Technical Analysis - Gann Angles on the current Dow Jones Industrial Index DJI

This is an interesting week. Not only is the American market set to respond to a major stimulus package, but the Gann angles show that we may be at the cross roads. Before analysing the current DJI graph, please note the following technical details:

- The chart below is a weekly chart. Daily chart are too volatile, monthly is good for a longer term view.
- Gann love the 45 degree angle. But that was possible only because the weekly time scale is comparable to the price time scale of certain stocks in Gann's time. Eg. it is reasonable for a stock to move one unit over one week.
- My adopted Gann angle will be a gradient of 10 for the DJI. i.e. 10x1 gradient correspond to Gann's 45 degree. In fact, I will be using gradient terminology rather than degrees.
- The purple line starts from the Origin or Zero, at a particular significant time, eg on the date of the highest point.
- Unlike other charting techniques which simply "connect the dot" from peak to peak or trough to trough, Gann's methods are based on fixed angles or gradients. Gann's lines DO NOT aim to the fit graph, rather the graphs can be predicted by Gann's lines.

(The technical notes above should also be applied to my previous article on Gann)





So the BIG question, "ARE WE THERE YET"? Have we reached the bottom?

1. Usually a bear market has about 3 or 4 drops. But note the 1929-32 had a first big drop followed by 6 other drops for over 2.5 years. In the Credit Crunch of 2007-08 (hopefully not -09 as well) there have been 3 significant drop followed by a huge drop in late September 2008 (the fourth one). The bear may be over ???

2. It certainly crossed the major -10x1 gradient but not really near the -20x1 gradient to find support. So it can drop to that level next.

3. The 20x1 gradient starting from a value of 0 at the date when DJI was highest ever, is acting as a support from the bottom. More interestingly, it looks like it is squeezed upwards by the -10x1 line. It may bull towards 9500 on 27 Jan 2009. Or if it breaks below 8500 this week, it may crash further.

4. Looking purely with time, it is 60 weeks since the major high. To square the time and price, anticipate the DJI to move down 6000 points from 14200, which is about 8200 within this week.


So the final answer is All of the Above; ie. monitor the signals mentioned above. To put it simply, if it does not follow the purple line up, then it will drop further.
It is very interesting that it rests so nicely on the 20x1 line from "O".

Technical Analysis - Gann analysis on the Dow Jones Industrial on 1929 Market Crash

Source: http://ozstock.blogspot.com



How does the current Credit Crunch directed Stock Market crash compare with he 1929 one which brought the Great Depression? Have a look at not only the chart I made below, but also W.D. Gann's own analysis using his angles and time vs price method.


---- Excerpt from Gann's "The Basis of my forecasting method" -----

The 45 degree angle drawn from the extreme high point of a stock is most important and when it is crossed, a major move may be expected. For example:

On the weekly chart for the Dow-Jones Industrial Averages, note the 45 angle moving down from 386, the high of Sept 3, 1929. January 12, 1935 was 279 weeks from the top. Taking 279 from 386, we get 107, the price at which the angle of 45 would cross. These averages advanced to 106.5 in the week ending Jan 12, 1935 -- then reacted to 100 in the week ending Feb 9. This was the first time that they had held within one-half point of this angle and the first time that they had ever reached it since the top was made.

During the week ending Feb 16, 1935, the Averages crossed the 45 angle at 103 for the first time, and during the week ending Feb 23, 1935 advanced to 108, where they hit the angle of 45 moving up from the low of 85.5 in Sept 1934, and also hit the angle of 2x1 coming up from the low of July 8, 1932. This was a strong resistance point and the Averages reacted to 96 in the week ending March 18, 1935, where they rested on the 45 angle from the 1929 top and also where the 3x1 angle (a gain of 1/3 point per week) from Sept 1929 coming up from "O" crossed the angle of 45 coming down from the 1929 top. This was a strong support point for a change in trend. The advance started and the Averages moved up to new high levels. This proves the importance of angles, especially the 45 angle drawn from any extreme top, and the point at which any other angle crosses the 45 angle.

Watch the 45 angle from 1929 top when it reaches "o" or when it is 386 weeks down from the top. This will be in the latter part of January, 1937. Note what happens at that time.

------------------------------------------------------------------------

Technical Analysis - Gann Angles on Australian All Ordinaries Index

Gann analysis using angles is performed here. One of the strongest signals according to Gann is the 45 degree Price vs Time angle. In other words, this main line has a gradient of 1:1. Then Gann suggest drawing secondary lines which is usually fractions of this main angle such as a gradient of 1:2 or 1:3 to get lower angles.

The two charts below are for the monthly and weekly Australian All Ordinaries Index. I found that the literature on Gann angles a little inadequate especially when they talk of 45 degree angles. This is because the points on each individual stock or index has such a different range that we cannot just speak of a gradient of 1:1 (45 degrees). In other words, one unit of price with one unit of time does not usually make 45degrees depending on what range of x, y values are displayed on the graph.

Instead, for the monthly chart, I have chose for the primary line, a gradient of 10:1 and half of that which is 5:1. For the weekly chart, I used the same ratio but rationalised to weekly -> 10 * 12mths / 52 weeks = gradient of 2.3. The secondary line is then half which is 1.15:1. To emphasize, the line on the graphs are NOT chosen by line of best fit by looking at the data. Instead they are chosen using specific gradients such as 10:1, which happen to fit remarkably with the trend.

