ASX for over 11 years before starting a major bear cycle from it’s high of $5.75 in January 1996. During the first 11 years you would have to say the stock had established itself as a proven stock. By showing the ability to have sell-off’s, but always returning to new highs. The period from that 1996 high to the bear market low in September 2001 was a tough time for the stock.

Chart 1 is the monthly bar chart for CTX starting from 1984. A benefit of Software is super clear here with the fact that we can easily have about 18 years of history at our fingertips. Looking back, the all-time low for CTX was $0.90 in October 1984.


Chart 1

click chart for more detail

Being a proven stock and trading around the level of its major historical low was a golden opportunity to buy an undervalued stock. Who could have imagined that the stock price would have exploded to the upside quite like it did? However you would have to say that it’s potentially dangerous times to buy the stock or add to a position. Our seasons of trading suggest we could be heading into winter on this run.

I have used the Tubbs’ Two Point Swing Tool to help outline prices to watch as a target. Using the January 1996 high ($5.75) as the pivot point and swinging using the low in September 2001 ($0.90) we get a target of $10.60. But one may not want to be pedantic about taking profits at this target. Always remember you can use a trailing stop loss. It will be also be worth the effort to find out if any CFD (Contracts for Difference) providers can offer the opportunity to short the stock. There have been some exciting developments in the world of CFDs recently, opening up virtually the entire stock market to trading in both directions. I’ll spend more time on this over the coming weeks.

Until next week......

Noel Campbell