ValuePickr Forum

Technical's for the Fundamental Investor

Allow me to give a small intro… Initially about 10 years back i tried to use pure Technical’s for all trades along with back-testing results. Though success was good, there were also a lot of failure bring down profit strike rate. I used to employ dozens of indicators, etc leading to a very cluttered chart. Over the years as any analyst does, i developed my own system of un-cluttering my desk and tossing out most of what i learnt out the window and keeping it as basic as possible. I shifted from lower frames like daily to larger frames like weekly and finally settled on monthly. For things to work on a monthly frame, trade holding period can be hugely extended to say, even 10 months to over a year. But since my approach was to target around 4-6% compounded per month, final sell profit dictated how much i made. It worked very well. Then came trying to better the system by not just choosing any stock just technically and trying to find “safer” stocks. There came in the need for fundamental analysis to help choose the stock. Since FA (fundamental analysis) works on the tenet of finding stocks way below intrinsic value; it also meant the stock would have to be at monthly/yearly lows technically or at least 40-50% below prior peak price. There are other similar threads on VP that seem to think on similar train of thought. I would like it to widen the scope a bit more.
The idea of this thread is to welcome Investors with fundamental thoughts, using P/L, BS, Cash Flows, etc to be able to time their entry for longer term holding as perfectly as possible. Note that only technicals can provide this entry. A stock which has corrected say, 60% from peaks may seem very cheap in value fundamentally, but the TA (technical analyst) may see chances of further 20-30% correction , hence it’s all about the timing.
My hope is that more TA’s will join me on this thread to help Fundamental investors make better entries into stocks and try to find the most appropriate time to exit also on stocks of “their” choice i.e. give us the stock name you are tracking and I/we will help you analyse best time for entry and exits. Coming to exits; though entry into stocks is usually the easy part irrespective of price, it’s the exit which can prove dicey. This is where the game of stretched valuations/technical peak Vs greed comes into play. If my objective for a stock X bought at say, 100 is to make 70% per annum over a 1-1.5 year period, then when the stock actually does do 170 in a year or about 200 in 1.5 years time, sometimes strong momentum may seem to hint further upside of another 50-60%. Here is where our personal trading/investing rules have to be applied as to “How much is enough”. That would be a personal issue. I tend to take my profits off above 70-100% P/A when i get. Logic is sectors move in cycles and when my stock X from a given sector is at peak, there is usually some other sector which has not been in flavour and is at yearly lows at that time, hence i rotate cash.
Would also like to mention a word about “multibaggers” here. Most consider a multibagger to be an unknown small cap bought at very cheap levels which may go on to multiply many times over the years as intrinsic value approaches. Using the technical method i follow, one can “make” any stock a multibagger provided the company itself is fundamentally sound. I would rather put my money into known companies like small-medium mid-caps bought at yearly lows and allow them to do 6-7 X in 4-5 years rather than try my luck at companies with lesser data and less experience no matter how attractive the business model is. Eg., i would rather buy into say, Escorts at 460 and hold for 3-4 years for 1750-2100, rather than buy say, ChamanLal Sethia exports at 80 and wait for 240 in years to come. Not that Chaman cannot do it. Just that i would have more conviction in a company like Escorts…
looking forward to a favourable response from all interested in making this thread a success and more importantly, sharing different schools of thought applied together to create better wealth !!!