As shown in the charts, the monthly is almost touch the primary line, while the weekly has just broken through. The charts is taken from the Low Point in December 1990 to present December 2008.




The question of where the share market goes from here is a question of whether the primary line acts as a strong support or it is headed down to the secondary line.

The call is yours to make .....

Technical Analysis - Summary of Oscillators: ROC, RSI, Stochastic, MACD

This is a brief summary of the main types of oscillators for technical analysis. They include Rate of Change, Relative Strength Index (RSI), Stochastic Oscillator, MACD. In general, the following points should be noted before use:
1. Oscillators are secondary indicators - Always consider the the Basic Trend first before using oscillator to look for change in trend.
2. Oscillators, by their nature, tend to be leading indicators.
3. Useful at extreme points, when market is overbought or oversold.
4. Divergence between price and oscillator is an important warning.

Note: This article does not aim to be comprehensive. It is hear to provide a quick summary and comparison. For details on technical indicators, one site is:
http://www.forexrealm.com/technical-analysis/technical-indicators.html


Rate of Change (ROC) = 100% * (Price(now) - Price(Ndays ago)) / Price(Ndays ago)
Typical Paramenters: N >= 10.
Sensitivity: small N is more sensitive.
Signals: ROC crossing zero upward and market trend is up => Buy and vice versa.
Can fit trend line to ROC.

Relative Strength Index (RSI)
Advantages: Smoother than ROC and provide a range from 0 to 100.
Typical Paramenters: N = 5 or 7 for short; 9 or 14 for medium; 21 or 28 for long term
Sensitivity: small N is more sensitive.
Signals: Overbought when above 70 (80 for Bull market), Oversold when below 30 (20 for Bear market)
Can fit trend line to RSI and compare to trend line of Price
Divergence: Important signal when RSI diverge with Price when above 70 or below 30.

Entry based on Divergence between Price charts and RSI chart.
- To target short entry, look at overbought peaks and draw trendline of peaks on Price chart and RSI charts. If the trend diverges, then signal to sell.
- To target long entry, do opposite to above.


Stochastic Oscillator: K, D
Signals: Sell when faster K line crosses the slower D line downwards from above 80, as well as the D line and price diverge with price still upwards. Vice versa for crossing above 20.

Moving Average Convergence / Divergence (MACD)
Typical Paramenters: 12, 26, 9
Signals: Faster MACD line cross above slower Signal line => buy. Vice versa for sell. Also Overbought when far above zero. Oversold when far below zero.
Divergence: When in Oversold region, MACD move up ahead of price line. Vice versa.

Sector - Agribusiness - List of Companies

As mentioned recently in this blog, apart from biotechs, this ozstock blog is now re-focussing on blue-chip companies. Unlike biotechs, ozstock will now start to use traditional fundamental analysis techniques to analyse these blue chips.

As a start, the previous blog has published some common financial ratios at:
http://ozstock.blogspot.com/2008/11/fundamental-analysis-ratios-formula.html
Note the above blog contains a live spreadsheet document (ie. updated from time to time).

In particular, ozstock has identified Agribusiness to be the next rising sector. As such ozstock has now identified potential Agri companies that we may analyse sooner or later. They are:

Australian Agricultural Company Limited (AAC),
ABB Grain Limited (ABB),
AWB Limited (AWB),
Futuris Corporation Limited (FCL),
Forest Enterprises Australia Limited (FEA),
GrainCorp Limited (GNC),
Gunns Limited (GNS),
Great Southern Limited (GTP),
Incitec Pivot Limited (IPL),
Nufarm Limited (NUF),
Primeag Australia Limited (PAG),
Ruralco Holdings Limited (RHL),
Ridley Corporation Limited (RIC),
Select Harvests Limited (SHV),
Tassal Group Limited (TGR),
Timbercorp Limited (TIM)

Tune in next week (or later) .....

Fundamental Analysis - Ratios Formula

This is a collection of commonly used financial ratios to assess the health of a company, as part of fundamental analysis. They include financial ratios from categories such as: Management Ratios, Profitability, Liquidity, Working Capital, Debt Structure, Debt Protection.

The definition are taken from a financial course in Valuation which I took a few years ago. The definitions may be more Australian focussed but it should be mostly applicable to international companies too.

Please feel free to comment.....

Note that these formula will be used in later articles when I start analysing blue-chips. For technical traders and Gann followers, notice that as of today, the ASX has plunged for the third time, meaning either this is the bottom or there is one more to go. Hence my move to analysing blue-chips since this is the period to buy. I would leave biotechs for a while at least until it is quite certain we have hit the bottom of this cycle.

Analysis Update - PGL - Progen

Price($) 0.72
NTA ($) 1.31
P/NTA 0.546
Team 7.5
BurnPeriod 4.89
ProductPipe 2.4
ForeignMarket 1
Cash:Debt Debt Free



Following the abandonment of its most advanced study (Ph III PATHWAY study for liver cancer), this marks the third failure of the compound PI-88 (previous targeted applications were lung and Prostate cancers). Its other series of compounds (eg PG 500) are in pre-clinical stages of development. The company mentions it is focussing on M&A with the remaining funds. The product index has fallen to 2.4 which is below average.

Cash burn is a main indicator for yet to be profitable biotechs. In the case of PGL, its re-capitalisation in the last financial year of over $92m still leave PGL with over $76m this financial year. Simple projection, assuming constant cash burn indicate PGL can last over the next 5 years.
Other financial indicator point to a relatively strong position with no debt.

