Finding potentially outperform stocks with technical analysis


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Finding potentially outperform stocks with technical analysis

  1. 1. Finding Potentially Outperform Stocks with Technical Analysis and Bloomberg MM Dandytra, CSA, CFTe
  2. 2. English Is Not My Mother Tongue CFTe Lv.2 Exam
  3. 3. Today’s Subjects  The Foundation of Technical Analysis  Outperform – Underperform  Relative Rotation Graph  Tom Dorsey’s Method  Ratio Chart or Relative Comparison Chart or Relative Strength  “Perfect” Technical Analysis Indicators  Relative Comparison with Bloomberg Portfolio Charts
  4. 4. Technical Analysis
  5. 5. Technical Analysis John J. Murphy • “Technical Analysis of the Financial Markets” • The study of market action through the use of chats for the purpose of forecasting future price trends Martin J. Pring • “Technical Analysis Explained” • The art to identify a trend reversal at a relatively early stage and ride on that trend until the weight of the evidence shows or proves that the trend has reversed John D. Magee and Roberts D. Edwards • “Technical Analysis of Stocks Trends” • The science of recording in graphic form the actual history of trading and then deducing from that pictured history the probable future trend
  6. 6. The Use of Technical Analysis Technical Analysis Trend Analysis Timing Analysis Price Analysis Investment Strategy Decision & Action
  7. 7. Technical Analysis “Branches” Technical Analysis Classic (Chartist) Modern (Indicators)
  8. 8. Technical Analysis Technical Analysis Basic Theory Dow Jones Theory Trend Analysis Supply Demand Line Analysis Support Resistance Trendline Channel Price Pattern Analysis Candlestick Bar Chart Gap Analysis Chart Pattern Analysis Reversal Pattern Continuation Pattern Hybrid Pattern Volume Analysis Spesific Theory Elliot Wave Gann Method Fibonacci Method Indicators
  9. 9. Indicators Indicators Momentum Stochastic Oscillator RSI Trend Following Moving Average MACD Volume On Balance Volume Volatility Bollinger Band Average Trading Range Sentiment Market Breadth Advance Decline Quantitative Methods Standard Deviation Linear Regression Line
  10. 10. Technical Analysis’ Premises  Price Discounts Everything  Insider Trading (or Speculation) always occurs  Semi – Strong Form Market (Market Data and Public Information are available)  Price Moves in Trend  Price movement is not random  Random Theory is wrong  History Repeats Itself  What has happened will probably happen again  There are certain patterns or cycles
  11. 11. Technical Analysis Chart
  12. 12. Outperform - Underperform
  13. 13. Why Investor Trade / Invest in Stocks  Dividend  Capital Gain  Exceed Cost of Capital  Inflation  Free Risk Interest Rate  Internal Required Return  Exceed certain Benchmark  Market  Other Index
  14. 14. Exceed The Benchmark  Earn bigger Gain than JCI  21 Sept’12 – 31 Okt’12  ADHI +53% vs JCI 2%  Experience Loss fewer than JCI  8 Agus’11 – 29 Sept’11  ASII -2% vs JCI -8%  Record Gain even when JCI falls  25 Apr’12 – 31 May’12  ACES 22% vs JCI -8%
  15. 15. ADHI
  16. 16. ASII
  17. 17. ACES
  18. 18. So …  Outperform means Exceed Benchmark  Earn bigger Gain than JCI  Experience Loss fewer than JCI  Record Gain even JCI fall  Underperform means Not Exceed Benchmark  Earn fewer Gain than JCI  Experience Loss bigger than JCI  Record Loss even JCI rise
  19. 19. This seminar aim to help you find stocks that will Outperform JCI and also your Portfolio Basket using Technical Analysis and Bloomberg tools
  20. 20. Tom Dorsey Method
  21. 21. Who Is He ?  Co-founder of Dorsey, Wrigth & Associates (DWA) in 1987, an investment firm in Virginia, U.S  Fund Manager whose funds often beat market by using Technical Analysis method
  22. 22. How They Do That ?  Using Point & Figure Chart and Relative Strength to maket their funds Outperform  Relative Strength of :  Stocks and Index  ETF and MSCI  Certain Index and Index Basket  Divide the numerator (stock) and the denominator (index) then convert it into Point and Figure Chart
  23. 23. Point and Figure Chart Analysis  Point and Figure Analysis mostly is Chart Pattern analysis (and a powerful one)  However, the most difficulty in conducting Point and Figure Analysis is user must find a correct “Box Size” and “Box Reversal”
  24. 24. ASII in Point and Figure Chart
  25. 25. Why are we talking about Dorsey ?  Tom Dorsey and DWA proves that Relative Strength method can be useful in order to find stocks or ETF that Outperform market  Relative Strength is not necessarily have to be in form of Point and Figure  Relative Strength can be in other Price Pattern such as Candlestick and Line Chart
