EMphase's Vault of Secrets

[EMphase]

EMphase puts EMphasis on TA/FA!
My method of selecting stocks is first based on basic technical and fundamental filters/screenings. Once I found a stock that meets the basic criteras, I will make a complete technical analysis. I usually take position in the stock once I’m satisfied enough with the perspective / outcome of the stock and only if the momentum is great. I usually have a medium term perspective for my investments (1month-24months). I will then proceed by making a complete fundamental analysis if I plan on keeping the stock longer than the technical play I first based my « buy » decision on.

On this post, I will analyse:
- Stocks
- Indexes

[EMphase]

Announcements

Symmetrical triangle on GCO with break out! Discussion on page 2 with explanations.

[EMphase]

Tools I use frequently to base my decisions

Fundamental Analysis


General
Management/Board of Direction, News, Industry, Economy.

Ratios
Current Ratio, Quick Ratio, Receivables Turnover, Inventory Turnover, Payable Turnover, Asset Turnover, Equity Turnover, Gross Profit Margin, Operational Profit Margin, Net Profit Margin, ROE, ROA, Debt/Equity, Interest Coverage, CFO/Debt, Retention Rate, Growth Rate, Price / Earning, Price / Book, Price / Sale, etc.

Others
NPV, EVA, CAPM, bêta, etc.

Technical Analysis


Elliott Wave Analysis
Too complicated to explain here. I highly recommend the purchase of this bundle pack of books to better understand the theory.

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Moving Averages
When the short one is crossing the long one "up", it means a wave 1,3,5,b is most likely starting or already started.

When the short one is crossing the long one "down", it means a wave 2,4,a,c is most likely starting or already started.

RSI (or Slow Stochastic)
70% overbought
30% oversold
50% break-up: positive signal
50% break-down: negative signal

Candlestick Patterns
When you know a wave is about to end, a candlestick pattern may give an extra hint. However the candlestick pattern without the understanding the Elliot Wave count behind it is not very reliable in my opinion.

Fibonacci retracements
Useful but only if you are using at the pivot points of the waves. Which means at the very beginning or at the very end of a wave. Anywhere else it's not useful and doesn't have predictable power.

Traditionnal patterns
Wedges, Flags, Triangle, Double Top, Double Bottom, H&S, reverse H&S, ETC. however there is a difference:
The traditional analyst will take anything that looks like a pattern by its name. For example, if a traditional analyst sees something that looks like a triangle, he will say it's a triangle and like some people here said... it's a triangle until it's proven it's not.

The Elliott Wave analyst must meet specific criteras to call a pattern by it's name. For example, something that looks like a triangle is a valid triangle only if it's a corrective pattern from wave 4 or B or if it's part of a double three or triple three. Also the triangle must contain 5 corrective waves of a smaller degree. If it doesn't have 5 waves (a,b,c,d,e) it's NOT a triangle. A triangle that meets all these criteras have PREDICTABLE power... Like this one on BBD.

Channels, Support & Resistances
These are very important tools for an EW analyst. However contrary to a traditionnal analyst, you can draw a channel using EW only if it meet certain criteras. If the criteras aren't met,the channel isn't recognized as the true channel.

Support and resistances appears on corrective patterns that are bounded within certain price ranges or also can be estimated on places where shares got accumulated for a certain period of time.

Measurements (price & time)
Measuring the lenght of a wave can have some great predicting power. For example, wave 5 often got at least the lenght of wave 1. So take the measure of wave 1 and report it on the chart starting from wave 4 and you will have a fairly accurate estimate for a minimal target. Thats just 1 example.

Volume & Volume by price
This is very important to confirm a break out of a pattern like a triangle. A break out can only be confirmed on stronger than usual volume.

Logarithmic charts
Very important. You can't count waves correctly without using a log scale.

Others
All of these can be used to help with the EW analysis but none of them are essential. Let's just say their use depends of the situation: MACD, DMI, % short interest, Put/Call ratio, P/E ratio, Earnings, Dividends, Splits.

[EMphase]

Updated Indexes

To be edited later on.

[EMphase]

Updated Watchlist

Currently on my watchlist:
GCO

[EMphase]

1

To be edited later on.

[EMphase]

2

To be edited later on.

[EMphase]

3

To be edited later on.

[EMphase]

4

To be edited later on.

[EMphase]

5

To be edited later on.

[EMphase]

Gco

Genesco Inc.
I just have that passion about triangle patterns. Here is one I found today. The break out happened not too long ago and the pullback is now over.

I got a little trick that is useful to estimate the target both in price and time approximately for symmetrical triangles: Draw the triangle and annotate A,B,C,D,E to validate the pattern. Then draw a parallel resistance channel line starting from B. Just connect A with D and draw a line. The intersection of that line with the resistance channel is the approximative target for the impulsive wave 5.

Past example:
This is one of my most successful trades for symmetrical triangles. HELE in 2001-2002. View how accurate the price * time estimation was using my technique. I bought HELE @ 10.25. Many people said I had balls to trade a triangle that didn't break out yet but I knew what I was doing. Then the rest of the story is written on the chart below as you can see. HELE went up pretty fast. I had a target of HELE @ 14.25 - 14.50 at that time. I sold inside that range just at the top. HELE actually went a bit higher than my target but its neglectable.


Current example:
HELE is a case of the past. Now let's see a possible an example right now of this with GCO. Target is approximately 48.00-50.00 $US and a timeframe of 1-1.5 month according to my price * time technique.

GCO itself is a fair stock with decent fundamentals. P/E: 14, ROE: 20%, Debt/Equity: 30%, Growth of sales and profits 15% / 20% respectively, 95% institutionnally owned, beta of 1.30. Compared to the industry, GCO is about average right now, nothing exceptionnal at short glance but yet strong enought in my opinion to feel safe/secure.


PS: This technique only works with symmetrical triangles. This doesn't really apply for ascending triangles / descending triangles / reversed triangles or other shapes of triangles.

[Websman]

Very fancy work dude... I like to look for the triangle patterns.

Show us what else you have.

[New-born baby]

Nice

Like I said before, keep posting. I very much like the symmetrical triangle "forecasting" tool. Thanks for showing us how to do it. I know it works as I've seen someone else do it, but I did not know how they drew the lines. Very, very nice work.

[EMphase]

I'm in GCO today @ 41.95$. I'm not gonna bother with the very short term momentum such as waiting 42.00$ to break.

[mrmarket]

way cool. EM