meo chart, page-52

Hi Anatol

I have been working on an answer to your question since yesterday and found a short answer difficult.

So, it has turned out to be another one of my lengthy posts and has basically turned out to be an example of my trading style. Whether my style is right or wrong is open to debate but it is food for thought anyway. I hope I am not out of line with this post but I am sure the mods will soon let me know.

I notice you have answered your own question somewhat in your reply to TMC since I started putting this post together but I will carry on anyway and apologies for its length .......

Far be it for me to give advice, and what follows certainly isn't. It is all I can do to manage my own investments.

All I can say is that I have reverted to trading part of my MEO holding again so that I can accumulate more shares because I believe in the future of MEO. Like Daz says, use the BOTs as a tool.

I am fairly heavily weighted in MEO and, as you can see from my sentiment, for some time now I have always looked at it as a long term buy/investment.

In the early pre Heron days when I first bought into MEO (Oct 2006 @ 20c) about the time they secured a rig for the Heron 2 and Blackwood 1 wells in NTP/68. I saw it then as a long term, but risky, investment as I liked the company's visionary business plan of TS and the idea of the methanol process for gas with high CO2 content. Recycling the carbon with hydrogen reduces the carbon footprint.

In those days there wasn't the algorithmic influence on stocks as there is today. The spikes were still there and always will be as part of the normal trading scene, but not as much as they are now. There was a steady rise based on the Heron hype with a 30% fall around the time Colin Naylor joined the team but by June 2007 the SP had risen from the 20c to about $1.50.

The Petrofac farmin was then announced which saw a drop in the SP to 86c (from $1.50). I can't remember if there was an outside influence at the time but there was probably some profit taking and perhaps the farmout terms were disappointing. Then came a rollercoaster ride until the peak of the Heron#2 excitement in early Jan 2008 ($1.62), before the well collapse, causing the SP to collapse down to 20c in three weeks.

Luckily I was trading the coaster at the time and wasn't damaged too much. I was able to get out around the dollar mark. All the internal and external signs of the plunge were there so I made an overall profit.

Since then I have been buying in since pre RDI alliance down to the 8c days. I held through the recent 80c non-announcement period (Sept 2009) just waiting patiently. Perhaps, in hindsight (that old devil), I should have taken advantage of the slump. But because of the way the announcements came out with the self imposed MEO deadlines it wasn't worth the risk of missing the upside. Fortunately for me my average was so low it didn't really matter in any case.

I understand that other MEOmites are in varying positions which is why I don't like to broadcast my own situation but all the above is just to set the scene in answer to anatol's question.

The history of MEO has always been quite volatile. I believe this is because it is a dynamic company willing to take the bull by the horns to promote the company's agenda by taking risks and working hard. They have strong fundamentals and have always managed to keep their financial heads above water. The high retail content and number of shares on offer tend to add to the volatility.

The downside of their willingness to take risks and get ahead leaves MEO open to manipulation and sudden swings. The promise, but hold up, of the Tassie Shoal projects also adds to the disenchantment of SHs on the way.

This is why the steel underpants analogy lends itself so well to the stock. Those that don't wear them are prone to rosy cheeks that stand out like beacons. The traders are always seeking them out, not only in MEO but all over the market .... and now the privileged have the unfair advantage of using algorithms to ply their trade.

I am just as disappointed as the rest that MEO didn't hold its position or continue to rise after the farmin announcement. But this is the share market and MEO hasn't changed much in being a target. It was always on the cards that, post announcement, a number of holders would fold and the 30s people would take profits. There was also a gap created which is a bad omen for the TAs. I thought post announcement would be like the lead up to Heron where I had the comfort of just hanging on until pre-spud.

That can still be the case should I choose.

Obviously times have changed. People are more wary of the stock. Retail traders have been burnt a number of times before, the most recent being the non event in September. And the new launching point was from the low thirties. Who knows, if the announcement had been in September when the price was 80c the retrace might have been 30%+ again (like Petrofac) bringing the price back to 50c anyway. But then the PF would have been a less complicated local player with a different agenda and different variables, perhaps not so good for MEO SHs in the long term.

On the day of the announcement the stock rose to 48c and dropped back which is what I expected. The next day it rose again but I could see the usual suspects were beginning to manipulate again. The sell side was stacked and I could see the same old, same old starting again.

After having watched this for months I thought enough's enough. I sold a portion my holdings into the peak, just like the old days, and held off buying back in until yesterday. I didn't hit the 48c high or 40c low but was close enough. This gave me a 14% turnaround or, as it turned out, an extra 15000 shares on my modest holding, which I am quite happy with. I will only be looking out for the larger swings as the smaller 1-3c swings they orchestrate are not viable to me, either cost effective or worth the risk.

