On losses, cutting ties to a stock you love etc...
Many fail to realise that new sectors are emerging and many sectors that ran in mid to late 2017 are now out of favour.
It’s simply a change in market sentiment– and its reflected in both the trend and volume (liquidity) in the individual stock and index charts. They may come back into favour in 3 months or 9 months time, or several years time. How long are you prepared to wait for your stocks/sector to come back into favour?
Unfortunately, many chartists are chased off some individual stock threads for pointing out changes in trend and market sentiment. But, if you aren't aware of the overall trend your stocks are in, and when those important trends change, you are flying blind and just riding on hope. Charts can help with timing of entries and exits, and can help to stay out of out-of-trend, or poorly trending stocks and sectors.
Take buying BHP for example. Someone could have bought it at $33 in 2014 (higher than today’s price of $31.50), or bought it for under $20 in 2016, after it bottomed and formed a new bull trend. The person who bought in 2014 (& say held for 4 years) is still riding a loss, while the 2016 buyer is 50%+ in profit. It’s much the same company over 2014-2018 period, but the big difference is that the long term trends & market sentiment towards commodities have changed.
Generally, any chart has 4 trend stages. Stage 1 (consolidation), Stage 2 (bull trend), Stage 3 (stock peaks & consolidates), Stage 4 (bear trend). Sometimes a stock/index can go from Stage 3 back to a Stage 2, or a Stage 1 can go to a Stage 4. Generally, the longer a stock/sector is in a Stage 1, the more explosive a Stage 2 bull market can be.
This is covered in a lot of books, including Stan Weinstein's:
I’ve been saying it for a while, but I believe many of the previously hot 2017 sectors are now in firm Stage 3 or Stage 4 medium-long term trends. Yet, people don’t want to believe it and are trying to bottom pick or are willing to ride a 10% loss to 20% loss, than keep holding to a 50% loss etc. I’ve said it before:
Another way to put it: people getting into endless arguments (with strangers on social media they have never met) rather than spend that time understanding changes in market sentiment, and actually turning a profit by trading the stockmarket.
To further emphasize the point about Stage 1, 2, 3, 4 of a chart (sectors going from cold to hot, back to cold), back at end of 2017, I wrote:
Now four months on this is my view of these once hot sectors (based on shareprice performance). [Percentage up/down from peak based on yesterday’s close (some have rebounded somewhat after much heavier falls)].
* Many cryptocurrencies put in peaks in Dec-Jan. Crypto stocks likewise. One of the most prominent ones -55% from January peak.
*Lithium stocks - most have peaked. Are in stage 3 or stage 4 charts.
Some of the leaders are down (from peak price (many peaked in Jan or Feb)) by: -11%, -29%, -27%, -14%, -25%, -51%. Losses much worse in the speculative end of lithium market.
*Cobalt stocks. Cobalt price has made new highs in 2018. Stock performance has been mixed.
Some of the previous leaders peaked in Oct-Nov 2017. These leaders down: -44%, -58%, -79%. Yet over same period, some other cobalt juniors are emerging as potential new leaders. eg. COB+400% (even after last weeks big fall).
*Medical Marijuana/Hemp related stocks - most are in stage 3 or stage 4 charts.
Some have improved a bit off lows in recent weeks, but most had their ‘highs’ in early January 2018.
Some of the leaders (from peak price): -22%, -9%, -40%, -23%.
*Infant Formula stocks currently stagnant. Market leaders A2M & BAL had big gains in recent months while some of the junior specs (BUB, WHA) consolidating in Stage 3 trends.
* Pilbara gold rush (watermelon seed nugget craze) well and truly over. Two of the more prominent nugget-hype stocks down from Nov 2017 peaks: -68%, -57%.
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The sectors I mentioned as showing ‘promising signs’ for 2018: * Gold stocks - most of the gold leaders are doing very well, having emerged from long stage 1 charts. Many are now in robust stage 2 runs. Junior end of market still very hit & miss. Currently this year: EVN +25%, NST +9%, SBM +19%, RRL +14% (there are many others).
* Copper & base metals has been mixed so far.
* Uranium stocks are showing mild positive signs, but further big-news catalysts haven’t emerged as yet (more production shutdowns, more Japanese reactor restarts). Many charts been drifting even lower in last 4 months. Uranium is still trying to break out of a 7+ year major bear market, so its upside will be significant when market sentiment does change.
* Oil & Gas stocks are gaining significant momentum. AWE been taken over (T/O). Santos receiving an offer. Many oil & gas stocks in strong stage 2 charts. eg. BPT +38% in last month.
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Some sectors which have emerged in last 4 months: *vanadium. A sector which has had several ‘false’ starts (1-2 wk runs) in the past, but showing considerably more momentum this year. Some ASX vanadium stocks have drifted in last few weeks, but large overseas producers continue to hold up well or advance further. * Rare Earths. LYC (producer) +27% this year. * Healthcare. XHJ Index is looking stronger in 2018. HSO and SRX receiving T/O proposals. * Media. 2017 was pretty bleak for media with TEN going under, FXJ struggling etc. 2018: Many are looking better over last 1-2 months. NEC the leader this year, +60% .
There are other sectors that have emerged so far in 2018, but you get my drift. Sectors go from cold to hot, back to cold again. Timing on when to get in and out is so important.
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So in the end, why ride a stock through a cold phase which can last for several months to several years. Just because it was a 2017 hot sector, does not mean that 2018 will be the same. Many of the 2017 sector sectors mentioned above are down -10% to -50% or more, despite many claiming the fundamentals “are even stronger now”. The market has been saying clearly (for many months) that something has changed - market sentiment and chart trends have changed.
(20min delay)