There are many questions to be asked of this company. The fundamental question is what will PGL do with its stash of cash? How could it have abandoned a late stage product, for which so much cash has been raised? What kind of perseverance can we see from PGL for its remaining early stage products?

Although it is currently trading much lower than its net tangible assets (almost half), investors need to be convinved by management that they can convert the pile of cash into greater return, rather than being consumed with no returns.

Lightning Analysis - AVE - AEVUM Limited

Following huge volatility in the sharemarket over recent weeks, it is now time to look at commercial / industrial stocks, while always keeping an ear open in the biotech space. The reason is not of fear and panic of the market, but simply a recognition that there may be undervalued stocks out there. Note that, Warren Buffet's Berkshire Hathaway just invested US$3bil in GE preferred shares. This follows a US$5bil investment into Goldman Sachs 2 weeks ago.

Hence it is time to go hunting.....

One local aussie stock that look stable due to its nature of business is Aevum Limited (AVE). AVE is in the business of managing retirement villages. One would expect a steady income stream unaffected by the current market turmoil. The rationale is the AVE's clients would have saved up for their retirement and they would tend to belong to the higher than middle income group, thus able to support themselves.

Having selected the industry and company, next step is to dive into the financial statements (see its 2008 Annual Report) ...

The first focus is DEBT. AVE has long term debt of $80m; which appeared to be taken on during 2007-08, having repaid previous debt. This compares to cash of $17.5m, receipts of about $21m and total assets of over $809m. A large portion of assets comprise of investment properties at $790m, and little intangibles. On the surface this appears good, in terms of the relative size of the debt to hard assets, as well as the ability to service its loans.

The next thing to look at is the cash flows. Over the last 2 financial years, AVE has made significant acquisitions - $118m in 2006-07 and $52m in 2007-08. While this is not necessarily bad, there should be caution on companies that tries to grow too fast too quickly, especially in such a bear market, with worldwide recession looming.

Also from the operating cashflow, the net operating cashflow, although positive $20m, is made up of other quantities such as resident loans and bonds. The receipts from residents and subsidies are only $21m compared to payments to suppliers and employees of $31m. These two quantities should be considered the basis of the business and the outflow in this case is more than inflow.

The above discovery leads to a more careful look at the profit statement. Overall, the profit is $28.5m, compared to $22.9m the previous year. Looking at the details again, out of the $60m gross income, only $24.7m is from revenue, the remainder is due to revaluation of property. This compares with an expense of $28.4m. The question is, without going to the actual sites nor knowledge of the real market price, can we believe that the properties can be revalued to an extra $35m? Clearly without the revaluation, there would be a net loss.

The summary is that AVE looks to be a business that would be stable in a frightening bear market. But open closer inspection of the financials of the company, the real amount of money made from the business does not look too promising.

News - Alerts and Biotechs writeup

Two quick items on this post:

1. Get emails sent to you when your company made any announcements. You can do this by signing up to www.newsalerts.com.au .

2. An article by "The Australian" entitled "Drug trials revive interest in biotechnology sector" introduces a few local biotechs.

The article is found mirrored here:
Tim Boreham | August 20, 2008

THE biotechnology sector is showing tepid signs of life, having outperformed the overall market in recent months. Of course that isn't saying too much and the trends are patchy, but at least the sector doesn't rival the Gaza Strip as a no-go zone any more.

Such is the improving sentiment that a few of the minnows are muttering about a capital raising. For instance, vaccine champion Avantogen (ASX code: ACU) might have a chequered history, but this hasn't stopped new management from doing the broker rounds ahead of an equity raising of up to $8 million.

If anything, the established players have been doing it toughest. Biota, for instance, abandoned its monstrous damages action against Glaxo, while CSL's share price took a hit after US partner Merck revealed disappointing sales of its Gardasil cervical cancer vaccine.

Elsewhere, some interesting clinical trial results have maintained patchy interest in the sector.

There's always a sane reason not to get too carried away by early-stage results from thinly capitalised companies, but there's a few to which warm-hearted Criterion will extend the benefit of the doubt. Take Living Cell Technologies (LCT), the Kiwi outfit working on a diabetes cure based on the pancreatic islets of specially bred pigs.

In July, Living Cell reported the first five diabetes sufferers implanted with the said porcine cells showed no adverse side-effects but also displayed better than expected benefits.

The Moscow-based trial saw a reduction of daily insulin requirements of 23 per cent to as much as 100 per cent, while four out of five maintained "good control" of blood sugar levels. Living Cell has a $10 million and (probably) the capacity to raise equity, so it's at least one to watch.

Then there's our skin disorder friend Clinuvel (CUV), which gained US fast-track approval for one of its key compounds.

Clinuvel announced the US regulator, FDA, had granted "orphan drug" status to afamelotide (formerly CUV1647), aimed to treat a rare sun allergy called EPP.

Clinuvel's next step -- and there's always a next step -- is to apply to undergo a commercial trial in the US. Still, it's backed by $25 million and has a legitimate seat in the "most likely" camp.

Investors in regenerative medicine pioneer Mesoblast (MSB) are having a blast after nine patients had their broken legs healed with the use of their own stem cells. The ground-breaking trial took place at Royal Melbourne Hospital, with Mesoblast holding the right to commercialise the know-how. It's all very promising, but any revenues of course are years away.

