Saturday, September 28, 2019

Personalizing the Overview of the 1 Hour Trade

Step One – Identifying Potential Runners 

In scanning Philippine stock market, I am looking for a stock priced from Php 0.50 to Php 5.00 with a traded value of more than Php 10M on a particular trading day. Once I spotted that stock, I will first check its liquidity before including it in my watch list. That's the time, I will closely monitor it. 

Step Two – Qualifying the Setup 

Once included in my watch list, I will check the technical aspect of the stock including moving averages, consolidation period, and the position of the price in relation to waves (as taught in Elliot Wave Theory). If the stock has just recently rallied, I will check its Fibonacci retracements and the tightness of the price plus the drying-up of the volume before entering the trade. 

Step Three – Entering the Order 

After qualifying a potential set-up, I will set an entry price, a target price, and a cut loss price. Though usually I place my order near the support area, still my entry depends on the strength of the trend and based on that observation, I make adjustment. Usually, I deploy 50% of my capital for a specific stock, and I double it once the price drops 0.10 to 0.20 points from my entry price. This strategy seems contrary to my cut-loss, but it works for me. Still, the important thing for me is how I interpret the psychology of the buyers and sellers of my chosen stock. If there is an unusual action that does not fit my expectation, then that’s the time I immediately exit. 

Step Four – Managing the Order & Taking Profits 

As for taking profit, though I set my target price, still my decision to sell is determined by my interpretation of the strength of the trend. If the price is still in its early stage in its wave movement, I am more inclined to tolerate the volatility and to simply sit waiting for my gain to grow. But once I discerned an anomaly, and the stock appears to struggle to make a new high, that to me is a signal to close the trade. Of course, there are times that my intuition is wrong causing me to exit earlier than I supposed to. That’s part of human limitation. No one knows exactly where the price is going. 

Step Five – Post Trade Analysis 

This is the part I like the most, writing my trades in a journal. In my analysis, I observe that stocks do not behave in the same way. Each has its own unique character. This is the reason why I do not want to enter a stock that I haven’t observed its behavior for some time. I usually trade stocks that are familiar to me. If there is a new “wild horse” in my list, I tend to observe it first. Once I think I know the character of the stock, that’s the time I trade it. 

After more or less five (5) years of trading in Philippine stock market, I now join those who emphasize the importance of a trading plan. Most of my losses in the past are results of my failure to follow such plan. I also observe that no matter how cautious you are in your analysis, still there are price movements that you will fail to accurately interpret. My recent experience with $SOC illustrates this point. After studying $SOC's set-up, entering it, and holding it for a week, I started to have a doubt when unexpectedly, the stock started to run. Thinking that the run cannot be sustained, I immediately exited with a minimal gain, planning that once it pulled back, I would re-enter again. But to my surprise, the stock reached its ceiling price twice before it started to struggle. $SOC shook me out of the trade and left me missing a ceiling play. Such reality is unavoidable and must be accepted. In trading, there is no place for regret. This field is tough, and not knowing how to deal with your emotion is just making the field tougher for you.

A Stock Value Investor

A stock value investor is a person whose investment strategy is to buy and accumulate shares of a specific company publicly traded in the stock market, which market price falls below its book value. This type of investor is convinced that the current undervaluation of the stock provides him an opportunity to own that stock for a longer period, say, five (5) to ten (10) years. The two most popular value investors are Warren Buffett and Benjamin Graham. 

Though I advise starters in stock market to adopt value investing, personally, I prefer trading on the basis of technical analysis and my personal interpretation of the psychology of the crowd that buy and sell the stock I selected. In doing so, I have my own parameters in my stock selection and they include the following:

·        Market price is below Php 5.00.
·        The value of that stock on the day I included it on my watch list must be above Php 10M.
·        The historical price shows a clear pattern of consolidation for more than 40 trading days.
·        Its technical chart must pass the test of Elliott Wave Theory. Meaning, its current price action must be identifiable on the basis of the movement of the waves.
·        There must be a drying up of volumes and price tightening after the previous huge volume and price swing. And closely related to this is the stock must pass Mark Minervini’s concept of Volatility Contraction Pattern (VCP).   
·        Finally, the current price also must pass the Fibonacci test. I prefer to buy between 61.8% to 78.6% retracement.

