10 Jul 2008 @ 11:33 AM 

ALSI January-May 2008


Detailed summary of the ALSI trade presented on the home page:

The software indicates that the 46.1 week cycle formed a trough a week ago, on the 22nd of January. This is the nominal 9 month cycle, so we can now expect 2 x 20-week cycles, with the peak of the next 9-month cycle most likely occurring in the FIRST of these sub-cycles because the short-term underlying trend of the 9 month cycle is DOWN (18-month turning down, 54-month down). This is therefore a good time to buy as we expect a 9-month magnitude peak within the next 20 weeks (the software targets the 25th of April). The target for a long trade is given as 30500 (the middle of the red sell-zone on the chart), and the expected exit date for the trade is between mid-April and late-May. The stoploss level is set a small distance below the most recent low (of 21932) at 21750. Between here and the target there are two Pause Zones (the sandy coloured background boxes), so the price is likely to pause in those areas on its way to the target. There are several FLD’s in cascade position, which will project price upwards.

Target & Stoploss levels on the day of the trade

Buy Situation

This gives us the following buy situation, which indicates a Potential to Risk ratio of 2 at a price of 24666. I would prefer a higher PR ratio (of 3 – 3 1/2), but given the high confidence rating of the phasing at this point (not shown), and the extreme nature of the recent trough indicating probable fundamental interaction on the day of 22nd January – which is a typical “panic bottom” occurrence – also called a spike, or key-reversal day, (note that day’s candle’s long lower tail, or shadow) – I will go ahead with the trade, particularly as the gross% profit to be made is very satisfactory at over 300%.

The thing now is to find an entry action signal. Given the high confidence rating of the cycle phasing, I look for an action signal that would confirm the recent nest-of-lows. A 10 day VTL has already occurred – Friday last week, which increases my confidence, however a longer cycle confirmation would be better. Given that the recent 20-day troughs have been well-spaced, a 20-day confirmation would be good enough – but the 20-day VTL is too high to provide an effective entry, and so I choose the 20-day FLD, and use the FLD high as opposed to the FLD median because the high gives me an instant action signal (in fact the difference between the two is not great at this point, and the entry level is not much changed by this decision). The 20-day FLD high was at 24000 today, below yesterday’s high of 24195 – and so I choose 24200 as an entry level (requiring that price exceed yesterday’s high). Referring back to the buy situation table, this gives a PR ratio of about 2 1/2. I’ve highlighted the 20-day FLD high in yellow in the chart below (I know there are lots of lines and colours … it confuses me too!)

The 20-day FLD action signal

In fact the entry occurs fairly near the high of the day, and the trading for the day closes slightly below my entry, but there is no cause for alarm!

The trade progresses very well, with all the cyclic events falling into place as expected, including a pause/correction in the pause zone identified between 26000 and 27000 – which because it was expected gave no cause for alarm. We’ll jump forward now to the 28th of May. The software two days ago identified the peak of the 20-week cycle (which is the cycle we are trading) as having occurred on the 22nd of May. It is now projecting DOWN to a new target somewhere below 27000.

The software realises the 20-week peak has passed

If we had exited at our original target of 30500 (assuming that no better-than-expected signal had been received), then our exit would have been effected on the 14th of May, however assuming that we canceled that exit (ignoring the software, and hoping for more upside), an action signal at the crossing of the 80-day VTL (confirming the 20-week peak) would have taken us out on the 28th of May at 30200.
The initial target exit would have yielded a better exit point

This trade would have been a profitable one:

Margin Deposit: R18,000
Total Profit: R60,000
Brokerage fees: R800 (possibly greater depending on your broker, and their roll-over fees – there would have been one roll-over)
Duration: 120 days
% Profit: 328% (in 120 days)

As I build this website I am gradually adding to the glossary, which explains some of the more technical terms. If there’s something that confuses you, that hasn’t made it into the glossary, or if you are interested in this sort of analysis, and would like to discuss it, or would like me to consider a particular share of interest to you, please let me know by adding a comment to this post, or by email: david@sentientcode.com.

Tags Categories: Beautiful Charts, Calling the Market Posted By: admin
Last Edit: 10 Jul 2008 @ 12 42 PM


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