Buy and Hold Strategy - Pros and Cons

The so called buy and hold strategy has been popular for amatuer investors or those looking to park some money into the stock market believing that in the long run, they will have greater return on their investments than other asset classes such as property, government bonds or term deposits. There are various indications that show that this is in fact a failed strategy as investors who adopt this will be worse off.

Here is a list of arguments both for and against the Buy and Hold Strategy summarized from the book by Leslie N. Masonson

Buy--DON'T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk

For:
1. Stocks perform better over the long run compared to bonds, treasury bills, cash and is the only way to beat inflation.
2. A diversified portfolio of stock, bonds, mutual funds will provide positive return over the long term.
3. It is better to stay in the market all the time since no one can predict up or down.
4.Stock market always recover and go to new highs, so it is better to be patient and stay with it.
5. If investors miss the best rallies, they will miss out on the best returns so it is better to stay invested in the market.
6.Picking high and low points to sell and buy does not work, so might as well stay invested and also to avoid frequent buy or sell commissions.
7.Only commission is the initial purchase so better to be invested for the long term.
8.Buying no load active and / or passive funds does not incur commission.
9. Rebalancing a portfolio annually to achieve a certain stocks to bonds ratio yearly is good. There are no tax consequences if this is for retirement account (for US holders?).
10. Tax only need to be paid when stocks are sold. For the case of mutual funds, they do pass on capital gains yearly and investors need to pay some tax on this. This is more relaxed for retirement accounts. (for US holders?).


Against:
1. Sometimes may take up to 20 years to break even since there is usually bear market in this time frame. Historically some 20 year period may return negative after inflation is accounted for.
2. Exposed to bear markets and crashes. If you just buy and hold, you will lose what you have gained and need to wait for the recovery.
3. From 1998 to 2009, buy and hold strategy did not return positive return after inflation is accounted for.
4. Diversification may not help as some bear market or crashes affect all industries.
5. There is no defense in a bear market. Buy and hold is only effective during a bull market.
6. Missing out on strong market rallies is not as bad as avoiding the worst daily, weekly drops in the market. Movement of prices in a crash is much more severe than in a charging bull market.
7. Commissions on buying and selling stocks have dropped. ETFs in particular allow exposure to diversified set of stocks.

CANSLIM method - William O'Neil

This is a quick review of the CANSLIM method of stock selection or stock picking as described in the book by William O'Neil:
How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition


The interesting thing I found about this method is that it is neither pure fundamental nor technical analysis but a combination with elements of both. Here is a quick brief on who William is.

William J. O'Neil (born March 25, 1933) is an American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc. He is the author of the books How to Make Money in Stocks and 24 Essential Lessons for Investment Success and is the creator of the CAN SLIM investment strategy. He holds one of the highest performing track records in the stock market --- Wikipedia

Now on to the CAN-SLIM method. This article is not a book review, rather a summary of the CAN-SLIM method for quick reference for users of this blog.

C - Current quarter growth 30%- compare to last quarter, for four qtrs, sales growth. This indicates strong short term growth. Finding such a criteria for stock whose price has not shot up may be good as this may indicate a company which is overlooked and ready for appreciation.

A - Annual earnings growth 25% - last three years. Roe > 17%. Check earnings stability, i.e. this ensures that good earnings is not just a fluke, but is due to good business and can be sustained.

N - New things in company, products, management - fundamental. New highs off properly formed bases, such as stock price shooting up recently from a long inactive period.

S - Supply an demand. Low debt to equity. These are typical fundamental criteria. The first represent the core of any business for without a favourable supply and demand, the business would not survive. The second is fundamental on how the business is run in terms of debt level. Many large corporate failures can be traced to too high debt.

L - Laggards and leaders. Do not buy when price drop big, with big volume , even though look cheap. This will trap most amateur and even professionals like fund managers and so called fundamental investors. Get out of laggards if drop 8% or more.

I - Institution investors - buy stocks with a few institutional sponsor that have good performance, or more coming in. Avoid those with too big proportion held by institutions as this will lessen liquidity.

M - Market direction. Major top when small price up, large volume, big range. Market bottom begin with rally attempt which closes higher after day's decline. From fourth day, look for follow through with higher price and strong volume. After confirmed , buy quality stocks with strong sales and earnings . Also look for divergence in major indices and ratio of call to put options volumes.

