The last blog post dedicated to GDP earlier this year saw GDP falling from its Winter2011/Spring 2012 high of 15p+ and I was waiting to settle in to the next short term trend.
This was before my VOh/kumo breakout revelation so I was using the ‘buy on fear’ technique. The latest earnings per share (eps, full year to end June 2011) was 1.8p with my fair value price coming in at around 18p, based on earnings alone, so anything below that, I took as a reason to buy. I have a long term hold for GDP which I sell into an increasing price, but here I explain my reasoning for a shorter term hold which I take advantage of to build up a holding of shares.
16 March 2012
BUY 1500 @ 13p
total = £203.48
26 April 2012
BUY 1500 @ 12.15p
total = £188.41
3 May 2012
BUY 1500 @ 12.65p
total = £195.95
8 May 2012
BUY 1500 @ 11.74p
total = £182.23
16 May 2012
BUY 1500 @ 10.9p
total = £171.82
27 June 2012
SELL 2755 @ 13.125p
total = £354.09
13 August 2012
SELL 1645 @ 13.8308p
total = £222.27
16 August 2012
SELL 1393 @ 14.9p
total = £202.31
17 August 2012
SELL 1252 @ 15.3p
total = £186.31
Total bought7500 shares for £941.89
Total sold7045 shares for £964.98
The value of the remaining 455 shares at 15.3p is £69.61, combined with the profit from shares sold of £23.09 (£964.98 - £941.89), gives an idealised return at 15.3p of £92.70, or 9.84%. Theoretically I should’ve only sold enough shares to get original capital back but in this example I was obviously having a confused day and ended up selling up some of the profit too. These things happen.
As I pointed out earlier, my reasoning for buying on a falling price was that GDP appeared undervalued according to the latest eps and beyond that it was just a case of waiting for the price bottom to appear and for the uptrend to start, evolve, and end. For short term investments like the above, my goal is to build up essentially a ‘free’ holding of shares to leave for the long term by ‘selling into greed’ in order to recoup initial capital.
The trend itself was actually a fairly straightforward weekly slow stochastic oversold to overbought swing bolstered by news releases which were flavoured in the direction of the trend with the following technical observations:
- Mid-May saw the weekly slow stochastic go oversold at just under 11p.
- Key technical signal for me was the strong bullish divergence in volume – 3 lower price lows versus 3 higher volumes on 26 April, 9 May, and 16 May 2012.
- Price made a slow move up from 16 May 2012 (10.875p) to close above the daily Ichimoku cloud on 16 July 2012 (13.25p), followed by a retrace back down to test support at 12.25p at the cloud top towards the end of July 2012. A director dealing announced on 16 May 2012 looks to be the reason why the price was driven down – in order to fill that purchase.
- The announcement of a new Chief Executive Officer (CEO) for the company triggered an increase in price movement up over the next few weeks leading up to the results, which had previously been suggested to be outperforming the previous year’s results so investors already knew what was to come from GDP but it wasn’t until volume and momentum increased on this latest CEO-related RNS that appeared when the price was above the daily cloud that investors took notice, even though the results teaser was broadcasted in the 6 June 2012 news announcement.
- Between August and the results announcement in October, bearish divergence signals appeared involving momentum, ultimate oscillator, relative strength index, and money flow, all suggesting that the trend was coming to an end and I viewed the results day in October as a potential peak day in this short term trend.
- 1 October 2012 (the day of the full year results RNS) saw the creation of a blatant bearish engulfing daily candlestick pattern which certainly rang out alarm bells for me, especially combined with the above bearish divergence signals. These all suggested that a drop in price was on the way, which indeed happened and is currently (at 14.25p) sitting poised on the bottom of the daily cloud – will it drop further below the daily cloud or bounce back up?
In the whole short term trend the price moved from 10.875p to 17.375p over a few months. When the full year results with an eps of 2.53p was eventually revealed, it made the peak price of 17.375p still seem undervalued compared to the latest earnings. With this in mind I was happy to leave my longer term holding in but will sit and wait for the next short term trend to plug in capital to increase my freeholding as I have done above.
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