I though I would share my recent thoughts and trading around NMT. I consider myself a long term holder and would prefer not to trade, but the stock is not the company. NMT has had a stellar run over the past eighteen months.
I like to keep a chart with a two hundred day simple moving average to remind myself that stock prices tend to revert to the mean over time. The NMT stock price last touched the two hundred day moving average on 18 Sep '20. Since then it has been up and up. A fantastic company, great management, great product/technology, great industry opportunity. So much to like and the market has loved the NMT story so far. In a bull market full of speculation, this is a great blue sky specki - all the success is ahead of us and the market doesn't need to worry itself over all the complications of revenue versus cost, actual earnings performance at this stage.
But at some stage the price and that 200 day moving average are going to converge.
A few weeks ago some of my specki stocks appeared to be getting very toppy. I was considering whether it was time to take some profits with the chatter on the markets getting a bit more bearish. Inflation, interest rates, and so on. The next thing you know is that NMT explodes up putting in a continuation gap and two very strong days of price action on Dec 30 and Jan 4 (the last and first trading days of '21 and '22).
On 6/1/22 I
posted (in response to
@ProCapitalism ):
"I actually dislike trading stocks but I am a greedy bastard. If I had my eye on the market yesterday arvo I would have sold but I sold this morning in the pre-open auction. I was already free carried too. I'm not looking to pick the bottom, just accumulate. The gap at $1.185 looks interesting but although it might get filled, a buy order down there might not get filled! Your fib retracement level of $1.115 looks like a good target but I will have probably bought back in before then on FOMO as I don't want to be not in this stock. (I have bids in market) but will top up at $1.115."
The reasons I sold are shown in the graphs above and below. Above shows that the stock has had an extended run up and is more likely to be due for a pull-back. It's what stocks to. They have a big run, pull back and consolidate. See August & September '21 as an example. The second reason is in the chart below. I cam across Carl Capolingua's charting style last year. There is a link to a video below that explains how he sets up the slow and fast moving averages shown in the chart below. Carl Capolingua hosts a live stream session on youtube regularly and you can find the recordings on the Think Markets youtube channel. He also appears on the a u s b i z channel often. The dotted yellow line shows how far the stock price had pulled away from the 21 day exponential moving average. The gap between the stock price and the fast moving ribbon was too big. The stock had run up too hard. The yellow arrow points to the pull-back which started on 6 Jan when I sold.
When I sold I set a re-entry target at the close of the gap @ $1.215. As you can tell from my post on 6 Jan I was already nervous about being out of NMT. The stock blew off a couple of weeks later on 20 Jan, but I was already chastising myself for selling out in the SMSF portfolio completely (I still held in another portfolio). Why didn't I sell half and keep half. What if there an announcement drops on market that Primeobius has just signed an off-take agreement with a major car manufacturer?
At the top, the idea that the stock price might fall 30, 50 or 100% is hard to fathom. Yet, the fact that it ran up by 85% in a couple weeks we seem to be able to accept as nothing unusual.
Why did I buy back in today? If I was a smart trader I would have waited to see where the dust settles. Looking at the two charts above, it doesn't seem unreasonable that the stock price might retrace down to $1 or even around the $0.85 mark where the 200 day moving average is. I have a few reasons:
1. FOMO as per my post on 6 Jan.
2. It met the reentry target under the strategy I set when I sold on 6 Jan.
3. I want to do other things with my time than watch the market and most importantly...
4. My strategy was to accumulate shares to hold for the long run, not time the market perfectly. Sometimes if I am too greedy I miss out altogether. You can never get in at the top or the bottom, you just have to work out what the probability is that the stock price is going to go up or down or reverse.
I first bought NMT at 24c in Dec '20. I then sold down a bit over half of those shares in two tranches in Jan and Apr '21 to become free carried and worry free. I didn't pay any attention to the share price until I saw it going parabolic and the overall market starting to show signs of weakness. Remember it is the specki stocks that sell of first and it looked like the stock was being pumped on no news and potentially heading for a blow-off.
Now I have accumulated 25% more shares than I was holding free carried a couple of weeks ago. I get it wrong often. I was lucky this time. But I try to cut my losses early and stick with my winners.
Where to from here? There could be a bear market rally/recovery before drifting down lower. I would imagine the price will definitely need to consolidate for some time before another run up.
VIDEO Moving average set-up starts about 40s in.
(20min delay)
