TECHNICAL CONFIRMS FUNDAMENTAL · CBL BREAKOUT DAY. The objective is to make an entry on the next day at the most favourable price possible. TRADE STOP LOSS CALCULATION When price

May 18th, 2019 A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

1

Weekly for Saturday May 18th, 2019. Based on Thursday’s Close

CONTENTS

TECHNICAL CONFIRMS FUNDAMENTAL pg1 READER QUESTIONS: CBL BREAKOUT pg4

INTRADAY STOPS pg7 JUMPING SHIP pg11

CONFIRMED BEARISH ON AUD pg13 NEWSLETTER OUTLOOK: SUPPORT REBOUND pg14 PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg15

TECHNICAL CONFIRMS FUNDAMENTAL

Technical and fundamental analyses are often seen as being at war with each other. However, they are just different analysis methods applied to the same

underlying instrument. A decade ago I did training work for the Singapore Stock Exchange. It was a

two-speaker session -one fundamental analyst and myself. At the conclusion of the sessions we went to questions. I was asked to provide a technical analysis of an

Australian stock that I was not familiar with. I applied the analysis and set an upside target.

The fundamental analyst was asked for his assessment. He admitted he was

gob smacked. “You did in three minutes what has taken our team three months to do and reach the same conclusion.”


2

This week, working with CNBC, I had a similar experience. Unbeknown to me, in a previous interview just minuets before my interviews, the head of UOB Bank

Market Strategy had set an upside target for gold of $1410. Martin Soong bought up the gold chart and I talked about resistance near

$1350 and set that as a target. He asked how this squared with the target of $1410

set by the previous guest. I showed how technical analysis confirmed the UOB target. The upside

projection is half the width of the gold trading band. When gold breaks above resistance near $1350 then the first target is $1410 with a longer-term target near $1490.

Technical analysis can be used to verify the conclusions reached by fundamental analysis.

Gold shows a weak uptrend with limited strength to mount a successful breakout above the long-term resistance level $1350. Gold shows a strong pullback from a strong resistance level. Long term GMMA support is weak.


3

The UOB price target is valid, but it’s not something that will be achieved in the near future.

You can download the ATR indicator for MT4 at https://www.mql5.com/en/market/product/29683 Use this to improve your trade risk

management.

CASE STUDY EQUITY CURVE

The EGD trade is closed for a profit of $895.52 or 4.48%. The case study

portfolio return is $57,462 or 57.4% for the period starting July 1, 2018 and ending June 30, 2019.

https://www.mql5.com/en/market/product/29683

https://www.mql5.com/en/market/product/29683


4

For the year starting July 1, 2017-2018, the case study portfolio return is $115,330 or 115.3%. For the year starting July 1, 2016-2017, the case study portfolio return is $92,464.15 or 92.5%. For the year starting July 1, 2015- 2016, the

case study portfolio return is $156,450 or 156.45%. Equity trade size is generally kept constant at $20,000 in the case study

portfolio so it is easier to compare the case study trades over this and other years. Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price

on the day after the stop loss is triggered. Warrant and CFD trades are generally kept constant at $10,000. Warrant and

CFD trades are closed on an intraday basis using a guaranteed stop loss as this is a primary method of managing derivative risk.

FX trades are generally kept constant at $5000. Stops are managed intraday.

This capital allocation reflects the risk in each of these asset classes.

READER QUESTIONS: CBL BREAKOUT By Daryl Guppy

A reader has asked for an explanation of the mechanics of using the Count Back Line in relation to a trend breakout trade. BREAKOUT IDENTIFICATION


5

The CBL long side breakout value is calculated from the most recent lowest low in the current downtrend. This is shown on the chart extract. There are two factors in

the breakout identification. First is a move above the downtrend line. This might also be a close above

a moving average line which can also be used to define a downtrend. In this example there are 7 days where price is above the value of the downtrend line.

Second is a CLOSE above the value of the CBL line. This is shown as the CBL BREAKOUT DAY. The objective is to make an entry on the next day at

the most favourable price possible. TRADE STOP LOSS CALCULATION

When price data has been downloaded and the CBL BREAKOUT DAY is identified the trader then needs to estimate an entry price and do position sizing calculations

according to the 2% rule before entering the trade. The rule says that the trader will pit at risk no more than 2% of total trading capital on any single trade. This risk is the difference between the entry price and the stop loss exit price.

These are the steps.

From the high of the CBL BREAKOUT DAY calculate the position of the CBL stop loss. This is located at $8.95 in this example.


6

Entry can be made at any price above $8.95, the value of the CBL stop loss Estimate the preferred entry price for the next day. In this example we use

the close of $9.06 as entry price calculation value.

