I was asked by a friend what I thoughtabout TCL as a long-term...

I was asked by a friend what I thoughtabout TCL as a long-term investment.

TCL has been trading in arising channel for over 10 years – which is a pretty good determinant of pricemovement – but, nothing lasts forever either.

Last week's price movementsconfirmed a formal downtrend as prices have been moving lower for at least 12weeks. If I was looking to buy I’d be waiting until price closes for 2consecutive weeks above the downtrend line (black line in the chart below).

$13.50 is a level ofsupport/resistanceand as price broke below that it suggests there is a riskprices could fall back even further – possibly to around that blue dashed linewhich has proved support previously. The bullish engulfing candle (last week) oftenmeans a change of trend – ie price will move up in this case. So conflictingmessages.

The daily chart below showsprice bounced lower off the downtrend resistance on Friday – but as Friday wasa terrible day for most stocks I’m not reading a lot into that.

Summary:

I’m expecting prices to falllower but if it does move up and close above that downtrend for 2 consecutiveweeks it is a technical buy. I’d also like to see it make a higher low followedby a higher high on the weekly (another buy signal). Once it makes a newuptrend (12 weeks higher) then it is clearly on the road to recovery (but youcan lose a lot of profit waiting for 3 months!). However, until it reaches thatmilestone it remains in a downtrend with a chance it will resume that trend.

I did a backtest of TCL from2009. This showed TCL is a tricky beast as it usually breaks below an uptrendfor 3 or so weeks and tosses you out of a trade before recovering and goinghigher. The test also suggested that you shouldn’t buy into TCL until it hasmade a higher low and higher high on the weekly chart and is in a formaluptrend – 12 weeks of higher prices.

Unlike the vast majority ofstocks, the backtest also showed if you bought in at the start of the testperiod and just held until now you would have made a return of 162% or 15% pa –more than the 97% return from a trendline managed trade. The reason thetechnical trade did less well is because price largely went sideways from 2016to 2019 and trades in that period kept getting stopped out. Also the Covid fallin March this year saw a lot of profit go up in smoke with no entry point sincethe end of that fall (until last week that is)

Sit and hold isn’t a policy Ican subscribe to because you mustalways have a stop loss – but apart from a stop loss below abuy in price, I wasn’t able to arrive at a workable stop loss rule. However,not one to be beaten I moved to a monthly chart (which filters out a lot of theshort-term fluctuations) and if you bought after one monthly close above amonthly downtrend line and sold 2 weeksbelow a monthly uptrend line I showed a profit of 189% over the decade or so asagainst the 162% sit and hold. Not a lot more admittedly – but you have theinsurance of a stop loss (which worked once during the period).