TA question often asked... "Do trendlines work"?

[longandshort]

Imo, technicians, short term (intraday intraweek) using algos have the greatest firepower and continually win most of the battles.

Lol what battles are you talking about?

Anyway it sounds like you want to believe in technicals. Best of luck with your trading.

 

[traider]

If you're actually interested I'll show you. Give me a real ticker.

Analyse BABA which made Charlie Munger lose a fortune. He did fundamental valuation

 

[themickey]

Lol what battles are you talking about?
Anyway it sounds like you want to believe in technicals. Best of luck with your trading.

Traders always meet this same problem; They gotta trade but how much analysis do you apply to get the job done.
The more analysis, (doesnt matter whether TA or FA), the more contradictions and complications are added to the job.
You've seen charts with a gazzillion TA lines, that's nonsense.
But so is FA with a bunch ratios and guesses at projecting future earnings.
PE ratios for example are meaningless, a low PE can mean it's cheap but can also mean it's a dud.
I always like to think of pit traders in their day, did they sit there trading all day with a calculator, spreadsheets, or charts in their hands? No, they traded by noise (sentiment) largely I believe.
What about algos you ask?
For me they are picking up the noise in the room.

 

[semperfrosty]

@themickey

Ugh this is a microcap AND complex share structure (ADR, aussie, etc.). Not a fan of analyzing these types but here's how I'd approach it:

Step 1: understand the biz. Read the MRY 10-k to learn this.
View attachment 328080
View attachment 328081
Key items:

• Company is in "development" so they don't have any actual sales as of their MRFY and don't expect to generate revenue until 3FQ2023. It'll have additional product starting in late 2024-2025, and will be able to produce lithium hydroxide in 2025-2026.
• The company will generate revenues through a 25% stake in SYA (Quebec based lithium projects), 9.4% ownership of Atlantis Lithium (ASX: ALL) Ghana lithium portfolio (including off take of ~50% of life of mine production at market prices), two lithium hydroxide plants (Tennessee and Carolina).
• Note: offtake price is $500-900/ton.

Step 2: How are they doing and what's guidance?

• In Q3 they made their first customer shipment and generated sales of $47M on sales of 29k dmt of lithium concentrate; on track to deliver full year guidance of 56.5k dmt
• results were impacted materially by 45% decline in spot lithium prices
• Company is aussie based so only reports 2x year

Here's guidance:
View attachment 328083


Step 3: Figure out the critical factors

• Performance is on-track given what they guided, but the price of lithium has fallen
• There's a bidding war over ALL mines which may impact PLLs position given its off-take deal
• The stock roughly tracks lithium prices

Step 4: Examine estimates for the range of outlooks
From bloomberg -- here's the trajectory on growth, given the pace of projects and when they'll add to revenues:

View attachment 328086

• Evercore ISI sees price of $65 on 6x FY25 EBITDA
• DA Davidson sees $60 on 9.4x FY25 EBITDA
• Other analysts are mixing EV/EBITDA with DCF and other methods (BTIG references 2x FY24 EBITDA)
• Range of estimates for FY25 EBITDA is 96 - 484, with consensus at 204; note: revisions have moved lower since august

Step 5 -- Valuation
Looking at EV/ FY 25 EBITDA .. can see that it has ranged from 1.3x to 2.5x in the past 6 months, with an average this year of ~1.8x. It's currently at ~2x.

View attachment 328087

Step 6 -- What's your View?
Scenario 1: On track and improving macro dynamics
* Stock grows faster than consensus estimates on the back of improving lithium prices in late 24-2025. FY 25 EBITDA of ~300MM.
* Worth about ~$46 on 2.5x FY25 EBITDA -- company needs to stay on track AND lithium prices improve.

Scenario 2: Project headwinds and weak macro
* Company remains on track but lithium prices remain subdued, plus capex and project drift rises as Ten + Car plants build out. FY 25 EBITDA of 185MM, about -7% below current consensus.
* Stock is worth about ~$23 on 2x FY25 EBITDA.