On a more downbeat note, cancer drug Progen (PGI) has benched its experimental liver cancer drug PI-88 after years of attempts to develop the drug. It's a major disappointment in that Progen has raised almost $100 million over 18 months, with nothing to show but $77 million of change.

On a more modest scale, Biosignal (BOS) is headed for a spell in the naughty corner after disappointing your columnist about thrice too often.

The bacterial slime buster is working on an extract from seaweed that prevents the bugs from multiplying on surfaces by impeding their ability to communicate.

The trouble is, the company lacks focus in terms of developing end-uses for the extract, with a number of collaborations -- including one with Californian New Age squillionaire Paul Hawkens -- falling through.

Recommendation-wise, it's hard to be too proscriptive across what's a highly eclectic sector. As a general rule, your columnist leans to cashed-up advanced-stage prospects.

Candidates include Clinuvel, Avexa (targeting HIV), Chemgenex (leukemia), Neuren (neuroscience), Novogen (cancer) and Pharmaxis (bronchiectasis and cystic fibrosis)

According to Biotech Daily analyst Marc Sinatra, Chemgenex's drug "looks the most likely to generate big returns for investors".

He adds that any could surprise. "One thing for sure is that at today's prices all of them look like good value," he says.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser.

Company Brief - PGL - Progen

PGL suspends its phase III trial for PI-88 today and the share price dropped more than $0.62 to close at $0.58, more than 50% drop. For a biotech to fail a trial at such late stage, it will no doubt bring on these dramatic fall in its share price.

I hinted at the more than likely possibility of failure of this drug back in my Feb 26 blog this year.
http://ozstock.blogspot.com/2008/02/analysis-pgl-progen-pharmaceuticals.html

In my analysis of PGL on 26 Feb, various of the indicators (financial, product pipeline, management) suggest that PGL is a very attractive stock trading at $1.62. However, it turned out to be a classic example of the case where even if every indicator is good, success is not guaranteed. I did point out caution on PGL and the likelihood that PI-88 may not succeed, even though it reached Ph III. It was after careful examination (beyond all the optimistic jargon) of the history of its product, in particular PI-88, it was found that the same compound had failed in previous applications. This was what raised my doubts on PI-88.

In conclusion, it pays to read between all the glossy annual report and get a real feeling of how the products are actually performing. I may do an update analysis later when the aftermath of this latest news has been properly digested.

The 9 Golden Rules according to Lincoln

This list is a set of 9 so called rules to decide if a company is worth investing in.

Rule 1. Financial Health
Lincoln suggest to invest in companies with Financial Health ratings of Strong or Satisfactory. Unfortunately, this rating is only available from the Lincoln Stock Doctor. However, we can do our own assessment in determining financial health. Some of the indicators that may be helpful are: debt levels eg. debt to equity < 1, current ratio > 1.5 (for retail companies), ability to service loans -> Interest cover (receipts to interest payments) > 3, cashflow history, and so on.

Rule 2. Management Assessment
Lincoln measures management using ROA and ROE, thought I don't believe this is a good measure. For biotech companies for example, ozstock uses the qualifications of its management team and directors. Back to Lincoln; they suggest ROA > 8% and improving is good. In addition EPS > 8% for last 18 months is good. For bank and insurance companies, Lincoln suggests ROE > 14% and improving, as well as EPS growth of > 12% (>8% over past 18 months)


Rule 3. Share Price Value
Lincoln suggests a PE ratio less than industry average may be underpriced and so a buying opportunity. When the PE is greater than industry average, they suggest using PE/EPS growth ratio where PEG < 1 is good.

Rule 4. Liquidity Volume
Liquidity level is to ensure that you can sell your stock when you need to. Lincoln suggest the average daily volume traded should be 5 times of your exposure level.

Rule 5. Share Price Trend / Sentiment
Buy when the trend is positive. Never buy when a stock price is "screaming down hill".


Rule 6. Market Capitalisation / Size
Large companies, ie those with large market capitalisation, are seen to be less volatile and have greater liquidity, i.e. higher traded volume. Lincoln considers stocks only if they have market capitalisation > $100m

Rule 7. Company Activities
Have a basic understanding of the company's activities, potential opportunities and threats that can affect future earnings of the company or industry.

Rule 8. News and Announcements
Lincoln suggest to look for positive announcements as this generally improve share price of company. Ozstock believes that the market tend to overreact quickly with good news and may overprice a stock. On the other hand, in the current bear market, it looked like even genuine good news may still result in share price dive - be careful in bear market. Lincoln also suggest that investors beware of negative news or announcements. Again, ozstock has found that once negative news hits the press, the shares would have dived already.

Rule 9. Follow all the above rules
Apply the above rules in a consistent manner.

Ten simple rules to avoid large trading losses (with CDFs)

This article is published by CommSec and is intended for CFDs. However the techniques seem to be quite useful for other derivatives and even trading stocks directly.

"Avoiding the commitment to failure

In theory, when a trader experiences a decline in the value of an investment the desire should be to exit the position. But often the opposite occurs. A behavioural concept known as ‘escalating commitment to a chosen course of action’ can be the downfall of a trader, especially when using a leveraged product such as contracts for difference.

Forced compliance studies induced individuals to perform unpleasant or dissatisfying acts in the 2003 text The Social Psychology of Organizational Behaviour, edited by Leigh Thompson. Because the individual could not undo the consequences of the act, it was found that the individual biased his attitude towards
the experimental task so as to reduce any negative outcomes resulting from the behaviour. By justifying prior behaviour the decision maker increased his commitment in the face of negative consequences and the higher level of commitment in turn led to further negative consequences.