A few more notes which I would try to remember for myself are:
- look for Cup handle pattern. This is when the stock price has not moved up or down for a long time and just recently starting to spike up.
- Buy when stock is going up, on increasing volume, not when going down.
- Buy companies with low debt to equity.

Roger Montgomery Intrinsic Value

http://blog.rogermontgomery.com/how-do-your-value-able-valuations-compare/

Technical Analysis - Summary of PSAR, Bollinger Bands, Triangles

Ref: http://ozstock.blogspot.com


This is a quick summary of 3 other methods of Technical Analysis. As usual, each method by itself is not as good as using a combination of methods.

PSAR - Parabolic Stop and Reverse
- only use in trending markets
- use as exit tool or trailing stop
- BUY - Price hits PSAR from below
- SELL - Price hits PSAR from above

Bollinger Bands
- Middle Band - 20 period moving average
- Upper Band - Middle Band + 2 standard deviations
- Lower Band - Middle Band - 2 standard deviations
- Use with Double Top of Double Bottom - need the first peak to be outside the Band and the second peak to be inside the band

Triangles
- ascending, descending, symmetrical
- breakout may be in either direction in all 3 types of triangles.
- enter when breakout
- stop loss set inside triangles

These indicators and a few others are shown in the example of the ASX 200 below. The conclusion is that there is no obvious trend of the ASX at the moment as the market is trading indecisive with not much direction.

Brief - PAG - PrimeAG Australia

This is going to be a very brief note about PrimeAG (PAG). Rcently PAG caught my attention because of the recent strong uptrend. I have been studying a few technical gurus (Gann, Weinstein),  methods on Technical Analysis and clearly the strong uptrend would be one reason to buy. See graph below.

However, although I may wish to go for a short term, technical play, I also glanced at the fundamentals. One of my recent indicators I followed, which I will use more of, is the ROE. I would be looking for ROE of at least 15% for long term play. For short term play, a smaller ROE will suffice.

However, PAG's fundamentals is this: ROE is almost Zero. It had made a loss recently, ie. negative earnings and profit. One of the only positive ratio is the book value of $1.89 (from CMC Markets). Based on this, I will make no further analysis for now.

One point more on the Technicals, the uptrend has not been strongly supported by heavy volume. If there was heavy volume, then the case based on technicals would be stronger.

Note to Self: avoid this stock unless I feel very very lucky.

Note to Self

5 Oct 2010

ESG - wait till go up 85-90c
STO - buy when rebound from 12.30 to 12.50
AMP - ROE 40.50 54.80 27.00 29.50, wait for technicals
TGA - sell when below 1.40
TIS - buy when breakout 25
CUV - sell when close under 19

TZL - wait for break above 50c
VLA - wait for break above 35c
POH - wait for break above 11c


CMC Market allows a simple filtering system.
- ROE > 15%
- Debt / Equity < 0.5
- Market Cap < 100,000, 000
- 5 yr avg annual return > 10%
- Net Profit > 10,000,000

the results from the filtering were:
TBR - Tribune Resources NL
TWD - Tamawood Limited

All Ord Triple Top Re-Confirmed, and Dow Jones does not resist

Source: http://ozstock.blogspot.com

Usually the charts are done at the end of the week to get the full weekly picture but since the dramatic drop over the last few days, the last point on these weekly charts end in the middle of the week.

In the last post, the All Ords were on the verge of confirming a triple top but the Dow did not show any similar patterns. For over the last month, the All Ords had been fighting the Triple Top and showed signs of successfully resisting a Triple Top plunge as it climbed up from the 4300 level. However, things changed in the last week and as of today, it seemed the market is plunging back down. In fact the closing of today has broken the previous month's low of 4325. The chart also shows that it has broken through an important Gann angle. At this point the signs are now quite strong for further downtrend.

In terms of the Dow Jones where previously, it was not near any support or resistance, the lastest chart shown here indicates that it is touching the Gann (brown) angle. The minor recovery over the last month followed by the subsequent downtrend provides strength to break this Gann angle. When a Gann angle is broken, the trend will continue in that direction until the next angle is found. The fundamentals of the world economy and sentiment also provide strength to the downside.

Whereas before the Dow and All Ords seem not to coincide with each other, the current downtrend is supported by both indices and may be a confirmation of strength in the current direction.

Coal Seam Gas companies

(taken from AOE's Acquisition Scheme Booklet)


Coal Seam Gas (CSG) has been of considerable interest over the last few years. It represents a new technology of producing gas. Over the recent years there has been various corporate takeovers of CSG explorer and developers (eg Sydney Gas, Sunshine Gas, Roma Petroleum) by bigger companies (eg BG Group, Shell, AGL).