For convenience we use $100,000 of trading capital and work with a maximum 2% loss. The calculations are shown below. In this case the maximum

theoretical permissible size is more than our total trading capital. We scale this back as shown in the far right column so the purchase is the standard newsletter portfolio size of $20,000. This lowers the exit price to $8.15 before $2000 is lost.

An exit at $8.95 reduces the risk to $242.88 loss if an exit is made at $8.95.

On the entry day the trade is entered at a better price, around $9.13. This reduces the risk in the trade. In this example the entry day has an equal high to

the breakout day at $9.25. The position of the CBL stop loss is recalculated and the stop loss lifted to $8.96. As each new high is made a new stop loss calculation is

completed. The first 4 rising stop loss are shown on the chart.


7

The CBL is a good stop loss based on price volatility. It is most useful when

combined with other analysis methods to verify the breakout condition. Occasionally the new CBL stop loss calculation will give a lower stop loss. In this situation the new

lower stop is ignored and the old higher stop loss is used.

INTRADAY STOPS By Daryl Guppy

The EGD trade is closed but it’s a good example of how stops are

managed. EGD had previously delivered a stop alert so the next strop alert was an exit trigger.

When a trade is profitable the stop loss conditions can be relaxed

slightly. We use a system of stop alerts followed by stop signals. This approach can only be applied when an exit at the stop level still delivers a

profit in the trade. As the trend becomes much stronger and more clearly established then stops may be further relaxed so the trade can take advantage of the full stable trend move.


8

If market conditions become unstable or bearish, then stop are tightened in all profitable trades so the profit is protected. In some cases, traders will exit once a defined return target is met or tighten stops to just

below this return target. We discuss how we manage the EGD trade in this environment.

I know it’s the ultimate low tech, but I love eyeballing charts as a means of finding trading opportunities. Eyeballing simply means scrolling through the charts on the lookout for opportunity. Eyeballing should take no more than 1 second, or less,

per chart. To demonstrate how we apply this selection and analiysis method we have

eyeballed just all the stocks beginning with E. This limits the starting pool and we came up with 4 candidates, each of which offers a different trading approach.

It took around 5 minutes to eyeball the E listings. With another spare few

minutes we could move onto the G listings etc. There is no need to eyeball the entire market in one sitting.

EHE – TREND REBOUND AND RESISTANCE BREAK

The breakout above resistance is moving steadily above the resistance level. It’s a slow, boring, low volatility trade with a 10% open profit. Alert

stop is a close below the value of the lower edge of the short term GMMA. The trade is in the money and profitable so stops can be loosened slightly as

the risk is now to profit and not capital. The breakout sets new target near $3.20. These are calculated by taking the width of the retracement move and projecting this upwards. However, to protect profits the stop is lifted to the value of the lower edge

of the short term GMMA.


9

Readers may remember EHE was added as an earlier trade and closed as price began to retreat after the initial breakout spike. The rebound activity proved the

strength of the trend, so it offers another entry opportunity. The entry follows the rebound rally as price starts to cluster around the upper edges of the short term GMMA. This has the potential to create a tweezer pattern with a breakout above

$2.85. This is important because this level is also the starting point for the gap down activity that developed in September 2018. This is often the first resistance point in a

new rally and breakouts above this level can be powerful.


10

Entry is near $2.70 with the stop loss near $2.62. Stop loss is the value of the

lower edge of the short term GMMA. This puts $592.59 at risk or 0.59% of total

trading capital.

EGD – GMMA TREND

This is a complex trade but here’s the bottom line. “Any intraday move

below the value of the short term GMMA is an exit signal.” The move developed on Tuesday with an open below the value of the lower edge of the

short term GMMA. An exit is taken near $2.10. This gives a profit of $895.52 or 4.48%.


11

Here are last week’s notes for reference. The price moved above the historical resistance level near $2.15 so this is now

used as a stop loss level. A tight stop is applied as the momentum continues. The

objective is to capture the profit. If the trend stabilizes, then the stop will be loosened. Next upside target, based on historical resistance levels, is near $2.24.

How is this applied in this situation? Monday the price closed at $2.14 triggering the stop. This was a pause in the momentum, but still technically an exit signal.

Has the trend stabilized? The short term GMMA is well separated and the price

pullback is consistent with the GMMA uptrend. There is no challenge to the lower edge of the short term GMMA. There is indication of any threat to the long-term trend as

shown by the GMMA. This can be treated as a normal oscillation in this steady trend. It is a pullback

from the resistance level near $2.15 but this is not unexpected.