Probably the most famous example of escalating commitment to a chosen course of action was the Vietnam War. In a 1965 memo from former Under Secretary of State George Ball to US President Lyndon Johnson, Ball wrote “Once we suffer large casualties we will have started a well-nigh irreversible process.
Our involvement will be so great that we cannot - without national humiliation – stop short of achieving our complete objectives.”

In the trading world, once a trade turns bad a trader can rationalise his bad decision and increase his commitment by either staying in the position as losses grow or by adding to the position in what is commonly known (with long positions) as averaging down.

When a losing trade is not exited quickly, because of the leverage factor, losses can mount exponentially. Nick Leeson’s futures trading in Singapore in the 1990s was an example of an escalating commitment to a chosen course of action in a leveraged product. But small private traders managing less spectacular
amounts of capital should also be aware of the phenomenon because it is not uncommon for small traders to end their trading career with a single catastrophic trading loss.

Some simple rules can help you to avoid the big loss and stay disciplined:

1. Trading is a 50-50 prospect. A trader can win less than 50% of the time and still be profitable. Success or failure is not due to the amount of winners you pick but rather the dollar return on winning trades versus losing trades. In other words, be consistent with your risk amount and stop losses and aim to make your wining trades larger than your average losing trade.

2. Markets don’t behave rationally therefore sticking to a losing trade can never be rationalised. Prepare mentally and financially for both scenarios before you enter the trade - winning and losing - by placing stop loss orders and identifying possible price points where the trend may become exhausted.

3. A study of multiple choice examination habits has shown that going back and changing answers increases the chance of being wrong. Never move a stop loss level once it is set, unless it is in the direction of the trend you are trading.

4. Moving a stop loss order with the trend will help you maximise profits because you are changing your exit level in accordance with the market direction. Some experts advocate never exiting a trade unless it’s on a stop loss order – any other approach is effectively picking a top (or bottom).

5. Always aim to place a break-even stop-loss order after your initial stop loss order. A break-even stop is a free ride. No one ever went broke from not taking losses.

6. Choosing not to trade can be more difficult than taking a trade. When there are no good trading opportunities it’s best to sit on the sidelines.

7. In a bull market your goal is to make money from the upside and in a bear market your goal is to make money from the downside. In other words, it’s smarter to look for short trades in a bear market.

8. The middle of the trend is the “meat in the sandwich”; the beginning and the end of a move are inconsequential. If you want to be profitable only trade the middle of the trend.

9. The bull market for stocks has created a bullish bias. Therefore stocks that are breaking down can do so more quickly than rising stocks as the majority of traders exit long positions. Be prepared to act quickly in a falling market.

10. Information such as technical indicators and economic news can be used to justify a losing position. Price is the ultimate arbiter of value. Follow the price. "

As with all other articles on this blog, this article is not considered financial advise, but merely for thought and discussion.

TLS - A case example in Stochastic Oscillator and Momentum(ROC)

Previously we looked at TLS when the Rate of Change (ROC) is crossing into negative territory indicating the possible start of a downtrend.
http://ozstock.blogspot.com/2008/05/tls-rate-of-change.html

Today we look at a new analysis where TLS has indeed fallen. The new graph below shows the price has drop since around the last analysis on 28 May. The new graph has a Momentum (this is actually the Rate of Change indicator) with a longer period of 12 days and only crosses the negative region after 3 June and has trended down since. So the shorter ROC predicted this trend earlier but the longer ROC gives confirmation later.



Another interesting indicator is the Stochastic ocsillator (SO) which has confirmed the trend. In general when the SO oscillator is above 75% it indicates an overbought position. It signals a time to sell when it crosses the 75% line downwards. Conversely, if it is below 25%, it is oversold. When it crosses above the 25% line in the upwards direction, then it is a signal to buy.

In the case of TLS, it crossed the 75% line and moved downwards, thus indicating time to start selling - which confirms the ROC analysis. Recently, the SO has fallen below 25% and headed upwards again. However, it quickly went down the 25% line again. Using the ROC/Momentum indicator, it gave a strong signal that the 25% break-out was not a strong trend since the ROC is still well in negative territory.

At the latest point, the momentum is still quite negative. This indicates it is not time to start buying TLS yet. For those in short already, this may be a good time to start offloading. When ROC starts approaching the 0% line from the bottom and ROC starts crossing teh 25%, then it will be time to buy again.

Technical Note:
ROC = (Current Price - Price N days ago)
...... ----------------------------- x 100%
Price N days ago

In some literature, Momentum is similar to above but without the division and percentage.

Analysis - PLT - Polartechnic

Quick Analysis: This check is done to see if further detailed analysis is ready.
Shares at 9 May 2008: 240,314,531
Cash Left at Dec 2007: 10,401,529
Cash / Share = 4.33 cents
Price at 13 June 2008: 0.125
Price / Cash = 2.88x

The Price / Cash look reasonable enough for further analysis.

