Thursday, March 09, 2006

HANS Earnings & $UTIL Breakdown

First off, looks like I blew the HANS short recommendation. This company came out with stellar earnings this morning, and pre-market bidding looks like it'll open at a new lifetime high. Ah, well; can't win 'em all, folks. The key is that we had a stop in place, we take the loss, and we move on. With a stock like this, it's hard to know if it'll ever stop rising!

In retrospect, the problem with my analysis on HANS was the lack of analysis. This chart was not in any particular technical formation per se. I made the worst of errors of charting - projecting what I thought might happen based on a very small set of supporting data (in this instance, what looked like a double top). So, again, this was not a real pattern at all (such as a wedge or a saucer). So I'm disappointed in myself in being so hasty; that was a lousy analysis and a lousy recommendation.

Let's look at something which does have a good pattern and is probably more important to the market in general - the Dow Utilities. As you can see from the graph below, there are two very bearish situations with this chart. First, the very large ascending trendline going back over three years was broken a number of weeks ago. Second, there is a very plain head & shoulders pattern which I've highlighted here for you. So we've got a bit of a one-two punch.

The likely subsequent drop in this market would portend even higher interest rates as well as additional weakness in the market overall.


Super Bull said...

No, Trader Tim. Your mistake is not that you read the chart wrong. It is that stocks are moved by fundamentals and not technicals. All these double tops, fibonacci, trendline, and moving averages formations are pretty silly. It is the high of hubris to think that you can use chart reading to predict something as complex as the economy system. Sometimes the fundamentals and technicals happen to match so that gives you the illusion that you can use technical charting to predict the fundamentals. But it is just that, an illusion.

Tim Knight said...

Well, I disagree, but I think this is a comment worthy of a posting of its own. I'll probably make it my next one, since I think this is a healthy debate.

Jerome said...

Thanks for your candid response to your own suggestion. I almost wrote you about that yesterday but didn't. I thought it was a little dicey to picking a top on on a stock with such strong upward movement and no clear and obvious break of that. But I didn't because based on the potential double top and the tight entry point close to the stop loss, it seems like a well calculated chance, just like any other trade. Why does the potential double top not count, in your mind, as a viable pattern here?
Many thanks.

walter said...

are we so sure yet that HANS is not a short? seems like that battle is being waged as we speak.

shorting before today may be a good call - but its definitely early

if HANS can only go up from here, or i am missing something, let me know.

one other comment - why is commenting here so difficult? you have to have a username and password? full lock down? luckily i had one, but if i didnt i dont think i would create one just to post a "comment"

nice blog
i read for short ideas

PB said...

Actually, both fundamental and technical analysis on their own are prone to send wrong signals. I believe that both in conjunction with each other offer a better 'system'. Fundamentals will trump technicals one day, and the next day it will be the other way around. The recent failure in the SP500 to breach 1296 is a case in point, failure to breach gave way to a nasty slide without any 'fundamental' news being responsible. It's probably true that fundamentals drive technicals, but in the absence of anything fundamental, it's the technicals that dictate price movements.

rob t said...

I look forward to this discussion, as I believe it will be informative and educational. By the way Tim, what is the symbol to trade for $util? Thanks.

us_bulls said...

Its something rare when a TA admits his mistake rather than giving ridiculous reasons in support of his analysis. I was kind of looking forward to your response on this call.

jockgunter said...

Charts have no predictive power, but still tell you where we've come from and give you a hunch. Disciplined stops are the only hope. HANS also benefitted from the articles saying that soft drink sales dropped for the first time in 20 years.

walter said...

why was shorting HANS a mistake?

it closed in the 97s?

any fundamentalist want to answer that?

walter said...

its hard to get a dialogue going on here because everything has to be approved by the blogs author...

tim, if you dont like something you can just take if off after the fact, right?

its like i post, and have to wait too long for it to actuall show up...

anyway, keep up tbhe good work

John Galt said...

I too look forward to the TA fundamental dicussion, I think you should always use both. On The Hans trade I would not of entered the trade because of the major event (earnings) that was upcoming. In fact as the comments on your prior post point out it was a hard to borrow this issue in the first place I was thinking there would be a short squeeze situatuion because of this but it did not turn out to be one at least during trading hours. It looks like many holders took this as an opportunity to dispose of stock particularly in the last half hour of trading. Maybe the long time holders are happy with thier multi-thousand percent gains or they believe hans has reached its growth limits. I think the later is true and will be watching for a good short entry. I think most analyist would love to make an apology for a trade that turned out to be in the money at the end of the day.

costas1966 said...

The mistake was not in your technical analysis. I think that the stock was setting up as a potential double top and still is by the way, and the entry was right, to short right below overhead resistance with a tight stop over it. The problem was that the earnings were coming out this morning and usually and when one enters a trade before the day of earings one leaves themselves vulnerable to all the upside and downside volatility that comes with the earnings report. I still think that the stock sets up the double top up here, since the break out attempt on strong earnings failed this morning and a lot of bulls included "superbull" were trapped at the top. I think it is still a short now and a much safer short than it was yesterday.
Also no analysis is bullet proof if you get 60% right you are doing great as long as you control your losses to a minimum. I use 3-5% stop loss rule. Risk managment is the key to any investment.

Anyway to close on a funny note our mutual friend "superbull" who makes his decision based on strict fundamental analysis decided he wants to buy hans today.
"Superbull" confident in his views that technical patterns such as doble tops are silly and llusionary, he analyzed and decided to buy the stock after he saw that earnings were stelar. The company he thought was growing sales and earnings expotentially and it would go much higher than is was this morning. After all the analysts were putting buys today and they are using the same fundamental analysis he is using so he must be right. Needless to say he bought hans at $109.85 this morning. He is down $11.60 on the stock but he says it doesn't matter. His flawless analysis points out that by summer the stock will be at 500 dolars since everyone will be drinking hans drinks to cool off from the summer heat. He says he doesnt care even if the stock goes down to 50 he will average down even more down there.