On May 16 I received the following question in my blog, which was useful to my explaining why I write the blog, which is to educate and inform people, who by the way I do not know and have never met except for much fewer than 1%. As much as I enjoy trading, I enjoy blogging.
I’d like to learn how to recognize extreme strength that I should be selling into. I hold Wesdome WDOFF, and today it made an all-time high. I didn’t sell any. How do I know when to sell?
I think in the past you were waiting for Wesdome to be bought out, and I didn’t see when you sold.
Re Wesdome, I sold Wesdome (WDO.TO) (WDOFF) many months ago after I believe the stock got too expensive. I was just starting a new Gold portfolio and I decided there were better values elsewhere. Had I been managing a much larger portfolio, I would have maintained a minimal position, which tends to keep me monitoring it by the hour vs say by the week or less.
Is the company worthwhile for long-term investment? Based on the corporate fundamentals (revenue growth, earnings, free cash flow, and asset expansion), I believe very much that is the case.
Do I still believe it is a take-over candidate? Yes. If Wesdome were bigger, with a larger proven resource, then the company would be even more of a likely merger candidate. M&A is a costly business, particularly when small companies are the intended prey and the offer is considered “hostile”.
Am I fully satisfied with the Wesdome operations? Well, I have been waiting for more info and some decisions by now on the re-start of their Kienna mine in Quebec. Coronavirus has slowed their work there, but decisions by the government this summer will enable that work to get back to plan.
Would I be an investor again? I plan to very soon. Just waiting for weakness in the stock price that I can buy into.
What does buying into weakness and selling into strength mean, and what tools do I use to determine when to buy and sell? For that I use StockChartsACP.
For example https://stockcharts.com/acp/?s=GOEX
ACP stands for “Advanced Charting Platform”. It’s built to serve as a comprehensive, interactive technical charting platform with the largest feature set of any charting tool out there. With a wide range of dynamic capabilities, StockChartsACP will be the web’s most advanced financial charting tool.
The ACP service from StockCharts provides pivot points, which are points of technical support (S1 and S2) and resistance (R1 and R2). I simply follow a discipline by selling a partial position when price exceeds R2 on the upside, i.e., when the price is exceedingly strong; and buying the position back when price exceeds S2 on the downside, i.e., when the price is exceedingly weak.
On Friday (May 15), I made 20 trades in two Goldminers that are in my core portfolio. I sold a large percent weighting in Fortuna Silver (FSM) and Silvercorp (SVM). For certain I expect to restore these positions. But as readers can see from my transparent comments, I also factor fundamentals and common sense into my decisions. I wrote extensively about what was bothering me on Friday with Fortuna Silver. There was a huge divergence between the price and the featured headlines in the media on the one hand and the quarterly reported financial results and management’s explanations on the other. Maybe there is a corporate take-over underway and, not being in the room as we say, I would not be privy to such inside information, which could be the reason behind the buying. It often is, you know, that under cover of a hyped-up report, the insiders are acting illegally in their trading. I have seen this all my life and I have been trading since the mid-1960s. But the bottom line is that insiders today are nervous in such dealings because regulators now have the tools to quickly determine what’s going on that might not be being made transparent to the public. Sometimes, I will post a comment that I hope the regulators see so that maybe one of their staff looks closely at a particular situation. In any case, let’s say that 9 times in 10, the over-buying and the over-selling are simply a crowd phenomenon (“people acting like people”). That’s where my techniques are winners.
StockChartsACP is a terrific tool. I use a premium version in order to observe trade bars of 1-, 2-, 3-, 5-, 10-, 15-, 30-, 60-, 120-, and 240-minutes as well as the Daily, Weekly, and Monthly time series data. I make decisions on the 30- and 60-min charts and then zero in on a much shorter time frame to submit my (always limit) order to the market. The shorter time frames are used in “fast markets”, i.e., when prices are extremely volatile and under directional pressure from various algorithms that are used by the big money players.
The different technical indicators used in the chart overlays are the standard RSI, Stochastics, True Strength, Coppock, etc, each of which I use in different ways. Some of them like RSI is useful when observing values that range higher than 70 and lower than 30, in which case I’m watching for reversals. In some other cases, I am using a trendline of the indicator line, watching for trendline crossovers.
Each one of us has different resources, temperament, trading style, and so forth, so it’s not helpful for me to go deeper than this in my explanation. I do plan to write a book on this later in the year, but just to explain the different possibilities of the toolsets that are available to each of us. It’s up to each of us to decide if and how we use them, and which industries and stocks (or ETFs) to trade.
In summing up, I am not strictly a chart-watching trader. I read extensively about the companies whose stock I trade. I am always looking at relative and comparative data in peer groups. There is the common sense aspect too but mostly I think it comes down to simply having a sense of price motion (my “antenna”) and trying to understand why that is happening at points in time when a price is moving (perhaps) abnormally. It helps greatly to understand the companies.
I hope this helps answer your questions.