How do I time my entry point?

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After identifying a good stock and calculate the intrinsic value, the next important step is to develop a trading plan or investment plan of when to buy and when to sell. The first thing before I enter the position is to look for excuse for not to buy because it is easier to identify the not to buy signals.

When Not to Buy?

  • When the stock in on the down trend. I check whether the stock price is below 20D, 50D and 200D MA line. I do not want to buy a stock which may go lower and lower. I also use other Technical Indicators (MA, MACD, Parabolic Stop and Reversal, Bollinger Band, RSI, Stochastic) to confirm my analysis. Below is stock chart for S&P500, I show some Technical Indicators (MA, MACD and Bollinger Band) only on the charts otherwise the charts will be overcrowded when I include all six Technical Indicators. 
  • When the stock breaks below a strong support line.
  • If there is no clear support line on the chart, I will use Fibonacci retracement to identify the support level. 61.8% Fibonacci retracement level is a critical support or resistance level that I will pay special attention to.
  • When there are reversal patterns shown on the chart like Head & Shoulders, Double tops, Triple Tops.

     

  • When the stock price are testing the resistance or on top of the resistance of a channel.

     

When to Buy?

 

  • When the stock is on an up trend. The stock is above 20D, 50D & 200D MA, and all technical indicators show bullish convergence.
  • When the stock price breaks the resistance with high volume.

     

  • When the stock price breaks out from the consolidation.

     

  • When the stock price retraces back close to the support line on an uptrend channel. I buy on the dip.

     

There are still lot more patterns I need to learn to perfect my entry points. I will continue to share in my stock chart analysis.
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China Zaino – Fundamental & Intrinsic Value

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Base on Q2, 2009 financial report:

  • PE = 3.5
  • Dividend Yield = 5.8%
  • NAV = $0.288
  • Net Earning = 15.6% (18.3% in 2008)
  • Current Ratio = 5.7
  • ROA = 31.7% (Base on 2008 Full Year)
  • ROE = 36.3% (base on 2008 Full Year)
  • Cash Flow = S$199.8 Million (27% increase with reference to 2008 Full Year)

  Stock Background

  • 3 years historal high = $0.615
  • Current Price = $0.30 (only 49% of 3 years high)
 

Intrinsic Value Calculation

PE Model

  • Fair value PE = 15, intrinsic value= $1.23 (base on EPS $0.08185)
  • PEG = 0.24 (it looks like super under value!)

DCF Model

  • Growth Rate = 15% (capped)
  • Discount Rate = 5%
  • Number of Shares = 945 million
  • 2008A Net Operating Cash Flow = S$55.893 million, intrinsic value = $1.01

Discounted EPS Model

  • Growth Rate = 15% (capped)
  • Discount Rate = 5%
  • 2009F EPS = $0.08185
  • Intrinsic Value = $1.40

Intrinsic Value for China Zaino (the most conservative number of the three numbers) = $1.01 (Current price is 70% discount to the intrinsic value!)

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