Once FIRB approval is obtained more instos will probably become involved, changing the parameters. Perhaps this is already happening.

So, to put an end to my ramblings, in answer to your question how to play the manipulators. There is no definitive answer. I can only follow the basic trading practices I set myself especially for speculative stocks. Now I am taking into account the new variables caused by the action of algorithms in my decision making.

I cannot advise you but, as an online trader with the usual trading restrictions, I follow these principles as a safeguard (which may be totally out of whack):

1 - I don't think of myself as a trader or an investor. Rather I am open to all types of trading be it over a day or a couple of years. This way my finger is always on the pulse, open to all eventualities.

2 - There are always dangers with trading so if I am not sure about a stock through my own research I leave it alone. I don't just rely on tips or advice from others especially on an internet forum such as HC. And that includes me. Of course, I am not always right and I am always prepared for unforeseen developments.

3 - I never rely solely on other people's advice or tips. I always keep an open mind but I always follow up information with my own research, both fundamental and technical, before making my final decision. It is more work, and I sometimes miss out because of the delay, but then it is my own hard earned I am investing. This way I can stick by my decisions, knowing that the groundwork has been done. Anything less then I believe my money is safer in the bank.

4 - I make sure the first buy into a new stock is in a trough. This is at a time when the stock I have researched is out of favour or just treading water. It can be either because of internal or external pressures. TA charts are good for showing a point where a turn around is expected as they predict obvious patterns followed by most traders. This sometimes takes time and patience, which is one of the most important attributes in an investors kit bag.

I also look out for stocks with sound fundamentals but have over corrected through panic after a negative announcement. This was the case with MEO after Heron#2 and the GFC. What a bargain sub 10c was.

5 - I never buy at the top after a price sensitive announcement unless the stock has a low number of shares on offer where eager investors are scrambling for scarce shares. This happened with MOG when they took over Gascorp's share of 360P (6.2c to 57.5c). I still bought in at 22c on that day, as the buy side had dried up, and made a tidy profit.

6 - I always research stocks that I feel have potential by watching media reports. Not so much brokers 'tips' but snippets that show an area of discovery like MEO's methanol ambitions, Biota's Relenza and LANI and the ever changing need for anti-virals, new technological advancements such as the Cochlear implant etc. Once I have researched these my plan is usually to to buy in before they are noticed by other traders, keeping an eye on up-coming announcements.

7 - As the SP rises I watch the sell depth. Usually the top twenty levels are enough. With MEO the stacking can go right through the sell side. (I remember up to 1m shares being placed at both 80c and 85c on a daily basis for weeks after the 80c resistance was reached last September as they wanted to push the price down, even when it was 50c). When the sell side builds up, and buyers vanish, a downturn is inevitable.

8 - Once the upward price level is reached (according to my guesstimate) I sell that portion of my holding I am willing to release. I don't try and pick the top because if I miss it, experience has shown, the reversal can be swift, especially now when the algorithms take hold. There are a couple of ways I do this.
. Be close to the computer screen and pick the time to sell 'on market' especially if I am in ST trading mode.
. Set a trailing stop loss so that if and when a reversal comes I am in the firing line but still sitting on a nice profit. This is a good strategy if I think the uptrend is likely to continue.
. Put a sell order in at a point where I think the upper resistance will be. In doing this I sometimes feel I am adding to the capping that's already going on and slowing the upward movement.
. This is the same way Daz used the BOTs to buy in at 32.5c. If he had put in a large buy order at 32.5/33c then the price would have probably been forced up. By waiting for the 33c sales to build, through the work of the BOTs, he was able to pick those shares off. Some of them were probably placed as part of the algorithm anyway.

9 - I don't worry if the SP keeps on rising after selling a portion of my holding. With stocks like MEO, ATM I anticipate that the price will continue to level and back trace (as anatol indicates) until A#1, depending on the announcements, hence the roller coaster. I use the trends and indicators for my calculations. Whether my decision is right or wrong, I am content with the profit. With the MEO swings this can be quite good. On major stocks I use a 6% margin but with Small Cap stocks like MEO this is higher.

The downside is that losses are potentially higher too but my strategy is that if I keep on the positive side of my trades as far as possible, I can't go far wrong.