The table below may serve as a quick guide as to what CSG companies are still available and hence possible investment opportunities. Note that currently, Arrow Energy has an acquisition offer. In terms of size by enterprise value, none of the remaining CSG are close to Arrow Energy.

Most of the remaining companies are explorer / developer. Only Molopo is producing gas from its field in the Bowen Basin in Queensland. Note that the largest field for Molopo is in Canada, hence the 2P and 3P numbers from overseas are not included here. It also has tenements in South Africa.

From the 2P and 3P resources we see that many of the explorers have quite small reserves. The only other company with significant reserves besides Arrow Energy and Molopo would be Eastern Star Gas.

Just a note that:
1P = proven
2P = proven and probable
3P = proven and probable and possible.

Hence those companies with a very high 3P and relatively small 2P means that the majority of the reserves are only "possible". These are the companies with higher risk compared to one with smaller percentage of Possible reserves. In table, in the Proven and Possible %, the lower percentage the better.

All Ord Triple Top Confirmed, but Dow Jones Hold the Key

Source: http://ozstock.blogspot.com

At the end of this incredible week which saw both the Dow and the All Ords (as well as many others) plunged, the Triple Top of the All Ords has been confirmed. However, caution is in order as this is still a newly confirmed Triple Top and may turn around suddenly. Nevertheless, W.D. Gann and David Bowden recognised that Triple Top is one of the safest signals for beginners to trade, even more so than a Double Top, because when these signals are met, they are most likely to continue on as expected.

To avoid being caught out, decide on a suitable Stop Loss if your are going short. The level of stop loss depends on your own risk-reward apetite. Some people place stop loss at a certain percentage of their expected loss, for example you can put the stop loss at a price where you would lose 3%, 5%, 10%, etc. Others place their stop loss based on special points on the charts. For example with the Triple Top, we may choose the previous Low point as the stop loss which is in the week of 1st Feb 2010 at 4532 points.

In addition to the All Ords Triple Top, we also see the chart breaking the all important Gann 1:1 (brown line) or 45 degree angle. This is the angle of great strength where support or resistance will be tested. Again, it has only just broken this angle, so cautious trading with Stop Loss is prudent.

The Dow Jones on the other hand, does show a correction after coming down strongly from the yearly high. However, it has not formed any significant Double Top or broken any Gann angles. It is however approaching another the Gann +10 angle where it may find support or it can breakthrough.

The Dow tells a cautious story. As the All Ords seem to show signs of an emerging bear market, perhaps we have to look towards the Dow as a final confirmation as to whether both markets will go down or pull up from here on.

Technical Analysis - Summary of Trending Indicators

A. Directional Movement Index (DMI)

One of the easy way to trade for profit is to follow the trend. But with the market moving up and down on a daily basis, we need an indicator such as the DMI to confirm whether it is an actual trend or not.

The Directional Movement Index (DMI) is an indicator that measures the strength of a trend. It is used to answer question like, "Is this a strong uptrend?" or "Is this a strong downtrend?"
Developed by J. Welles Wilder, Jr., it is designed to determine whether a security is in a trending or non-trending market.

There DMI itself is a combination of 3 indicators

+DI: current positive directional index, the range of highs divided by the price range over the last day and previous close, smoothed over a given number of periods.

-DI: current negative directional index, the range of lows divided by the price range over the last day and previous close, smoothed over a given number of periods.

ADX: (Average Directional Index) modified moving average of the difference of +DI and -DI divided by the sum of +DI and -DI, multiplied by 100.

The most important of the 3 is the ADX which tells the strength of the trend, whether up or down, as long as its value is above 30 or 40.

To confirm an UpTrend:
  ADX > 30 the higher the better
  +DI > -DI

To confirm a DownTrend:
  ADX > 30 the higher the better
  -DI > +DI



Related Articles
Summary of Oscillators

Technical Analysis - All Ords Triple Top and falling ABC Swing Signal

The chart of the Australian All Ordinaries show a few indicators together up until 19 May 2010.
This has been an incredibly volatile few weeks and some major signals are on the verge of being established, if they have not done so already.

1. The Triple Top - the most recent top seems like the biggest of them all. A double or triple top is one of the easiest way to profit according to David Bowden and WD Gann. But to be sure it is a triple top, its recent downward leg has to break the other two bottoms on Nov 09 and Feb 10. The recent lows has passed that slightly. This indicates a short signal - but remember the stop loss.