We apply one final test. If we were not in this trade would we consider entering the trade in anticipation of an uptrend continuation. In other words, would we see this

pullback as an entry opportunity at a point of temporary trend weakness. The answer is affirmative, so the trade remains open. However, this is an alert

signal, so any intraday move below the value of the short term GMMA is an exit

signal. This is a classic GMMA trend trade. The long term GMMA is well separated showing

strong investor support. The short term GMMA is consistently separated showing trading support. The degree of separation between the two groups of moving

averages is steady and this confirms a steady trend development.

Entry is near $2.01 with the stop loss near $1.99. Stop loss is the value of the lower edge of the short term GMMA. This puts $199.00 at risk or 0.2% of total trading

capital.

JUMPING SHIP By Karen Wong

Sailors jump ship for emergencies and for fun. In the Navy for example, sailors

participate in a traditional activity known as a ‘Swim Call’. By jumping off the ship,

straight into warm ocean miles away from shore, it’s a way of taking a break from battleship duties. Those not enjoying the swim keep watch from on board the ship for

any sharks or predators. Like sailors, sometimes traders need to jump ship. If we need to but don’t, it can lead to some undesirable consequences.


12

The following trade on Mayne Pharma Group (MYX) demonstrates how jumping ship can be a good idea.

MYX caught my attention on the Daily chart first as the GMMAs were breaking

out and upwards. It looked like the start of a potential uptrend.

Leading up to the day of entry there was compression and a slight expansion in the lines of the Short Term GMMA as price began to move in an upwards direction.

The lines of the Long Term GMMA were well separated showing long term investor support for MYX.

I wanted this trade to be a longer term one so I opened a Weekly MYX chart for further analysis.

On the MYX Weekly chart, the Short Term GMMA group of moving averages

showed good separation as price began to trend upwards. Traders were active in this stock. The Long Term GMMA was only just beginning to separate out as long term

investors were gradually increasing their support of the uptrend. The lines of the Short Term GMMA are sitting above the lines of the Long term GMMA in an order confirming the uptrend in place.

My entry for this trade was based on the Weekly chart as the Short Term GMMAs were beginning to rise upwards after a short period of compression. On the

21st August, I opened a trade on MYX at 0.99 as marked by the small blue arrow on


13

the chart. My Stop Loss was 0.86 based on a 1*ATR on the Weekly chart and my Profit Target was 15% at 1.13.

Price started to rise and spiked at $1.42 on the announcement of news. My

Profit Target was achieved within a couple of days. I didn’t close the trade as I wanted to let profits run by following the weekly trailing stop loss based on the 1*ATR. Only if

price closed on or below the 1*ATR Stop Loss on the Daily Chart would I close the position.

Price continued to trend upwards. As the profit was building quickly I decided I

would like to lock in some of the profit. My first Exit 1 was at $1.17. I sold half of my position resulting in a profit of 17% over a short course of a month and a half.

The 1*ATR stop loss was triggered a couple of weeks later. Between the date of the 1*ATR stop loss trigger and Exit 2, I was on holidays without access to a chart. It was not the ideal situation but sometimes life takes us away from our trading. When I

finally did open a chart I sold off the remaining half of the MYX position at 0.94 for a small loss of 6%. The warning signal was there. I jumped ship.

Had I not closed the trade I would have seen further losses. On the Weekly chart a low of 0.63 was reached which would have resulted in a loss of 36% if the trade had remained open. This in turn would have resulted in the undesirable

consequences of the emotional turmoil of being stuck in a losing trade and inefficient allocation of capital. It’s not a situation any trader would want to endure for any

length of time. If a chart signals a further price decline in your stock and a possible change in

the trend then it may be the right time to jump ship. Don’t end up stuck in a trade, clinging to hope, waiting for the day when price might turn around and move back up. It could be 2 months or it could be 20 months before this happens. Or perhaps it

never will. It would be more desirable for capital to be moved into another trending profitable stock. Close the trade, relax and like the Navy sailors who jump ship enjoy

your Swim Call.

CONFIRMED BEARISH ON AUD By Daryl Guppy

We update the AUD notes. Last week we said the AUD drop below recent

support near $0.70 has an initial downside target near $0.685. This is based on lows

in 2016. This is almost achieved with the AUD reaching $0.688. The January flash crash in the Australia Dollar drove it to a low of $0.67. This

was a catastrophic low dismissed as an aberration but now that target is looking more achievable.

The trend with the AUD is steadily down as shown by the Guppy Multiple

Moving Average indicator. The long-term group is steadily and consistently well separated. When the AUD has rebounded and touched the lower edge of the long term

GMMA then the AUD has rapidly retreated. This is evidence of a sustained downtrend pressure.

The short term GMMA has shown compression and expansion ability but the

short term GMMA has not moved up to the lower edge of the long term GMMA in the past 12 months. The dominant pressure is down, so the move below temporary

support can move quickly to test historical support near $0.685.