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There’s already a very active thread on this same topic: Bull therapy 101-thread for technical analysis with the fundamentals

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Thanks. I wasn’t aware as i couldn’t go thru every thread. Was just an idea i had to improve wealth creation by both methods though battle of FA Vs TA is centuries old. Just trying to change that train of thought… :smiley:

I went thru that link. That is absolutely “NOT” what i had in mind. I am not going to be explaining or showing patterns,charts,etc. As i mentioned i have thrown most of what i learnt (over 90%) out the window as more complicated the system, worse are chances of profit. I am not going to say anything that most don’t already know. just going to point out best points of entry for new buys or to average price for existing holders and also decent exit levels for those already holding and looking for an exit. Please do not misconstrue this as stock tips, recos etc as they won’t be. For Eg. if you had been interested in buying Mindtree but missed doing so at 500 and stock ran away to 1000. Now that it has started correcting, you wish to know a good entry point, how long it may take to get to that price point,etc then I can help you…and hopefully soon other TA’s also as and when they join this thread. I do not want to confuse any investor with technical jargon. Just provide basic, sound technical advice and any threats perceived on stocks which have run up a lot and can be on verge of collapsing big time.

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Nice initiative.

That is not necessary, though that is indeed how most people use fundamental analysis. Growth is an important component of value, and sometimes, an acceleration in earnings can make the stock attractive, even if it is trading close to it’s all time high. An example would be hikal, whose crop protection business is transitioning from an unfavorable phase, and those fundamental factors have made the stock attractive even though it is trading near all time high.

Fundamental analysis can also be used to judge how much growth have already been priced in. For example, Dmart was priced for over 20% growth over a decade. That does not leave much on the table to make it attractive, even with all the momentum behind it.

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As said by @Divyanshu_Bagga, sometimes stocks quoting at near all time highs would also appear cheap on conventional valuation parameters. And stocks quoting at near all time lows would appear expensive due to deteriorating business conditions.

Ideal combination is to find out bottoming formations in stocks near 52 week lows which have good fundamentals or some kind of downside protection due to balance sheet strength, predictable dividend yield protection or strong growth prospects due to macro or company specific tailwinds. e.g Unichem market cap was around 1380 crores when stock price was 185-190. Company had net cash of around 1400 crores plus. Besides it has sales of around 600 crores after selling off the domestic business to torrent. In such situations we are getting the business for free or even minus value. These kind of situations where stock price quotes at 52 week lows are very interesting.

It would help if you specifically discuss what kind of technical analysis you use to arrive at a buy/sell.

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@Divyanshu_Bagga and @hitesh2710
i completely agree with both your observations regarding stocks at higher levels. I have mentioned earlier that the idea behind using TA to enter quality FA stocks

emphasis being on “best time” for entry. Hence everything i buy personally and levels i plan to give based on stock names provided will be to enter at the lowest possible level. Naturally for a stock to be at such low levels requires either falling Q-O-Q profits or sales, sector itself falling, Global fall in indices, Corporate governance issues or any combination of these. Assuming we overlook all that and still have conviction in say, Stock X, only then should we apply TA on such stocks to buy. As i said, i am purely a TA person who uses basic FA parameters like low(zero) debt, No pledged shares, Y-o-Y continuous growth in past, preferable high promoter holdings,etc to choose the stock and then check charts to ascertain if stock is also at lowest possible technical levels and about to make a bottom based on indicators,etc.

I’m not sure what you mean by this. There is only one kind of TA. Some use other methods which are all part of TA like Gann theory, Fibo retracements,etc. I keep it simple with 2-3 basic indicators below charts, on chart ema cross along with monthly candles. If analysed “low” level doesnt hold for some reason and stock falls more, either way we had conviction when buying so we can always buy more and avg at lower levels. Worst that can happen is planned sell date may extend by some months

as for DMart if it is the same stock called Avenue Supermarts, it’s a newly listed stock and hence very limited monthly data on charts, but technically by weekly charts, i would only consider a buy on this at say, 1100 level trendline after having corrected from 1700. That too if all my other parameters also comply. I stay away from stocks which do not have at least 5-6 years monthly data as i need charts to work. i do not take wild risks with weekly,daily charts,etc.
As for Unichem, @hitesh2710 rightly pointed value at 180. Currently my technical system is generating a buy on Unichem once again as 180 support from 2014 has held and indicators signal a buy. So you can see that TA will never deviate from FA much as most of all the earnings,news,etc are all factored into the candles. I would venture to give it a target of 400-20 in 2 years.