2. Swing Trading - ABC - This is another easy way to identify a trend. As indicated on the diagram, when the graph moves from C downwards and passes B, then it is time to sell. Notice the ABC is based on the swing chart of the daily graph.

3. Price Retracement - the scale on the right hand side indicates the current price has broke through the 50% retracement from the major high in 2007 to the major low in March 2009. The 50% is a strong resistance and support line and according to W.D. Gann, once it breaks through, it signals a strong trend.

4. Finally the graph below is the Average Directional Index - ADX - this indicator is not a commonly used one, but practitioners who use this indicator have done it quite successfully. Basically, for a downtrend to be established, the ADX (blue line) must be above 40, as it is now. This shows the bear trend is very strong. In addition, as the ADX is rising while -DI(green line) and ADX  are above the +DI (red line), it is a strong indication of sell.

There are many other indicators, but the four above combines the simple and proven ones as well as the more advanced ones, and they all point downwards.

Dow and All Ords go separate ways?

(source: http://ozstock.blogspot.com )

Despite a few hiccups, the market has been going quite steadily upwards. Even news of volcanoes, civil unrest and the Goldman suit could not hold the market down. This is true for both the Dow Jones and the All Ords up until last week.

Looking at the weekly charts below, the Dow is powering on quite strongly. Looking at the Gann chart below, it has clearly moved part the resistant Gann-5 angle and is between two other Gann angles. There is no indication that it will hit a higher resistant angle soon.

The All Ords present a slightly different story. OVer the last week, daily trades showed symptoms of nervousness. The week ended slightly lower. While one down point does not determine a change in trend, the current position of the All Ords looks as if it is forming the third peak of a triple top. To confirm a triple top we need to wait for it to pass the bottom of the triple top formation which is around 4500.

If a triple top does form for the All Ords, it will represent a strong decline. At this moment with the Dow heading up strongly, the notion of the Dow and All Ords going in opposite direction is difficult to imagine. The other likely option is that one of these two will have to change its direction.

Technical Analysis - Dow Jones and All Ords Bull Continues?

Source: http://ozstock.blogspot.com

Here's an update of the weekly Gann charts for both the Dow Jones and the All Ordinaries Indices. There are no new angles on both graphs, rather just the continuation of previous graphs. Over the last two months there was a significant change in behaviour in that since late January world markets have dived but has since recovered and is now almost at the January highs.

Looking at the All Ords, since late last year until today, it appears to be trading within a range. However, as the All Ords is approaching the previous two recent tops, there is a potential for a triple top soon. With the recent highs, it is also approaching the top envelope of the 20 day high. It's something to watch if it will cross the barrier.

The Dow Jones on the other hand does not appear to be range trading in such an obvious way. It has been climbing up to the January high, made a steep drop and is now about the same as the January high point. This is also something to watch if it will pass this high point or create a double top. Note that the current position is well clear of most of the Gann angles shown in the chart.

From a technical analysis overall assessment, the general trend is up. But from a fundamental assessment, there are worries about sovereign debts of several western nations and the strength of the recovery. As both types of analysis are opposing each other, it's time to wait and see.

Analysis - BRC - Brain Resource Company

The following is a very quick analysis - a look at key numbers of BRC. This analysis is prompted by the sudden increase in buy volume of BRC today. Not only is there a 15% price jump, the volume traded got a big boost. This certainly looks like someone knows something is going to happen. So the question is whether it is worth the punt?



Date Open High Low Close Volume
11-Mar-10 0.26 0.30 0.26 0.30 765,530
10-Mar-10 0.25 0.26 0.25 0.25 0
9-Mar-10 0.25 0.26 0.25 0.25 0
8-Mar-10 0.26 0.26 0.26 0.26 4,000
5-Mar-10 0.26 0.26 0.26 0.26 7,500
4-Mar-10 0.25 0.26 0.25 0.25 0
3-Mar-10 0.25 0.26 0.25 0.25 0
2-Mar-10 0.25 0.26 0.25 0.25 0
1-Mar-10 0.26 0.26 0.26 0.26 58,500
26-Feb-10 0.26 0.28 0.26 0.26 0
25-Feb-10 0.27 0.28 0.27 0.27 0

A quick analysis of the numbers in the half year report are shown in the numbers below. On the positive side, BRC is a biotech / diagnostic company where the core product is not drugs, rather it is a large database of brain related information and specialised software for brain analysis.







