Technical Analysis (Gann Charts) - Dow and All Ords refuses to fall

Source: http://ozstock.blogspot.com

About a month ago, my article (in June) was titled "All Ords headed for June fall?" As you may have guessed, I am bearish, and in the market following my own advice last month. The market actually dropped for a few weeks as forecasted by previous blog, but my mistake was not using a stop loss. Over the last week the market surged strongly. Let's have a look at what the Gann angles say.



Looking at the All Ords graph first, I've added a new (Green line) angle of ratio 32:1 downwards from the 2007 all time high. The angle gradient of 32 is a power of 2, and I've tried others like 16:1, 8:1 and they were quite far off so I settled on 32:1. But see how it turn out to be a resistance angle to the previous rallies since Oct 2007?

Looking closely, it turns out the June fall hugged the 32:1 angle closely and the recent surge broke the resistance emphatically. In absolute terms, the rise is quite small, but the fact that it broke the line warrants further watch, or even good reason to speculate of further rise.




It's only now after the new green line (32:1) has been added to the All Ords, that I realize the Dow Jones chart's pink line marks out a very similar trend. In the Dow Jones chart, the June fall and mid-July rise follow the same pattern along the Gann -10 line as the All Ords. The resistance is not only broken but appears prominently on the up side.

In summary, if the current rise in the market can be sustain for at least two weeks, there is a good case for a strong rally in this bear market.

Warren Buffet's 1981 Formula for quick valuation

http://ozstock.blogspot.com

Here is a short technical note Warren Buffet's 1981 formula. I came across this from the Money Magazine, June 2009 issue. Hence I do not guarantee that Money Magazine's content is correct or even if this is truly a formula used by Warren Buffet. However, after analysing the formula for myself, I see the merit of it. In fact I will be including this so called Buffet's 1981 formula in my future article which explains my 3-fold Valuation method to decide on buying stocks.

The Buffet's 1981 formula is this:

Value = (ROE / Required Return) x Equity Per Share

where
ROE = Rate of Return of the Company of interest (in %). This can be calculated using Net Profit After Tax divided by Total Equity.

Required Return = Pre-tax required rate (in %) that you would like to get for your investment. For example you may wish to use a long term deposit or long term government bond rate for this.

Equity Per Share = the Equity of a company divided by the total number of shares. These figures can be obtained from the company's annual reports.

This is a quick and simple way to value a company, to see if the company is priced more or less than it is of value to you. Your input comes into the Required Return where you can choose how much you expect from this investment.

Then the formula will produce the value of the company per share. Simply compare this with the current price to see if it is over or under priced. Using this model, a company that can generate a higher return on equity is worth more than one that cannot. Also a company that generates a high ROE and is able to retain all of its earnings and continue to make higher returns, is worth more than a business with the same ROE but forced to pay most of its earnings out as dividends.