Scenario 3: Lithium prices do not recover as global supply picks up
* Company remains on track but lithium prices fall to the ~200 level (BBG index) which is -50% where spot is. FY 2025 EBITDA ~120MM.
* Stock is worth about ~13.5 on 1.8x FY 2025 EBITDA

Your prob. of each scenario is:
scen 1: 60% (you are bullish and think lithium will rebound)
Scen 2:10% (you don't think this has a high chance to occur)
Sen 3: 30% (you think there is a real risk lithium prices move lower, not because of a crash in demand, but a pickup in supply)
Your prob. adjusted price is: ~$34. Current stock price is ~$28, so in this example, you would see the stock as currently undervalued.

In this example, because you are bullish on the stock, you expect the price of lithium to rise and that would lift estimates higher (consensus FY25 EBITDA would move from ~200mm to ~300mm). You can see this in "real time" with estimate revisions. If the stock begins to rally w/o estimate revisions or higher lithium prices, then it's EV/EBITDA would be bid higher. In an environment where EV/EBITDA goes up to 2.5x without (1) higher lithium prices or (2) +ve estimate revisions, then you would fade the move. Same thing for if the stock extends below 1.8x.

View attachment 328089
(Stock price = white line, lithium price = blue line)

How would you trade it?
Well, the signal needs to be worth at least 2x the volatility of the asset. Historical vol of PLL is ~60% on a 252d basis. The next earnings will be in Feb 2024. If I thought that lithium was going to start going up by the end of this year and will "show up" in Febs guidance, then my $46 px target is in play and the ~64% expected return (from $28 to 46) is over ~120% annualized which is 2x the historical vol and therefore in-line with a "good trade".

View attachment 328090

Subscribed.

 

[NoahA]

This is a great question and you're on the right path (but using trendlines is still garbage).

I don't like trendlines too much myself, but I love horizontal lines, such as support or resistance.

I find that your type of analysis can only work when the market behaves rationally, but I don't believe it does. The markets these days also don't seem to follow any requirement of making money, and for a while it seemed like what the FED said made the biggest difference, but even that is in question now. So I think with your type of analysis, we are left always trying to figure out why a stock might move, and then hoping that it does what we think it will do based on what we think is important for that stock. It seems like its overly complex and fraught with too many assumptions.

On the flip side, if we just learn to read the price chart, I think that tells us everything we need to know. We don't need to understand why the price is moving, but just the fact that it is. I understand if major funds need to do analysis like you suggest, but for us retail guys, I just think we need to follow what they are buying or selling, and this shows up in the price chart.

But I think there are people on here who vouch for your trading ability, like Dest, so I'm sure that your system and edge is absolutely one way to make a killing. Thanks again for the detailed examples. My god, imagine if @destriero explained one of his trades like you explain your process... LOL

 

[themickey]

BHP, the largest cap stock on the asx, I didn't realise just how much its fundamentals change, day by day, week by week, month by month.

 

[Scataphagos]

On the flip side, if we just learn to read the price chart, I think that tells us everything we need to know. We don't need to understand why the price is moving, but just the fact that it is. I understand if major funds need to do analysis like you suggest, but for us retail guys, I just think we need to follow what they are buying or selling, and this shows up in the price chart.

Ditto.

 

[Zwaen]

To illustrate my posting #26

View attachment 328061

You could trade this perfectly with a polynomial trendline I must say. You'll see, "it bounced here so it works"

 

[BKR88]

@themickey

Ugh this is a microcap AND complex share structure (ADR, aussie, etc.). Not a fan of analyzing these types but here's how I'd approach it:

Step 1: understand the biz. Read the MRY 10-k to learn this.
View attachment 328080
View attachment 328081
Key items:

• Company is in "development" so they don't have any actual sales as of their MRFY and don't expect to generate revenue until 3FQ2023. It'll have additional product starting in late 2024-2025, and will be able to produce lithium hydroxide in 2025-2026.
• The company will generate revenues through a 25% stake in SYA (Quebec based lithium projects), 9.4% ownership of Atlantis Lithium (ASX: ALL) Ghana lithium portfolio (including off take of ~50% of life of mine production at market prices), two lithium hydroxide plants (Tennessee and Carolina).
• Note: offtake price is $500-900/ton.

Step 2: How are they doing and what's guidance?