Date 11/03/2010
CMP 0.3
EBIT 672067
NPAT 778185

Interest Expense 0
Interest Earned 106118
Net Interest Expense -106,118


Debt Short term 0
Debt Long term 0
Debt Other 0
Total Debt 0

Cash 14,672,976
Intgb Assets 13,359,586
Deferred Tax Assets 350,000
Depreciation 51,027
Interest Bearing Investments 0
Total Assets 30,247,849
Total Equity 12,402,599

Sales 3,828,462
Cost of Goods 2,524,225
Cash Flow from Operations 1,462,214
WANOS 91,714,454
EFPOWA 91,714,454
Shares at End of Period 91,714,454

ROR (Required Rate of Return) 10

PE Sector 12.95

Net Income 778,185.00
Gross Cash Flow 829,212.00

Net Debt to Equity = -1.18
Net Debt to (Total Assets - Intangibles)-0.87
Net Debt / (Net Debt + Equity) 6.46
Net Interest Cover Ratio = -6.33
Debt to Gross Cashflow 0
CFPS 0.02
EPS current 8.48E-03
EPS previous 3.80E-02
PER 35.36
Gross Margin 34.07%
NPAT Margin 20.33%
NTA/share -0.01
ROE 6.27%
ROA 4.32%
Market Capitalisation 27,514,336

EQPS 0.14
Buffet Value 8.48E-04

EPS Growth -77.67%
PEG -0.46


Financially, BRC is debt free. It is a profitable company, unlike majority of cash-burning biotechs. Cash flow numbers look very good indeed. Hence the 3 major financials of profit - debt - cash flow; all look very good.

On closer inspection, we see the intangibles asset is almost half of the total assets. In fact the Net Tangible Asset (NTA) becomes negative because of the large intangibles. In addition, there is a big contribution to liabilities from Payables - which is almost 10 times receivables. Is it healthy for a company to have such disproportionate payables? When are they going to need to pay up?

In addition the ROA and ROE are quite modest. Applying the Warren Buffet 1981 formula, assuming we are asking for a 10% Return on our investment, the formula puts a price on BRC of $0.00085, which is certainly less than $0.30.

Opinion to myself: Buy quickly if brave and pull out soon. The long term health of BRC is yet to be confirmed.

Lightning Analysis - CFU - Ceramic Fuel Cells

(Source: http://ozstock.blogspot.com)


Ceramic Fuel Cells develops electric generator power units based on Fuel Cells technology. Fuel cell itself is a relatively new technology which is supposed to be low emission and highly efficient compared to conventional generators. Scientifically, a fuel cell converts chemical reaction energy into electricity. This is similar in principle to batteries but fuel cell requires an external source of fuel. The fuel can be hydrogen or in CFU's case, they natural gas. Previously fuel cells are not economical to use en masse hence they are only found in special applications, including space flights. But CFU is suppose to develop economical industrial fuels cell generators that can be used for homes and buildings.

Reading about the CFU company gives the impression that it not only has a breakthrough technology which is addresses climate change and global warming, it is also on he verge of mass producing the fuel cells and has large international client orders from Germany and the UK in addition to Australia. Its manufacturing plant is located in Germany, which is from where production units will roll off.

CFU has a respectable relation with European countries like Germany and UK, which are serious in tackling the climate change problem. CFU has received research grants and financial incentives from Germany and received benefits from UK government feed in tariffs. The German plant opened in Oct 2009, is ramping up production in preparing for large volume sales in 2010 onwards.

The CFU story looks very rosy indeed, but trying to analyse its financials is a totally different story. Firstly CFU booked a massive loss of over $42m (2009) compared to $24m (2008). The 2008 loss was large enough but in 2009, CFU booked an extra $27 impairment loss from investments. No further details are given in the annual report but from news media a few months back, some may recall the boss of CFU talking about suing an investment company that invested a large amount of CFU's money into Sub-Prime investments.

In this blog, there are two strategy to analyse companies in the fundamental sense.
i) For established industrial companies, we look at a few financial ratios, eg debt level; the Warren Buffet formula and Lincoln indicators.
http://ozstock.blogspot.com/2009/07/warren-buffets-1981-formula-for-quick.html
http://ozstock.blogspot.com/2008/11/fundamental-analysis-ratios-formula.html
http://ozstock.blogspot.com/2008/07/9-golden-rules-according-to-lincoln.html

ii) For Biotech companies, ozstock has developed a set of biotech metrics to sift out potential winners.
http://ozstock.blogspot.com/2007/01/biotech-valuation-indices.html

CFU however, is still a startup, ie. massive losses, hence cannot be evaluated using method i). Although CFU is a startup, it does not have the biotech metrics such as clinical trials to judge the effectiveness and milestones of the product. Because of this CFU is purely a speculative play.