Price($) 0.13
NTA ($) 0.05
P/NTA 2.32
Team 3.3
BurnPeriod 2.64
ProductPipe 17
ForeignMarket 6.9
Cash:Debt Debt Free


It has now been 2 full years since the corporate distractions caused by temporary chairman Dr Opara in 2005. The company has restructured and the current management, chaired by Robert Hunter, managed by Ben Dillon (CEO) and Prof Neville Hacker as been in place for almost 3 years since the turbulent 2005. This is an indication of stability of management. Their skills are evident in turning around the company from negative equity (likely due to the 2005 saga) and recapitalised to $9.7m in equity in H1 FY08. Despite just a 3-person director team, their team score is 3.3 which is considered good although 5.0 is the good score.

PLT has moved from R&D into commercialization and is currently focussed on Sales and Marketing. Within the last year it had obtained distribution or registration in the following countries: Russia, China, Taiwan, India, Malaysia, South Korea. This diverse foreign market penetration leads to an above average Foreign Market score of 6.9. A note from experience is that even for biotechs with commercialised products and diverse foreign market, does not translate to profitable sales (see Clinical Cell Culture CCE)

Its main products include:
- TruScreen, a real time cervical cancer screening device. This has penetrates SE Asia as well as China and India. PLT is also developing a primary screening for cervical cancer to be marketed as CerviScreen.
- Mediscan, clinical record system include video imaging, patient records, reporting tools and configurable dataset.
- Screening device for detection of melanoma.
All 3 products are in market in various international markets. The 2007 Annual Report noted that PLT has shifted resources from these developed products to Cerviscreen and preparing to enter new markets. Based on current products, the Product score is 17.0, which is much higher than the excellent level.

Quarterly analysis is not available, since reports are only on a half-yearly basis (reflection of size of the company?). Receipts in the latest half H108 was down significantly ($241k compared to over several millions for previous half years). PLT attributes this to the cessation of the Cosmetic and Beauty products line but SolarScan and TruScreen revenue were also decreased. Operating expense in H1 08 has increased to $4m. Despite the recent re-capitalisation, this cash burn rate mean PLT has about five quarters left. PLT is debt free and also has no intangible assets. Comparing the current price to NTA, the ratio is about 2.3 times. A number of 3 or less is considered cheap to buy. PLT did a capital raising in late 2007 for $0.40/share. Its price now is 12.5cents.

In summary, the in-market products, management team, the foreign market penetration and he recent re-capitalisation makes many numbers look quite attractive but bear in mind that continued operation expense without increase in profit will deplete the financial resources. This could be a speculative buy with strong upside but needs careful attention over the next 12 months.

Analysis - BDM - Biodiem

Analysis - BDM - Biodiem

Price($) 0.125
NTA ($) 0.11
P/NTA 1.156
Team 10.4
BurnPeriod 4.02
ProductPipe 6.9
ForeignMarket 1.4
Cash:Debt DebtFree

Biodiem is a pharmaceutical company with 3 main apparently distinct products. It is developing a live attenuated influenza vaccine (LAIV) and is collaborating with international bodies, Nobilon and CDC in the US. LAIV is also licensed to Nobilon and is in pre-clinical development. Another product BDM-E for retinal eye disease has completed Ph I/II and shown no toxic effects although no significant improvement at those dosage levels. It third product BDM-I, a substitute for anti-biotics in animal feed, has been commercialized. The latter has a great influence on the high product score, but one should be cautious that in this case, the most advanced product may not be that profitable.

The Team score is quite high, reflecting strong scientific expertise. The Foreign Market score is low but BDM has strong collaboration with research bodies in the US.

As for the last 3 years, Q2 is the quarter BDM receives significant receipts, 08Q2 continues this trend. Also capital raising occurred in 08Q2 of about $7m at $0.30 which is a huge premium relative to current price. Projecting the cash burn rate, BDM can last about 4 quarters - which is risky but not overly so.

Financially, BDM is debt free and has almost no intangible assets. It has managed to raise capital via equity yet maintaining a low volume of shares. The share price is one third of last years, yet with no adverse fundamental reasons, apart for the waiting time of product development. At the last price of 12.5cents, its Price/NTA is about 1.156 which is extremely cheap, indicating there is no price premium for any of the products.

Suggestion: Buy at 12c or below.

TLS - Rate of Change

A request was received to look at TLS with the Rate of Change method. The result is shown in the graph below of the Rate of Change (7 days) with the Last Price of Telstra on a daily basis up to today (28/05/08).

The number of days for ROC was chosen such that looking on past events, it seemed to be a reliable indicator. Looking at the current trend, the ROC reached 0% and is on the way down. If the ROC becomes negative and remain so, then there would be a sustained drop in the share price.

This may be the time to risk opening a short as the position would be favourable if the ROC becomes negative. Those with short open, should be waiting positively in anticipation of further drop.

Brief - CBB - Cordlife Limited

Brief - CBB - Cordlife Limited

The dramatic fall from $0.85 in July 07 to $0.27 recently has prompted this quick review / analysis. (Have not been too frequent in blogging due to Computer upgrade - hope to pick up soon). Within this period of sharp decline, there had been no bad news from the company.

CBB is a cord banking business. Its business is in storing umbilical cords blood for the purpose of using for future treatment or stem cell therapy. CBB has its main operations in Singapore and is active in the Asia Pacific region. Offices are found in Singapore, Australia, Hong Kong, Thailand and the Phillipines and just opened in Indonesia. This is a relative good foreign market exposure.

According to the Dec 07 report, CBB is virtually debt free, with $9.5mil cash. Its current ratio (receivables/payables) is a healthy 1.6, like that of a big cap industrial stock. This is not a bio-R&D company but a cash generating business. Its NTA/share is $0.162 and comparing with today's price; the price/NTA = 1.66, quite low indeed.