14

The January flash crash suggest the AUD is more vulnerable, so traders are also

alert for a failure of support at $0.685. Any move below this level will test the flash crash lows near $0.67.

NEWSLETTER OUTLOOK: SUPPORT REBOUND By Daryl Guppy

The index has tested the lower edge of the long term GMMA and rebounded. The rebound has moved above the upper edge of the long term GMMA and also above the recent resistance level near 6300. This is a bullish

rebound. This rebound is confirmed as a new trend continuation with a move above recent highs near 6380.

A breakout above this level has target near 6480. This is calculated by taking the width of the trading band and projecting it upwards.

The breakout above 6300 was significant and the index tested the value and

strength of support. The test was a failure and the index has moved below 6300. This is not a trend change; however, traders watch for the way GMMA support behaves.

Traders watch for the ability of the long term GMMA to absorb the selling pressure. This was confirmed. Initial support is the upper edge of the long term GMMA near

6260, and then near 6190.


15

The trend remains bullish as shown by the continued wide separation in the

long term GMMA. Three support features are significant. The first is the upper edge of the long term

GMMA which has acted as a strong support feature. The second is the value of the lower edge of the trading band near 6300. The third is the lower edge of the long-term GMMA which is above the 6120-support level.

Traders wait for a rebound from the support features as this is bullish and confirms the breakout above 6300.

PORTFOLIO CASE STUDIES: MONEY MANAGEMENT

Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000

NOTE Entered date is the newsletter date which contains the case study discussion.

OVERALL PROFIT TO DATE The case study portfolio return is $58,389 or 58.3% for the period starting

July 1, 2018 and ending June 30, 2019.


16

The case study portfolio return is $156,450 or 156.45% for the period starting July 1, 2016-2017. Note that this includes 6 to 21 trade results. The case study portfolio return is $92,464.15 or 92.5% for the period starting July 1, 2015-

2016. Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years.

Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

CUSTOMER CAUTION NOTICE AND COPYRIGHT Guppytraderscomsg Pte Ltd (CRN 200409379K) Pte Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the Singapore Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product advice. These analysis notes are based on our experience of applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can be applied to a chart

example based on recent trading data. This newsletter is a tool to assist you in your personal judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and

particular needs because readers come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The publication should not be construed by any reader as Publisher's (i) solicitation to effect, or attempt to effect transactions in

securities, or (ii) provision of any investment related advice or services tailored to any particular individual's financial situation or investment objective(s). Readers do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or monitoring of the reader's individual investment portfolio or individual particular needs. Therefore, no reader should assume that the Publisher serves as a substitute for individual personalized advice from a licensed financial professional of the reader's choosing. The decision to trade and the method of trading is for the reader alone to decide. The reader maintains absolute discretion as to whether or not to follow

any portion of our content. Publisher does not offer or provide any implementation services, nor does it offer or provide initial or ongoing individual personalized advice. It remains the reader's exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any strategy and to correspondingly determine whether any such strategy is appropriate for a reader's individual situation. Publisher expresses no opinion as to whether any of strategy contained on this publication is appropriate for a reader's individual situation. The author and publisher expressly disclaim

all and any liability to any person, whether the purchase of this publication or not, in respect of anything

and of the consequences of any thing done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Neither Guppytraderscomsg Pte Limited nor its officers, employees and agents, will be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained in this publication. The information contained in this newsletter is copyright and for the sole use of trial and prepaid readers. It cannot be circulated to other readers without the permission of the publisher.

Each issue now incorporates fingerprint protection that enables us to track the original source of pirate copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the length of your paid subscription by the value of the multiple copies we believe you are circulating. Share with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and

analysed in real time on a weekly basis. Any past investment-related performance . referred to may not be indicative of future results, and therefore, no reader should assume that the future performance of any specific investment, investment strategy will be suitable or profitable for a reader's portfolio, or equal historical or anticipated performance level(s). Guppytraderscomsg Pte Ltd

does not receive any benefit or fee from any of the stocks reviewed in the newsletter. Guppytraderscomsg Pte Ltd is an independent international financial education organization and research

is supported by subscription fees. Please note that in the interest of timely publication of the newsletter, this document may be incompletely proofed. OFFICES; Guppytraderscomsg Pte Ltd Head Office, 20 Cecil Street,#20-01 Equity Plaza, Singapore 049705, Singapore, 22 Hibernia Crescent, Brinkin, Darwin, Australia, Room B105-A17, No.14, Chaoyangmen Nandajie, Chaoyang District, Beijing, China.

Documents

TECHNICAL CONFIRMS FUNDAMENTAL · CBL BREAKOUT DAY. The objective is to make an entry on the next day at the most favourable price possible. TRADE STOP LOSS CALCULATION When price