A few other things to note about CFU financially:
1) The massive $23m extra impairment loss stands out like a sore thumb. On the bright side, it is only for the one year, we hope. On the darker side, CFU is involved in a law suit concerning this loss. My opinion is that they cannot win the law suit, and need to pay the legal cost.
2) Recent cash flow is actually not that bad at $1.4m operational outflow with remaining $24m cash. The last 2 quarters had a loss of $4.88m combined. However, annual cash flow over the last two years were a massive $17 and $20m, with slight improvement in the last year.
3) Last two years, CFU was able to raise $32m and $15m, showing an ability to raise cash, especially when it seems like its technology is very well regarded in Europe.
4) On the balance sheet, it appears to have no debt. Majority of assets are cash($25m) and Plant and Equipment($20m) with very little intangible assets. This seems like a strong position.

From a technical analysis standpoint:
i) The Relative Strength (RSI 14) looks like its bordering on the oversold side, so could turn up.
ii) The Stochastic Oscillator is at almost 0, and may signal a buy when it moves strongly into positive territory.
iii) MACD is way under zero and thus indicates an oversold condition. For this to signal a buy, the MACD must have moved strongly across the signal line.
iV) The price itself seem to have found temporary support at 16c after falling from a tight range at 25c.

Summary
Fundamentally it is worth a punt, not only because of promising technology but also a strong balance sheet. Its past financial history however suggest extreme caution.
Technically it  has been oversold recently. The wait is for it to confirm the support or break through to lower levels.

Technical Analysis - All Ords Double Top, Dow faces Gann Resistance

All Ords Double Top - Dow faces Gann Resistance

This is very exciting times, not because of my investing position, but because of what's coming ahead. I will explain why it is time to go short. But before that, I'll candidly reveal that for the past 2 weeks I went long thinking that the correction was minor and will turn upwards as we have seen previously over the last few months. So that was my mistake, not too costly if I get out soon, because the pattern after just last week is almost a classic double top setup.

Anyone who has been following David Bowden or Gann's techniques realise the double top or double bottoms are among the easiest signals to trade because a few things need to occur before we can conclude the double tops or bottoms.

The Aussie All Ords has just form a double top at the end of last week, in fact it is on the down-leg. The double top setup consist of the first top, around early October, then hit a low around November and climbed to a top in early January. Since then it has declined with full force and the current position is slightly lower than the tip of the double top. This shows the second top has a down leg which has broken an important support position. If this double top is like most others, given current position, the only way is an emphatic downward move. If it goes a little further to break the brown Gann angle support, then it will go down further.

Interestingly, the Dow Index does not show a double top. What it does show is that it had just broken back down the Gann-5 angle. Not too long ago, the Dow powered upwards and broke the Gann-5 angle, but that was short lived. It then reversed and came down to break the Gann-5 angle and now it seems the Gann-5 has become a strong resistance. Although we should wait a while, and Gann himself would suggest we wait, the trend is now on the downwards.

So to play safe, we can wait a week or so to have confirmation of a major correction to come. Those who have the risk appetite may choose to go in soon.

Analysis - POH - Phosphagenics Limited

Source: http://ozstock.blogspot.com

Summary Metrics:
Price($)        0.07
NTA ($)        0.02
P/NTA        4.4
Team        6.1
BurnPeriod      2.45 / half year
ProductPipe     11.1
ForeignMarket   2.5
Cash:Debt       Debt Free


Opinion: Buy up to 12c.

Discussion:
In POH's own words, the company does "Production, sale and licensing of products for the nutraceutical and  pharmaceutical industries."

POH is different from other biotech startups in a few ways. Firstly, it is not a developing any block buster drug that cures diseases. Instead it develops and owns technologies for drug delivery that are Transdermal, Dermal and Oral (Phospha E, TPM). Secondly it reports every half year which differs from the majority of biotech which reports quarterly.

It has at least 2 products in Phase II, several more in Phase I and more in Preclinical. This lead to a very high Product Pipe score of 11.1 where a score of 5 or 6 is regarded quite good. It had sign agreements with local biotechs such as CSL and Metabolics. In Nov 2009, it announced the launch of an anti-aging product by its US partner which uses POH's TPM delivering technology.

