Shifting Shares (22 May 2019) – All about the As #ABDP #ALT #GRG

Shifting Shares (22 May 2019) – All about the As #ABDP #ALT #GRG

News roundup

AB Dynamics (ABDP) has gone absolutely parabolic for holders a few weeks after the half-year update. It announced a placing of £45 million at 2200p (into strength which is always good) and so far the price has gone nowhere near it.

Strength like this should be eyeballed and I’ll look to buy the breakout here, despite it having made such an advance. The best entry was on the trading update at one second past 08:00 but there’s no point crying over a missed entry. Anchoring yourself to the price is purely emotional thinking, and emotional thinking does not lend itself to trading outperformance.

Coral Products (CRU) announced a Trading Update in which it announced that trading will not be as bad as expected, a few weeks after it said that trading will be a lot worse than expected. Make up your mind guys! I highlighted this as a potential value play here, but quite happy to admit that I got it wrong.

When the facts materially change, I materially change my opinion. The fact that they have done a U-turn so quick suggests to me that they clearly don’t have a good control over their numbers or they’re manipulating the price for whatever reason. Neither reason is ideal, and so it’s an avoid for me. It just goes to show management can buy all the shares they want but that doesn’t mean there’s a guarantee the price is going to go up.

Results are in a few weeks, and so I’ll watch and see if management again make significant buys. Still, I’m not interested unless it hits 14p anyway, and with the volatility of the stock it’s just not worth the risk. But I’ll always reserve my right to change my mind should the facts do so.

Arcontech (ARC)

We’ve now tested the support line, and hopefully this is the beginning of a trending move upwards.

Volumes are up on advancing days which displays interest. Let’s see what happens next.

Altitude

Altitude is showing us its 52 week highs. The results are on the 28th, so if it does break out I’ll be long, but also position sizing for that results risk. Nobody knows what they’ll be, and whilst everyone expects them to be good, what if the reality doesn’t match the hype? There’s no point taking unnecessary risk and I’d happily give up on the upside to protect my downside.

APC

APC is now advancing out of a long base that it’s been making over the last two years. They announced results yesterday, showing all of their metrics going the right way.

I’ll look to add if the price retests support. The spread is wide but if the stock is going to trend I want in.

Anglo Asian Mining (AAZ)

AAZ gapped up on results but so far has been sold into and looks to be giving the previous resistance line a good retest. I like strength in stocks but for now I’ll keep this on the watchlist to see if it bases and has another go.

Focusrite (TUNE)

TUNE has been something of a bogey stock for me. I believe I’ve traded it three times now and lost money every single time.

It’s setting up a closing all time high, so I’m tempted to long this and see what happens. I already know if I don’t it will probably go on a barnstorming advance.

Bushveld Minerals (BMN)

Bushveld has a loyal following, and unfortunately those followers were down by over 50% from the high at one point. The company then released a “no reason” RNS (for the share price decline) and announced it would update the market with their reserves.

This caused an injection into the stock price on large volume, so perhaps the trend has now changed? Either way, I don’t like to gamble, so I’ll wait for the stock to break 50p before buying. It’s just unnecessary risk.

Greggs (GRG)

Greggs is a fantastic stock that has made people a lot of money. I love the sausage and cheese rolls, but I love owning the stock more. I scalped this on the recent update and then read the update in full and saw this at the bottom:

Taking all this into account, the Board believes that underlying profits (before exceptional costs) for the year will be materially higher than its previous expectation.

I then loaded the bid and got a decent fill, because surprises to the market usually respond with upside.

I managed to get filled around 1980, where my stop would’ve been close by. This would have reduced my risk on the trade and allowing me to hopefully capture plenty of R.

I was very lucky in that I wasn’t stopped out, and the stock then broke out from the high, I doubled up, and I upped my stock. Getting into situations like this where you double your exposure yet keep your risk fairly constant is what drives P&L for me – I am effectively now getting double the upside for a similar amount of risk. Yes, I risk getting stopped out much sooner, but I’m not actually giving anything back if I do, whereas I can potentially benefit twice as much if the stock continues its upwards trajectory.

Most people don’t like adding to winners – they like to average losers instead. But most people don’t make money in the stock market. I do think that averaging down on quality is a very successful strategy, and many people who I know do exactly that, but it’s not my strategy. Mine is just one of many that work in the market – you have to find out what you’re comfortable with, backtest it to see if it works, and then repeat it. Stick to what works and you will be successful.

The problem I see with averaging down is that you run the risk of the stock falling even lower. That means it becomes cheaper, and an even better buy. You don’t know how low that stock will go – nobody does – and ultimately the lowest it can go to is zero. By cutting winners sharp and not averaging losing trades, I’ve mitigated that risk a lot (shares can still suspend at any time and go to zero though – trading and investing is never risk free!).

I’m primarily a trader, and I’m happy to sacrifice the long term gain for a short term move.

 

At the time of publication, the author has financial interests in shares discussed in this article.

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COMMENTS

Wordpress (6)
  • comment-avatar

    “Capture plenty of R” – never heard that phrase before about making returns!!

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  • comment-avatar

    Usual strong, insightful article Michael. Tx. Not sure I’m convined on the ARC story. Their model seems to be to take market data from anywhere, normalise it then distribute in real time with low latency. All well and good. Similar to what Reuters do who charge a lot more. Issue for me is ARC don’t own the data. The data owners (banks/trading venues) are increasingly cutting out the middle man and distributing their own data. As I understand it ARC’s specialism is in aggregating bank’s own data (eg FX rates),consolidate from say their European desks and distribute. Increasingly they are perfectly capable of doing this themselves. I’d be interested in how ARC see themselves growing and their target market (small banks?). Anyway, my tuppence for what it’s worth

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  • comment-avatar

    Thankyou for the article , very interesting.
    👍

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  • comment-avatar

    Thanks for the feedback!

    Terry – I remember you mentioning this at Mello. If I were an investor, it would definitely be something I’d query with the management. It’s a really good point, and something to be aware of.

    As I’m not an investor, my position size is relatively small as a percentage of my portfolio. I’ve built in any unknown risks by positioning small – I can afford to lose 100% of the position. I wouldn’t like to, and it would hurt, but I can survive it and continue to trade.

    I’m smart enough at least to know what I know, and to know what I don’t know – and deep fundamental analysis of ARC is something that I don’t know.

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    • comment-avatar

      yeah, from a trade perspective I get it. Thought I’d just add my thoughts whilst me addled brain could remember. Good luck with the trade

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      I’ll certainly keep an eye out. It’s good to be aware of these things as the market can often be slow to react. Might be a good short if that does happen and the market completely misses it!

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