The above criteria describe my personal preference. Once I found a stock that passed such parameters, then I consider it a buy for me.

But for those who want to play it safe and do not have the luxury of time to watch the movement of the stock market, my personal suggestion is to do value investing. But again, even in value investing, I prefer a company, which market price per share is below Php 5.00. At this point, I will just share a list of stocks publicly traded in Philippine Stock Exchange that I considered undervalued on the basis of its Price to Earnings ratio [P/E (x)], Price to Book Value ratio [P/BV (x)], & dividend yield. By giving this list, I do not intend to be comprehensive. I will just include my stock preference in the list. Consider also that this recommendation is time-sensitive. The price of a particular stock few months from now could be radically different from its stock price today, 28 September 2019. Here is my proposed list of undervalued stocks for a stock value investor:

Company Name
Stock Code
P/E(x)
P/BV(x)
Dividend Yield
Bell Corporation
BELL
7.74
0.75
5.74%
City Land Development Corporation
CDC
6.14
0.58
5.23%
Del Monte Pacific Limited
DELM
196.66
2.14
4.57%
Filinvest Land, Inc.
FLI
6.62
0.55
3.88%
GMA Network, Inc.
GMA7
11.14
2.92
4.77%
Greenergy Holdings, Inc.
GREEN
1.44
1.25
N/A
Philippine Infradev Holdings, Inc.
IRC
0.67
1.01
Property
City & Land Developers, Inc.
LAND
6.81
0.49
5.56%
Pacific Online Systems Corporation
LOTO
8
1.4
100% stock
Lopez Holdings Corporation
LPZ
3.42
0.26
2.27%
Metro Retail Stores Group, Inc.
MRSGI
8.42
0.89
2.54%
Mabuhay Vinyl Corporation
MVC
5.9
1
1.97%
Nickel Asia Corporation
NIKL
18.4
1.88
1.72%
National Reinsurance Corporation of the Philippines
NRCP
13.57
0.38
N/A
PetroEnergy Resources Corporation
PERC
5.72
0.49
N/A
Philippine Estates Corporation
PHES
42
0.55
N/A
Premium Leisure Corporation
PLC
10.14
1.31
7.07%
Pryce Corporation
PPC
8.47
1.23
4.49%
Philex Mining Corporation
PX
31.5
0.77
N/A
Roxas and Company, Inc.
RCI
15.41
0.49
N/A
Philippine Realty and Holdings Corporation
RLT
4.68
0.5
N/A
Rockwell Land Corporation
ROCK
5.64
0.7
3.50%
Solid Group, Inc.
SGI
9.07
0.22
4.72%
Shang Properties, Inc.
SHNG
5.22
0.46
5.33%
Sta. Lucia Land, Inc.
SLI
21.41
1.51
N/A
SSI Group, Inc.
SSI
15.38
0.82
0.54%
SFA Semicon Philippines Corporation
SSP
9.09
0.37
N/A
STI Education System Holdings, Inc.
STI
23
0.8
2.89%
Harbor Star Shipping Services, Inc.
TUGS
14.54
0.87
N/A
Victoria Milling Company, Inc.
VMC
9.68
0.95
N/A
Waterfront Philippines Incorporated
WPI
69
0.31
N/A



NOTES:

1. Based on the above list, SHNG is the only one among 31 stocks that passed all three fundamental valuations. However, this does not mean that you should not invest in other dividend-paying stocks. It only means that the stock is really undervalued using all common valuations in fundamental analysis.

2. Conservative long-term investors consider a stock as speculative without dividends though both P/E(x) & P/BV(x) are low. And so they prefer to park their money for years in a dividend-paying stock. The good thing with a dividend-paying stock is that in case the price of the stock does not appreciate dramatically through the years, at least you have a fixed dividend that will serve as your passive income.