Unlike research biotechs, CBB does not have the promise of a blockbuster drug. Although its financial position seem to be good at the moment, it is still making a loss. Its last half year operations loss is $2.2m. Its cash burn rate is about 4.3 half years or slightly over 2 years. Investors should expect CBB to be profitable in less than 2 years if they decide to invest.

Recommendation: Speculative buy at $0.25

Brief - Atcor Medical - Initial Coverage

Brief - Atcor Medical - Initial Coverage

This is a quick note alerting readers about initial coverage on Atcor has commenced. The coverage is done by Taylor Collison Sharebrokers and the report can be seen at Atcor's website.

The report is very thorough with a full DCF analysis as well as a good survey of competitors, both local and international markets, in which Atcor operates. (A DCF analysis estimates future year profits and brings it back to today's current value, hence giving a price for the company). According to the DCF, ACG is valued at $0.20-$0.27 and is currently very undervalued. Current price is just $0.05.

Have a look at the report - it is quite impressive in terms of amount of detail.

PS I own shares in ACG. My analysis on ACG is in this blog in Feb 2007.

How To Set Target / Watch Price for Stock - using Google Finance

How To Set Target / Watch Price for Stock

The Need:
Have you been watching and is interested in too many stocks? And do you have an opinion on a stock price that if it falls near $xx.xx then you want to have a closer look again. The problem is you and I can easily forget to look up that stock after a few days since there are other stocks to look at. Or if we remember the stock, then we forget our target price.

Example: BHP is now over $39.xx. I have the opinion that if it falls to within 10% of $31.5 then I should have a renewed look. Problem is after one week, I have been scanning over 50 - 100 other stocks. I have forgotten that I should look at BHP when it is 10% of $31.5.

The FREE Solution:
Use Google Finance at finance.google.com

With this, I can set a target price, and everyday I can scan this webpage and straight away see if the Closing Price is near my target price of $31.5. The figure below shows the example I created for BHP. We just need to look at 2 numbers:
i) Cost Basis column - this number is the target price I set.
ii) Gain Percentage - this number tells how far the current price is to my target price. For this example, today's price of $39.58 is 25.65% above my target price, so I am not interested in BHP yet.
These are the 2 numbers I want. It has other data too for your interest.





How To Do It;
This section now describes in detail how you can achieve this.
1. Create a google account or gmail account (for more details, seek other help).
2. Go to finance.google.com
3. On the website, look for Portfolios or My Portfolio link.
4. Click on the "Create new portfolio" link.
5. Give your portfolio a name.



6. Here's the most important part: In the Add section there should be 3 blank fields:
Symbol(s) --------- Shares -------- Price -------[Add to Portfolio] button

Fill in the fields as below:
Symbol: ASX:BHP (for Aussie stocks, the ASX: prefix is needed)
Shares: 1 (or any number you like)
Price: Target Price (eg 31.5)


I find finance.google updates its stock prices for Aussie shares the same evening our ASX closes.

This technique allows you to have many many shares targeted and you don't need to remember what your opinion was 2 weeks ago about the target price. You can modify the target price anytime you change your opinion about it.

Analysis - PGL - Progen Pharmaceuticals

PGL - Progen Pharmaceuticals

Price($) 1.62
NTA ($) 1.57
P/NTA 1.031
Team 6.5
BurnPeriod 13.89
ProductPipe 5.5
ForeignMarket 1
Cash:Debt 455.8

PGL product score is about 5.5 - this is above average in general but there are certain reservations to consider. The main drug is PI-88 targeting multiple cancer including lung cancer, liver cancer, multiple myeloma and melanoma. There are other products which are in very early clinical stage and would not be mentioned here. PI-88 for Liver Cancer is advancing into PhIII while PI-88 for melanoma is undergoing PhII, resuls due in H2 CY2008. It is these two product that contribute to the score of 5.5.

The 3 other applications of PI-88 has mixed results and this author takes a conservative approach to write them all to zero. PI-88 for multiple myeloma results in 2003 states: "PI-88 activity has been seen in this disease and these results indicates that stabilization of multiple myeloma with PI-88 with side effects is possible". Somehow this does not seem to be a very positive result in my opinion. PI-88 for Prostate cancer concluded but further investigation needed about side effects which PGL currently claims to be associated with its combination with another drug Taxotere. PI-88 for Lung Cancer PhII did not yield positive results. It appears that the PI-88, the main development product, is not the wonder compound it was thought to be several years ago. This also impacts on the confidence of the remaining products.


Financial inconsistencies in the financial report has been observed in the Interest Bearing Liabilities. Perhaps a reader may wish to clarify this but it appears that each of the half year report claims to have an interest bearing liability but the entry disappears in the annual report. This pattern is seen over the last 3 years.

Main financial indicators for PGL at the moment is very strong. Apart from the debt inconsistencies, even the stated half year debt appeared to be very low. It has got lots of cash, over $91m and given current outflow rate, it can last over 13 half years. But note, ph III trials are usually a lot more expensive than other trials, so assume that it can last half that time - i.e. 6 half years. Due to large cash available and small share, the price/NTA is about 1.5 - a very low number for a company with a ph III product.