  26. 26. Relative Rotation Graph (RRG)
  27. 27. What is Relative Rotation Graph (RRG) ?  A method created by Julius de Kempenaer and developed by Trevor Neil  Available in Bloomberg since 2011  RRG <GO>  A new method that Proof Instruments are Rotating (similar with Cycle analysis)  RRG can also be used to find Instruments that are Outperforming and Underperforming as well as Rising and Falling
  28. 28. The Appearance of RRG
  29. 29. 4 Sides of RRG IMPROVING (Rising but Underperform) LAGGING (Falling and Underperform) LEADING (Rising and Outperform) WEAKENING (Falling but Outperform)
  30. 30. How to Use RRG  Choose your Risk Profile and Match it with your Strategy  Then choose stocks whose Sector is in your preference Sides  Suggestion :  Long Term Investor : Lagging Sides  Medium Term : Improving Sides  Short Term Trader : Improving or Leading Sides
  31. 31. What is “wrong” with RRG ?  Technically Speaking, RRG Chart is not a normal Technical Analysis Chart  Still need a deep research to study how Instruments rotate from Side to Side  Until then, Technical Analysis method should not be applied  However, RRG is a great Coincident Indicators but should not be employed as Leading Indicators
  32. 32. Relative Strength
  33. 33. 3 in 1 Relative Strength Relative Comparison Ratio Chart
  34. 34. Ratio Chart of ADHI and JCI
  35. 35. Ratio Chart of ASII and JCI
  36. 36. Ratio Chart of ACES and JCI
  37. 37. Ratio Chart of AB  Ratio Chart of AB = Divide A with B  If AB Ratio Chart Rises (Outperform)  A is Better than B  Buy A and Sell B  If AB Ratio Chart Falls (Underperform)  B is Better than A  Buy B and Sell A
  38. 38. The Original Use  Relative Strength in Technical Analysis is used by John Murphy in conducting Intermarket Analysis  Relative Strength helps us to find Instruments that are Performing better than other Instruments  Relative Strength is used in Asset Allocation Strategy
  39. 39. Relative Strength in Bloomberg (Ratio Chart)
  40. 40. Steps  Using function G <GO>  Create New Charts
  41. 41. Ratio Chart of ASII and JCI Index
  42. 42. Ratio Chart of CPO and Coal
  43. 43. Ratio Chart of JCI and Dow Jones
  44. 44. Ratio Chart of Gold and U.S Gov. Bonds 5Yr
  45. 45. “Perfect” Indicators
  46. 46. What is “Perfect” ?
  47. 47. Ask Them “Is There A Perfect Weapon / Tools ?”
  48. 48. “Perfect” means ...  You understand “It” so much that you are able to maximize “Its” advantages and minimize “Its” disadvantages  You choose “It” under every circumstances, even if you have another options  “It” is the only thing / one that you Trust
  49. 49. Holy Grail  Holy Grail is a method (indicators, system, technique, etc) that give you 100% accuracy, 100% consistent profit and 0% loss  Holy Grail is not exist !  There is no Perfect but there is “Perfect”
  50. 50. “Perfect” Indicators means ...  Indicators that you understand so much that you can Maximize its own Advantages and Minimize its own Disadvantages  Indicators that you use for Buy and Sell Signals … but then you know which are the Best Buy and Sell Signals … and still you are okay if you make wrong actions because of those so-called “Perfect” Indicators of yours
  51. 51. Technical Analysis’ Indicators Indicators Momentum Stochastic Oscillator RSI Trend Following Moving Average MACD Volume On Balance Volume Volatility Bollinger Band Average Trading Range Sentiment Market Breadth Advance Decline Quantitative Methods Standard Deviation Linear Regression Line
  52. 52. My Recommendation  I believe the best Trading activities lies in Medium Term Trading; not Short Term Trading or Long Term Trading (Investing)  Based on Risk – Reward and Holding Period. MT offer Higher Profit than ST and Faster than LT  Investor and Trader can employ Medium Term Trading  Medium Term Trading in my Technical Analysis concept can be translated into :  Buy when Momentum Indicators is Oversold while Trend Following Indicators is Bullish  Sell when Momentum Indicators is Overbought while Trend Following Indicators turns to Bearish (from Bullish)  That would be : Buy Low – Sell Higher
  53. 53. My “Perfect” Indicators Bollinger Band Stochastic Oscillator  Type :  Trend Following Indicators  Volatility Indicators  Quantitative Indicators  Purpose :  Trend  Overshoot – Undershoot (based on Statistical Method)  High – Low Volatility  Type :  Momentum Indicators  Purpose :  Oversold and Overbought reading  Timing to Rise or Fall