10 - Once I have sold I just wait for SP to go in reverse when the SP bottoms out. The retrace takes place when the sell side is stacked and buys are withdrawn. The opposite happens when the buy side fills up again indicating an upward push. I have also noticed that during the pre-open (at open and close) ridiculously low or high bids are put in to signal a concerted effort to manipulate the price one way or another.
i.e. a low sell to indicate a dump or high bid to signal a pump (along with the usual stacking).

Today, for example, there were two unnecessarily high bids pre-open (4695 @ 44c and 31,000 @ 45c) so I imagine there will be an upturn starting today. I will wait and see what happens as I am all in again, as far as MEO is concerned.

11 - As in point 4 I don't try to pick the bottom. If I do manage this then I'm happy. If it does go down further there will usually be quite a good percentage swing in my range regardless. I am content with that.

12 - If I do make a loss then I just wear it. If a stock starts to spiral then I take the loss, sell out and look for the next investment. If the basic fundamentals which attracted me to the stock in the first place haven't changed, such as MEO after the Heron crash, I wait for the SP to bottom out and buy back in.

13 - I don't look at CGT as being a reason for hanging on to a Small Cap stock. I used to fall for this trap but I found holding a stock long term for tax purposes could sometimes mean lost opportunities and/or disaster. Sometimes the extra profit cancels out the CGT savings anyway. Of course if I split my holding, like MEO ATM, then the shares I don't rotate still have the CGT relief.

I don't accept as fact the sentiment that if we hang on to shares for 5 years they will always have gained in value. This may be so for blue chip shares, and there is always the income factor to consider, but the GFC was a warning about the perilous seas in which we sail.

14 - Now that the algorithms are hunting out stop losses I won't use them when buying into a new stock. The principle of these was to protect my investment but they always sell at a loss. I never really liked them but they are of even less value now.

This is one of the main problems BOTs have created for new investors. They have made SLs redundant. It is now very difficult for us to protect our investment in the event of a downturn. If we put a SL too high then we will be taken out every time a BOT goes to work. If we try and counteract and set it too low we still run the risk of being taken out just before the reversal for an even greater loss.

This is just my take on the BOT situation in relation to SLs. It doesn't include trailing SLs which, if taken out, means I have realised a profit anyway and will give me the opportunity to buy back in when the SP bottoms out again. If the trailing loss is at the bottom then that is bad luck. What this has meant for investors, though, is that we need to be on our toes should forces, apart from BOTS, take hold of the SP.

If I need to rely on a SL then the price I have paid for a stock is too high anyway, that is what the market is telling me.

15 - I don't get emotionally involved with my stocks and trading. I follow my principles, stay calm and stand by my decisions knowing that the only person I can blame is myself. But the blame game doesn't enter my psyche so it isn't a problem for me.

I don't worry if I miss out on a stock that has shot up because I know that if I stick to my principles others will come my way. I have learned not to chase a stock I have missed out on. This is because I have been burnt before by buying from those already making a profit by selling at the top of a run.

MEO, even though it is volatile, has been good to me in the past and will continue to be so.

What I am really saying is that the algorithm trading is a nuisance but we have to change our strategies to suit. If we are heavily weighted in one stock then it is alright, and probably wise, to take part profits and follow their lead. I am comfortable in the fact that if I decide to sell part of my MEO shares for a profit and the SP continues to rise then I will accept it as par for the course. The positive in this is the rest of my shares are still appreciating.

As far as algorithms are concerned the market is a great leveler and a balance will be found. If this does not occur I believe the structure of the market, unfortunately, will break down. Perhaps this will happen before regulators sit up and take notice, just like the factors creating the GFC.

I think the algorithms are becoming predictable and can be followed but it is an added risk. To hold shares in a stock for the long term is still all right provided we do our homework first. Unfortunately this is too much for the get rich quick mentality of some which, inevitably, leads to panic following the herd over the precipice.

The manipulators will continue to pump and dump. All I have to decide is whether or not to hold all my shares after a pump, sell some of them or sell all of them. I need to base this decision on all the factors available to me.

Whatever the reason for anybody else's decisions to sell or buy doesn't worry me. I know there are many but if I let it concern me then I am not doing my own research, or following my own rules, properly.

My sentiment for MEO will continue to be LT Buy but I will be looking to increase my holding on the way prior to the A#1 spud where I will be making a major decision.

By then I hope MEO will have made progress in other positive projects to lessen the impact of any potential problems with A#1 and protect the SP.

But this is my opinion and all the above should not be taken as advice. It should only be read as just one humble investor's account of treading carefully through the labyrinth which is the share market. I just hold tightly on to the string so I can find my way out again if need be.

Good luck to all MEOmites in your endeavours. I hope all your strategies are the correct ones.

#:>))