In terms of Foreign markets, POH demonstrated penetration into the US market. It has deals with at least one major US company, and an office in the US. However, there seems to be no other foreign market associations than the US hence its relatively low Foreign Market score of 2.5

POH has a solid management team as shown by the high score of 6.1. In such biotechs, a higher score is placed on scientific qualifications of the directors. In POH's case, an additional positive fact is that the management / directors team seem to be quite stable with little turnaround over the last 3 years.

In terms of financials, POH is debt free for the last 3 years. It has a very high Intangible Assets, however this is to be expected from the nature of business of POH. The Price to NTA is a little over the comfort zone, coming in at 4.4, but the other positive factors outweigh the high price ratio. Its burn period of 2.45 / half year means a survival time of about 1.5 years. But note that this number is currently based on the half year cash flow results. Looking at the previous years record, the full year (annual) cash burn rate seems to be lower than this, hence its burn rate is not too bad.

From a technical point of view, over the last year, POH has peaked at about 19c in April 2009 but since then has plummetted to current levels. It has been steady above 6c for more than two months and is showing a slight tendency of an upward trend. If the 6c level might be the support level which marks the beginning of accumulation in the stock.

Fundamentally and technically it appears that the future of POH is on the way up.

Lincoln's Top 10 for Jan 2010

Elio D'Amato's top 10 best stocks to buy in January 2010

The list below is Lincoln's CEO, Elio D'Amato, top 10 best stocks to buy in 2010.

"Elio's list provides ten Stock Doctor Star Stocks that are well-managed, undervalued and have strong growth prospects for 2010 using Lincoln’s Financial Health methodology, and we wish to share them with you. They are:"

1.     ASZ - ASG Group Ltd

2.     CST – Cellestis Limited

3.     CVN – Canarvon Petroleum Ltd

4.     EQN – Equinox Minerals Ltd

5.     ERA – Energy Resources of Australia Ltd

6.     IMF – IMF Australia Ltd

7.     MMS – Macmillan Shakespeare Ltd

8.     RKN – Reckon Limited

9.     SUL – Supercheap Auto Ltd

10.   TGA – Thorn Group Ltd

For more information see: http://www.lincolnindicators.com.au/Article/elio-d-amatos-asx-top-10-best-stocks-to-buy-for-january-2010?utm_source=10-best-stocks-email-enq&utm_medium=email&utm_campaign=pr

Technical Analysis - Dow and All Ords

Source: http://ozstock.blogspot.com

Here's the latest update on the Gann Charts of the All Ords and the Dow Jones.

Frankly, both charts are not too exciting. Both appear to be resuming the upward trend. Not only that, both looks like they are placed well between two Gann angles, that is, they do not appear close enough to any of the angles to signal a potential reverse in trend.

For the All Ords, the pattern in Nov-Dec 2009 seem to be strong beginning signal of a major correction - but that turned out to be a very minor correction instead, more like a blip. This hardly registers in the Dow Jones chart which covers a longer time period.

So where to next? Well some say it will be a strong recovery year in 2010. Others say it is poised for major corrections due to the end of stimulus and the effects of huge government debts. So what to the charts say? In a very boring fashion, it looks like its going up, up, up.

Dethroning the US Dollar

This will be an updated collection of news articles featuring the call to drop the US dollar as the international / reserve currency.


Sarkozy warns of threat from weak US dollar
January 8, 2010 - 6:54AM
French President Nicolas Sarkozy urged an end to the US dollar's global dominance on Thursday, warning that its weakness poses an "unacceptable" threat to European competitiveness.

"The monetary disorder has become unacceptable," said Sarkozy, who later this month is due to address the world economic forum in Davos.

"The world is multipolar, the monetary system must become multi-monetary," he said in an apparent call for other currencies to be promoted over the greenback...............

On the Gold Trail

Below is a collection of articles, updated when necessary, about demand for gold.

China - Gold's No1 Producer And Consumer Is Taking Control Of The Market

by Lawrence Williams, Mineweb.netMonday, January 11, 2010

It now looks for sure that China, in 2009, overtook India as the world's largest gold consumer.  The ‘Middle Kingdom' had already surpassed South Africa and the U.S. as the world's largest gold miner a year earlier.