Management and Board are made up of an impressive list of characters with strong scientific and technical knowledge. It has a score of 6.5 which is above average in this category. Curiosly enough, this author has seen perhaps a reflection of the highly qualified board and management team in the very professional way the recent annual reports are written. The professional nature, I believe has also been instrumental in the success of PGL in obtaining funding and building confidence in the company that saw price rose to over $9 in early 2007. This comment is made to emphasize that the long term success of a biotech ultimately lies with the quality of product, without which the company cannot continue to survive.

Recent Acquisition of Cellgate gives PGL a presence in the US, potentially an established network for clinical development. In addition it also gives some additional product pipelines, hence diversifying of product risks. Financially in monetary terms (i.e. not studying the value of Cellgate itself), the acquisition is not cheap, with US$2.5 upfront and up to US$19.5 in cash or shares at a later date.

In summary, PGL shares look very cheap due to strong cash position and small number of stocks. However, the main concern by this author is the efficacy of PI-88 compound. It has been shown not to have performed well for 3 applications. Therefore PGL is considered here to be more risky that other biotechs. Recent price pattern is that of a downward trend. It may be worthwhile to wait until price has stabilised.

Recommendation: Cautious Buy at 1.50 or below and when price steadies.

Analysis - AVX - Avexa

Price($) 0.59
NTA ($) 0.19
P/NTA 3.07
Team 8.5
BurnPeriod 11.92
ProductPipe 3.6
ForeignMarket 2
Cash:Debt DebtFree


Avexa is developing drugs for HIV and antibacteria-resistant infections. It has one lead product that has recently obtained successful results in Ph IIb trials. More results for Ph IIb are expected to be released in the early months of 2008. Even so, it has received the green light for Ph III. Entering Ph III itself is an important stage of biotechs - it is the stage where global pharmaceuticals may become a main partner or even take over the junior biotech at a high premium. However, it is also a stage where R&D companies may crash if the Ph III clinical
results are disappointing.

AVX's drug are to target anti-bacteria resistance and its lead product ATC is an antiviral for HIV. Ph IIb results have shown that ATC is able to target current drug resistant HIV, i.e. it works where other drugs have failed. One of its mechanism is to stop the replication of the HIV virus.

AVX cited other products in the pipeline, however they are at the early preclinical stage - hence the low product index of 3.6. Although AVX beliefs that it's approx $70 cash-at-hand is a de-risking factor, the lack of other advance stage products in the pipeline mean that the share price is almost certain to fall below 50%, likely more, if the lead product receives a setback.

AVX has an incredible line up in the Board and management, if PhD's are the only indicator to go buy - which is the case in our analysis since we don't know them individually. The management index is a score of 8.5, almost double the points of what we consider as average. A positive note goes to CEO Dr. Chick who has served since 2004 or earlier and has through the various Phases of clinical trials of ATC.

The Foreign Market index of 2.0 for AVX is relatively low. Its main product is ATC was acquired from a North American company. It currently has collaboration with Shanghai to develop inhibitors that prevent HIV binding to cells. We may suppose AVX's drug is known in the specialist anti-HIV community for its effectiveness, but its lack of commercial association with big pharmas present a risk especially when AVX has openly stated its strategy include looking for partners for Ph III and beyond.

Financially, AVX is debt free which is good. Quarterly cash burn has doubled in the last quarter to almost $6m. This is expected given it is entering Ph III. Cash burn rate calculation of over 11 quarters is based on linear trend. But as Ph III spending will definitely increase, the real cash burn should be greater than that. But given the amount of cash left, it is very likely to last over 1.5 years without further injection - this would bring it to the middle of Ph III. Hence any investment now should be re-evaluated at least in the middle of 2009.

From a technical analysis point, AVX has been quite volatile. A year ago, it was less than 25c, but news of successful Ph IIb pushed it close to 85c, but other concerns, perhaps ability to find a big pharma partner has caused the price to go as low as 45c. The recent low is 50c and news of Ph III entry approval has caused a rise. It price to NTA is currently 3.07 which is on average, but not cheap. Noting that Ph III is a cash burner, expect the P/NTA to increase in coming months, thus making the stock expensive. In conclusion, the share price itself is too volatile and investors sentiment is totally locked into one product of the company. I estimate 2 years before the results of Ph III to be known.

Recommendation: Wait until mid 2008 and buy if the price is 30c or below.

Brief - CYT Update, AVX coverage soon, Technical Analysis RoC

Three items on today's brief

1. CYT Update
2. AVX coverage soon
3. Technical Analysis RoC

1. CYT Update
--------------
CYT was analysed in Oct 07 with recommendation to buy up to 55c. Today's bid, offer is 47c vs 51c - a difference in opinion between buyers and sellers. Interesting news today is that Acom Capital doubled their shareholding in CYT and now holds about 12.7% (up from 11.2%). Other news since the original coverage include the commencement of PhII trials and raising of $5m capital. Recommendation is unchanged.


2. AVX coverage soon
----------------------
Avexa announced the commencement of PhIII trials. The share price increased but have not leaped yet. It has over $70m in cash and last quarter cash burn was about $5m. Looks promising. Coverage to be initiated soon - the figures here will be finalised later.


3. Technical Analysis RoC
--------------------------
Rate of Change indicator for technical analysis does seem to be a leading indicator. Note that different stocks need different "days" for the Rate of Change (RoC). The following 2 gold stocks CRK(10days), DGR are at the turnaround point, ie. RoC graph crossing the zero level - signal to watch and prepare for action. If it crosses to positive - go Long, if crosses to negative - go Short.

More detail of this method to be explained later.