  54. 54. Moving Average  Moving Average is an averaging method that ‘move’ periodically so it is always the latest average  MA20 means average 20 days ago  Since 20 days represents a month, MA20 could also mean Monthly Average  If Current Price is above MA20, technically speaking it means Bullish  It’s Bullish because Current Price is above Monthly Average  Similar parable : MA20 with MoM Rise or Fall, MA60 with QoQ Rise or Fall and MA200 with YoY Rise or Fall
  55. 55. Bollinger Band  Bollinger Band is a Standard Deviation of its Moving Average  Standard Calculation of Bollinger Band is 2SD and -2SD of MA20  Statistically Speaking, if Price is below or above 2 (and -2) times its Standard Deviation then it is beyond ~95% of overall range (normal distribution)  that’s what I called Overshoot and Undershoot  If the range between 2SD and -2SD is widening then the volatility is high, vice versa  Similar Bollinger Band method often used in PE Band and PBV band
  56. 56. Stochastic Oscillator  Stochasic Oscillator reads how close Current Price to its extreme certain period range  How close is Current Price to (say) 20 last days range of highest or lowest range  If Current Price near its Highest Price in 20 last days then Stochastic Oscillator read an Overbought  If Current Price near its Lowest Price in 20 last days then Stochastic Oscillator read on Oversold  Often, you don’t need to see Stochastic Oscillator to prove if it is Overbought or Oversold based on Stochastic Oscillator method
  57. 57. The Appearance of My “Perfect” Indicators Stochastic Oscillator Modified Full Method of Bollinger Band
  58. 58. Relative Strength with Technical Analysis
  59. 59. Recall : Ratio Chart of ASII and JCI Index
  60. 60. Ratio Chart of ASII and JCI Index
  61. 61. Ratio Chart of BBCA and JCI Index
  62. 62. Ratio Chart of BBCA and Finance Index
  63. 63. Ratio Chart of Property and JCI Index
  64. 64. The Portfolio Maker
  65. 65. Bloomberg Features  CIX <GO>  Main menu in order to create index  CIXB <GO>  Easier menu to create our own index  CIX is able to create historical Chart based on the securities and weighting method (Personal, Equal or Market Weigth)
  66. 66. Cement Index with CIXB <GO>
  67. 67. Cement Index Historical Chart
  68. 68. Portfolio Charts
  69. 69. Making Your Portfolio with CIXB <GO>  5BIGS : ASII, BBCA, TLKM, UNVR and PGAS
  70. 70. 5BIGS (Your Portfolio) Historical Chart
  71. 71. Attention  Historical Chart of Portfolio assumes that the weighting are consistent with the weighting that you input in CIX <GO>  That seems not applicable but then we are looking at the future  Assumes that the weighting will not be changed in the future
  72. 72. Ratio Chart of Portfolio Chart
  73. 73. What is that ?  The idea is to combine Relative Strength method with the Amazingness of Bloomberg which can create a Portfolio Chart  We can try to Outperform certain index then why can not we choose Stocks in our Portfolio that could Outperform our Portfolio itself using Relative Strength and Technical Analysis (and Bloomberg)
  74. 74. Ratio Chart of ASII and Your Portfolio
  75. 75. Ratio Chart of TLKM and Your Portfolio
  76. 76. Finding Stocks That Potentially Outperform Index or Portfolio
  77. 77. BBCA and Your Portfolio
  78. 78. PGAS and Your Portfolio
  79. 79. Conclusion
  80. 80. The Main Steps  Create your Portfolio and Portfolio Chart with CIX <GO>  Form a Ratio Chart from Stocks in your Portfolio and Portfolio Charts  Apply Technical Analysis to find which Stocks that will Outperform Portfolio Charts
  81. 81. Another Bloomberg Features  You can look deeper you CIX Chart (Portfolio Chart) with SEAG <GO> to see how your portfolio react throughout the time (historically speaking)  If you create many CIX Charts, you can do Screening with EQS <GO>  Which CIX Charts (Portfolio Charts) that are Oversold or Above Middle Bollinger Band  You can also do General Check Up your Portfolio using PORT <GO>  Is your Portfolio have too much Property stocks or your Portfolio P/E is above P/E of JCI  “Backtesting” feature can be used to find what Indicators (and their parameters) which fit the best for your Portfolio Chart
  82. 82. Any Questions ?
  83. 83. Muhamad Makky Dandytra, CSA, CFTe Working Experiences  Currently as Junior Investment Manager at Mandiri Healthcare  3 year as Technical Analyst at Trimegah Securities, AmCapital Indonesia and Anugerah Securindo Indah  1 year as Equity Sales at Danareksa Sekuritas Certifications  Certified Financial Technician (CFTe) from IFTA  Bronwen Wood Award 2011 from IFTA  Certified Securities Analyst (CSA) from SASB Indonesia   (+62) 813 145 45 317 Contact Information