• In Q3 they made their first customer shipment and generated sales of $47M on sales of 29k dmt of lithium concentrate; on track to deliver full year guidance of 56.5k dmt
• results were impacted materially by 45% decline in spot lithium prices
• Company is aussie based so only reports 2x year

Here's guidance:
View attachment 328083


Step 3: Figure out the critical factors

• Performance is on-track given what they guided, but the price of lithium has fallen
• There's a bidding war over ALL mines which may impact PLLs position given its off-take deal
• The stock roughly tracks lithium prices

Step 4: Examine estimates for the range of outlooks
From bloomberg -- here's the trajectory on growth, given the pace of projects and when they'll add to revenues:

View attachment 328086

• Evercore ISI sees price of $65 on 6x FY25 EBITDA
• DA Davidson sees $60 on 9.4x FY25 EBITDA
• Other analysts are mixing EV/EBITDA with DCF and other methods (BTIG references 2x FY24 EBITDA)
• Range of estimates for FY25 EBITDA is 96 - 484, with consensus at 204; note: revisions have moved lower since august

Step 5 -- Valuation
Looking at EV/ FY 25 EBITDA .. can see that it has ranged from 1.3x to 2.5x in the past 6 months, with an average this year of ~1.8x. It's currently at ~2x.

View attachment 328087

Step 6 -- What's your View?
Scenario 1: On track and improving macro dynamics
* Stock grows faster than consensus estimates on the back of improving lithium prices in late 24-2025. FY 25 EBITDA of ~300MM.
* Worth about ~$46 on 2.5x FY25 EBITDA -- company needs to stay on track AND lithium prices improve.

Scenario 2: Project headwinds and weak macro
* Company remains on track but lithium prices remain subdued, plus capex and project drift rises as Ten + Car plants build out. FY 25 EBITDA of 185MM, about -7% below current consensus.
* Stock is worth about ~$23 on 2x FY25 EBITDA.

Scenario 3: Lithium prices do not recover as global supply picks up
* Company remains on track but lithium prices fall to the ~200 level (BBG index) which is -50% where spot is. FY 2025 EBITDA ~120MM.
* Stock is worth about ~13.5 on 1.8x FY 2025 EBITDA

Your prob. of each scenario is:
scen 1: 60% (you are bullish and think lithium will rebound)
Scen 2:10% (you don't think this has a high chance to occur)
Sen 3: 30% (you think there is a real risk lithium prices move lower, not because of a crash in demand, but a pickup in supply)
Your prob. adjusted price is: ~$34. Current stock price is ~$28, so in this example, you would see the stock as currently undervalued.

In this example, because you are bullish on the stock, you expect the price of lithium to rise and that would lift estimates higher (consensus FY25 EBITDA would move from ~200mm to ~300mm). You can see this in "real time" with estimate revisions. If the stock begins to rally w/o estimate revisions or higher lithium prices, then it's EV/EBITDA would be bid higher. In an environment where EV/EBITDA goes up to 2.5x without (1) higher lithium prices or (2) +ve estimate revisions, then you would fade the move. Same thing for if the stock extends below 1.8x.

View attachment 328089
(Stock price = white line, lithium price = blue line)

How would you trade it?
Well, the signal needs to be worth at least 2x the volatility of the asset. Historical vol of PLL is ~60% on a 252d basis. The next earnings will be in Feb 2024. If I thought that lithium was going to start going up by the end of this year and will "show up" in Febs guidance, then my $46 px target is in play and the ~64% expected return (from $28 to 46) is over ~120% annualized which is 2x the historical vol and therefore in-line with a "good trade".

View attachment 328090

Wow!
Now do FPI.
Too late, it's already my largest equity position (excluding SGOV, TFLO, USFR).

Anyway it sounds like you want to believe in technicals. Best of luck with your trading.

Some traders are quite good with technicals alone.
https://www.tradersprofitcompass.com/profit-from-peter-brandts-45-years-on-wall-street/

 

[longandshort]

Wow!
Now do FPI.
Too late, it's already my largest equity position (excluding SGOV, TFLO, USFR).




Some traders are quite good with technicals alone.
https://www.tradersprofitcompass.com/profit-from-peter-brandts-45-years-on-wall-street/

That guys win rate is less than 50% which means he probably could improve his pnl if he flipped a coin instead of used “price action”. My hit rate is 65%… only add things to your process that increase your hit rate, or it’s a waste of time.