Thanks to both of you for starting off the thread at least on a positive note :slight_smile:

as for Hikal you are right. technically also quarterly charts indicators are hinting a buy around 140-145 levels but this would constitute a higher risk momentum trade. I do take some of those but as a thumb rule i prefer to buy at floor with maximum upside left open at lowest Fundamental and technical risk areas. By my system hikal would have been a buy in 5/16 at 100 levels for a 180-200 target within a year. (just providing an example on how the system works) You could back-test fundamental data in May 2016 and you’ll probably see fundamentals too are very attractive.

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In reality, i would have bought at 100 in May and exited at 170 in jan 2017 with 70% in 8 months as monthly trendline peak had hit and indicators started getting dicey and bearish.

Good, let’s discuss Unichem. I can understand @hitesh2710’s argument for buying, as it’s rooted in fundamentals. But fundamentals don’t tell us how far the stock will fall before it bottoms out.

Technically, 180 is an important level, as it was the support for 2014, and it has held is a positive sign. But just because we have obtained a small bounce at 180 does not mean that trend has reversed. I can argue that a small bounce at 180 was natural after the large fall, and will wait for a higher low before concluding a trend reversal. Perhaps one can also initiate a position with stop loss just below 180. If the support gets broken, the downtrend may resume, and we should wait for the next level of support to form.

Let me know what other factors/indicators you will look at to time you entry. How will you decide a stop loss? And what would you suggest about position sizing. Will you take the entire position right when you get the first buy signal, or save some for pyramiding or averaging?

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This technique is more effective when combine special situation with TA & FA. Like CESC going through demerger currently keeps downside in check as company is good & value is unlocking with record date visible (31st Oct)
Disc: Invested in CESC to play demerger theme

While I am good at figuring out where things have gone wrong, to identify exit in the downside, I still cannot figure out how to take exits in profit. It will help if you can explain how you arrived at 170 target price for exit.

Great initiative, it is certainly helpful.

Hi @P-Shekhar
Nice initiative really helpful.
Can you please share your insights about MRF and Shree cements like there entry points and right time to buy ??

Kindly explain your system, otherwise this is probably against the valuepickr’s community guidelines.

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i do not use a stop loss anymore as my trades span into 1-1.5 years also. We can technically “try” to catch the floor but in some cases it doesn’t work and stock sinks further. Hence the requirement to identify fundamentally good stocks before we buy. If conviction is there, then nothing to worry if support breaks and next level comes so we can avg out. Also using wider chart frames like quarterly, monthly offer a lot more success rate for patterns and trendlines to work. Quarterly on Unichem suggest a buy right now in anticipation of a StochRsi and Trix crossover. (i am not mentioning the time parameters for the indicators). By monthly stochrsi has already given a crossover. For further satisfaction, one may buy above 221. I tend to buy a bit in advance before crossovers so as not to miss out on initial move though risk is a bit higher. A buy above 221 would eradicate that risk. Position sizing is an absolute personal thing. I don’t allot more than 10% of total invested capital on any single trade; that too is done in 2-3 tranches. If more fall comes, i look for next support. If i’m right about bottom being in place, i buy higher than 1st buy and accumulate. Above 221-230 will also be above quarterly lower trendline which just broke a while back. If support does fracture, then next buy would be at 126.

This idea of this thread and the view points are really a good read. I have been looking to buy PNB housing after this correction but Sekharji if you could give a right entry point with technical analysis, it will help a lot. I nibbled at it at RS 715/-. If the question is not proper on this thread, you may ignore the same.

i was talking about 170 exit in Hikal, in Jan 2017 having bought in May. I had said i did not want to post charts,etc but since you seem a technical person; sending following chart which will show you monthly trendline and indicators at peaks.

Note fall to 127 from 170 after stochrsi crossdown.