S&P500 – Testing its 20D MA

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Historically September is the most bearish month of the year. However, the big correction still has not started yet. I’ve bought some PUT option on SPY (S&P500 Index ETF) few weeks ago base on the assumption that Sept will have a big correction. I think I’ve made a mistake buying options without looking at the chart & confirming with the technical indicators.
Last Friday S&P500 showed some weakness and the stock price was testing its 20D MA. Let’s see this week whether S&P500 can stay above the 20D MA and 1009 (this is a very strong resistance base on 61.8% Fibonacci retracement level from Nov 2008 high).

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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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General Electric (GE) – Fundamental & Intrinsic Value

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Base on latest quarter:

  • PE = 12.8
  • Dividend Yield = 4.8%
  • Net Earning = 7.5% (10.5% in 2008)
  • Current Ratio = 2.2
  • ROA = 1.64% (2.18% in 2008 Full Year)
  • ROE = 11.5% (15.7% in 2008 Full Year)

Intrinsic Value Calculation (DCF Model)

  • 10 Year Average Growth Rate = 3.9%
  • Discount Rate = 5%
  • Number of Shares = 10,393 million
  • TTM Net Operating Cash Flow = $36,064 million
  • Intrinsic Value = $32.76

Stock Background
 

  •   5 years historal high = $42.15
  • Current Price = $17.00 (only 40% of 5 years high & 48% discount to Intrinsic Value of $32.76)
The stock price is currently above 20D, 50D and 200D MA. Strong support at $14.57.

My target entry level is between $15.00 to $15.50 when the stock price retraces back to the support level.

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