Latest figures out of Beijing suggest that gold demand in China grew by an estimated 13.8% to around 450 tonnes in 2009, while India's estimated consumption last year is put at only around 210 tonnes - about half its consumption level in 2008. Much of the disparity last year was due to a decline in Indian buying as purchasers were put off by higher prices.

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Gold expected to regain its shine

Barbara Drury
December 16, 2009

Uncertainty has led investors to the traditionally safe asset but it, too, has had an unpredictable year.

If you want confirmation that fear and uncertainty still rule investment markets, look no further than the gold price, which is proving more volatile than the weather.

This month the investment herd went charging for the perceived safety of gold, pushing the price to record highs above $US1200 an ounce in the face of a collapsing US dollar and fears of a stimulus-induced spike in global inflation..................

Top 100 ways to profit this year

This is an article in The Australian about 100 ways to invest in 2010.

Top 100 ways to profit this year

Looming Debt Crisis

The following is a collection of links to news articles chronicling the world wide debt problem. The debt crisis (though not many will call it a crisis yet) is not unlike any other bubble. It grows bigger and bigger and there seems no way of unwinding it gently. Only way for it to go is to burst.




The U.S. Is Not Alone — Europe's in Debt Too
By Bruce Crumley / Paris Tuesday, Feb. 02, 2010

President Obama may have left jaws hanging with his proposed $3.8 trillion budget for the fiscal year 2011 — which forecasts a stunning $1.6 trillion deficit — but he's hardly the only member of the "spend now, pay later" club. Across Europe, governments have gotten so used to embracing debt during economically tight times such as these that some experts are starting to wonder if they will get back to viable deficit levels — much less balanced budgets — anytime soon.

The U.S. is clearly in a debt league of its own. Obama's proposed deficit, representing about 11% of gross domestic product, is part of a 10-year plan aimed at reducing the U.S. budget shortfall from its current level to a still hefty annual average of 3.6% if everything goes well. The deficit amounts may be less dizzying in Europe, but they're still a major cause of concern for fiscal purists who fear that some governments may end up drowning in red ink. Twenty of the European Union's 27 members are running deficits to ease their way through the global recession, with the average pegged at 7.5% this year. Three years ago, the E.U.'s deficit average was just 0.8% of the bloc's total GDP. That figure increased to 2.3% in 2008 and then spiked to 6.9% last year. ...................

Huge Deficits May Alter U.S. Politics and Global Power

By DAVID E. SANGER

Published: February 1, 2010

WASHINGTON — In a federal budget filled with mind-boggling statistics, two numbers stand out as particularly stunning, for the way they may change American politics and American power.

The first is the projected deficit in the coming year, nearly 11 percent of the country’s entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated. ...............

Problems caused by over-borrowing are being 'solved' by more borrowing
Henry Thornton From: The Australian January 04, 2010 1:55PM

EXCESSIVE spending in Western nations was a major cause of the Crash of 2008.

Excessive borrowing by households and firms, excessive lending by banks and failed 'securitisation' of dud loans all were part of the global asset boom and subsequent asset bust.

Governments were quick to bail out the failed banks, except in the curious case of Lehman Brothers, where failure to effect a bailout almost brought down the global banking system.

Governments were also quick to apply Keynesian fiscal stimulus measures, financed by printing money or by incurring government debt, while central banks dramatically eased monetary policy.
...................



Eurozone debt crisis looms
WILLIAM ICKES, FRANKFURT
January 4, 2010

THE eurozone's new year heralds a debt crisis that has alarm bells ringing and markets tracking government plans to tame the growing shortfall.
Officials have borrowed heavily to pull the 16-nation zone out of its first recession, and debt levels are set to smash a huge hole in the ceiling set by the European Union in its Stability and Growth Pact. ......................


A blog article about the collapse of the US dollar
http://ozstock.blogspot.com/2009/12/on-catastrophic-collapse-of-dollar.html


An article about central bankers buying gold. Why? Because people in the know are losing faith in the US dollar as the international reserve currency.



Week greenback leads to bankers buying bullion
David Robertson From: The Australian December 31, 2009 12:00AM

THERE is little to beat the lure of gold, as many recipients of a lavish Christmas gift will confirm, but it is not only seasonal impetus that has put a new shine on the precious metal -- for the first time in 21 years the world's central banks have been net buyers.

World Gold Council data reveals that amid growing concern over the weakness of the dollar, about $US28 billion ($31.4bn) of bullion was bought by central banks this year, based on an average price of $US978 an ounce. ......................