INVESTMENT CLUB NATIONAL CONFERENCE 2007

Technical Analysis: Is The Trend Your Friend? know at a glance when to get in, when to get out and how to make 5% per month along the way! Jeff Fitzpatrick Darlington Dealers Investment Club

How Many Factors Can You Juggle? My technical analysis capability has around 50 factors and often dozens of variations, such as a different number of days in a moving average, for many of them Time today, with about 30 minutes is too short to do justice to any of them I am therefore concentrating on how we use the most basic technical analysis factors to make ~ 5% per month! INVESTMENT CLUB NATIONAL CONFERENCE 2007

These are: Stochastics Money Flow Moving averages Candlesticks INVESTMENT CLUB NATIONAL CONFERENCE 2007

Indicator No 1 ~ Stochastic Oscillator The first indicator that we look at. This is simply because it is the easiest to see rather than the best indicator! Stochastic Oscillator is a momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods. Closing levels that are consistently near the top of the range indicate accumulation (buying pressure) and those near the bottom of the range indicate distribution (selling pressure). What we want to see in the trend Readings below 20 are considered oversold and readings above 80 are considered overbought. George C. Lane, the originator of Stochastics, believed that some of the best signals occurred when the oscillator moved from overbought territory back below 80 and from oversold territory back above 20. INVESTMENT CLUB NATIONAL CONFERENCE 2007

Indicator No 2 ~Money Flow (Oscillating) Measures the flow of money into and out of a company. Attempts to measure the balance of supply and demand. For example, if the closing price is midway between the high and the low, then money flow pressure is balanced and the factor is zero. At a glance I want the money flow to be rising, from ANY POINT and I want to see a trend building through 3 days of rises. INVESTMENT CLUB NATIONAL CONFERENCE 2007

Indicator No 3 ~ Moving Averages We look at the 10 day MA as our short term and the 20 day as our long term MA. As far as the trend is concerned we simply want to see the two averages moving closer together. INVESTMENT CLUB NATIONAL CONFERENCE 2007

Indicator No 4 ~ Candlesticks A candlestick chart is a style of bar chart used primarily to describe price movements of an equity over time. It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. Candlesticks are usually composed of the body (often black or white), an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a stock, and the body the opening and closing trades. If the stock went up, the body is white, with the opening price at the bottom of the body and the closing price at the top. If the stock went down, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick. INVESTMENT CLUB NATIONAL CONFERENCE 2007

A typical candlestick chart INVESTMENT CLUB NATIONAL CONFERENCE 2007

Why the candlestick is useful INVESTMENT CLUB NATIONAL CONFERENCE 2007

What are we looking for in the candlesticks? We want to see the stock turn and to have that turn confirmed Higher highs and lower lows INVESTMENT CLUB NATIONAL CONFERENCE 2007

So let’s put all of this to some use … INVESTMENT CLUB NATIONAL CONFERENCE 2007

We first choose the right market! UK Stock Market l 0.5% Stamp Duty on Shares l 1 contract = 1000 Shares l 120 Optionable Stocks l Quarterly Cycle l High Spreads l High Broker Fees US Stock Markets l No Stamp Duty l 1 contract = 100 Shares l Optionable stocks l Monthly Cycle l Low Spreads l Low Broker Fees l Mature online markets in US l Cover Global Markets l Advanced information l Trade these markets in any direction l Leads all other markets l Investor friendly structure – general public access & information. INVESTMENT CLUB NATIONAL CONFERENCE 2007

We use the same information source as this chap! INVESTMENT CLUB NATIONAL CONFERENCE 2007 Valueline formed for the purpose of giving accurate information following the Wall St. crash of 1929

Then we choose the right stock! Identifying fundamentally sound stocks irrespective of technical analysis INVESTMENT CLUB NATIONAL CONFERENCE 2007 There are 30,000 Stocks to choose from ? Value Line report weekly the top 6, meet my strict Quality Criteria 30 meet Quality & Price Criteria 10 have good entry points 5 have good strategies We may buy 1 or 2

INVESTMENT CLUB NATIONAL CONFERENCE 2007 Only fundamentally sound stocks need apply! - Good Company Management? -Solid Growth track record? -Good Sales and Profit track record? -Good Sales and Profit forecasts? -Beta value – consider price volatility? -Gearing – how much debt? -Risk? -Right time to buy? -Others?

INVESTMENT CLUB NATIONAL CONFERENCE 2007 Then we filter to find stocks that “Look Timely” - Risk:Reward ratio – minimum 3:1 -Price entry level – high, medium, low -Price/EPS ratio -Sales vs Earnings -Dividends -Estimated price appreciation -Current price (important in US market!)

Stocks that were filtered out on Sunday 11 th November 2007 AJG FISV SPLS WWW KFY TJX PAYX PETM IM LOW SBUX SYY HD CAH DTV WSM CAKE DRI BMET INVESTMENT CLUB NATIONAL CONFERENCE 2007

AJG (Arthur J. Gallagher) INVESTMENT CLUB NATIONAL CONFERENCE 2007

SPLS (Staples Inc) INVESTMENT CLUB NATIONAL CONFERENCE 2007

WWW (Wolverine world) INVESTMENT CLUB NATIONAL CONFERENCE 2007

WSM (Williams Sonoma Inc) INVESTMENT CLUB NATIONAL CONFERENCE 2007

So now we have a share what shall we do with it? We could just hang on to it We could roll it We could sell options And much more! INVESTMENT CLUB NATIONAL CONFERENCE 2007

So what about options? Once we own a share we can sell an option. Let’s say we own 100 shares in WSM (Williams Sonoma Inc) and we paid $29.12 for each one. We could sell the right for someone to buy these shares off us before a set date, at a particular price point for a consideration. In this example; we could sell the option to take our shares at $30.00 in just 4 days time for 85c giving a return of 2.9% if they do not buy them and 5.9% if they do! So how do we find such deals? INVESTMENT CLUB NATIONAL CONFERENCE 2007

Find an Option to sell to collect some rent! INVESTMENT CLUB NATIONAL CONFERENCE 2007

Questions? Want to know more? me: INVESTMENT CLUB NATIONAL CONFERENCE 2007