GNS - Gunns Limited

[michael_selway]

Folks

I've come late to this discussion, having only joined the forum about two weeks ago.
For the last nine months or so you've been discussing Gunns fundamentals, forming opinions about the company's future prospects and future stock price direction, and some of you have been taking positions here and there.
What intrigues me is that the stock has been in a clearly defined downtrend for most of this time. Sure its put in a some rallies along the way, but these rallies have been within the context of a clearly defined weekly downtrend.
So my question to you all is this......why the heck do you buy downtrending stocks?
I guess your answer would be something along the lines of "Because the stock will go up sooner of later if it's fundamentals are good".
And my response would be...."Maybe, maybe not - but why not buy stocks that are strongly uptrending RIGHT NOW, rather than stocks that may or may not uptrend at some time in the future".

Except for the hiccup back in October, the overall market has been strongly bullish over the 9 months or so that you've been discussing GNS. In a strong bull market there are dozens, even hundreds of stocks that are powering upward in nice sustainable uptrends. It doesn't take a university degree to figure out that these stocks are likely to perform much better than a downtrender like GNS.

Another case in point is CMQ, which is discussed in a different thread on this forum. This thread was started in 2004 when CMQ was above $2 but was in a powerful downtrend. Without going into details, suffice to say that some of our members appeared keen on this stock for a variety of fundamental reasons.
Someone said he considered it a buy below $2.
The stock has downtrended pretty much ever since and is now trading at around 48c.
This shows what can happen if you buy downtrending stocks because you think they're fundamentally sound or undervalued.
The fact is that neither you nor I nor anyone else knows the price at which a stock is good buying. The brokers don't know either, in spite of their highly paid research analysts.
Our opinion about the future direction of a stock is completely irrelevant UNLESS the market agrees with us. Likewise, our opinion of what is 'good value' or 'fair value' is irrelevant if the market doesn't agree with us.

Downtrends tend to continue longer than we expect, as do uptrends. Therefore it stands to reason that a downtrender carries larger loss potential than we thought, and an uptrender carries greater profit potential than we thought.
Here is one of the most profit-enhancing pieces of advice that any trader or investor can ever embrace.........
"Don't spend your time searching for stocks that you think will go up at some time in the future. Focus your efforts instead on finding those that are already going up RIGHT NOW."

Bunyip

Hi Bunyip, interesting point

IMO, following the trend is only good around the beginning of a bull market. When the market is "toppy", like now All Ords 5000+, u should look for stocks that have been hit bad which may give a better return (if "fundamentals" are still good) over stocks that are uptrending

Btw do u think GTP and EXL are "clearly defined downtrending" stocks?

thx

MS

 

[It's Snake Pliskin]

Folks

I've come late to this discussion, having only joined the forum about two weeks ago.
For the last nine months or so you've been discussing Gunns fundamentals, forming opinions about the company's future prospects and future stock price direction, and some of you have been taking positions here and there.
What intrigues me is that the stock has been in a clearly defined downtrend for most of this time. Sure its put in a some rallies along the way, but these rallies have been within the context of a clearly defined weekly downtrend.
So my question to you all is this......why the heck do you buy downtrending stocks?
I guess your answer would be something along the lines of "Because the stock will go up sooner of later if it's fundamentals are good".
And my response would be...."Maybe, maybe not - but why not buy stocks that are strongly uptrending RIGHT NOW, rather than stocks that may or may not uptrend at some time in the future".

Except for the hiccup back in October, the overall market has been strongly bullish over the 9 months or so that you've been discussing GNS. In a strong bull market there are dozens, even hundreds of stocks that are powering upward in nice sustainable uptrends. It doesn't take a university degree to figure out that these stocks are likely to perform much better than a downtrender like GNS.

Another case in point is CMQ, which is discussed in a different thread on this forum. This thread was started in 2004 when CMQ was above $2 but was in a powerful downtrend. Without going into details, suffice to say that some of our members appeared keen on this stock for a variety of fundamental reasons.
Someone said he considered it a buy below $2.
The stock has downtrended pretty much ever since and is now trading at around 48c.
This shows what can happen if you buy downtrending stocks because you think they're fundamentally sound or undervalued.
The fact is that neither you nor I nor anyone else knows the price at which a stock is good buying. The brokers don't know either, in spite of their highly paid research analysts.
Our opinion about the future direction of a stock is completely irrelevant UNLESS the market agrees with us. Likewise, our opinion of what is 'good value' or 'fair value' is irrelevant if the market doesn't agree with us.

Downtrends tend to continue longer than we expect, as do uptrends. Therefore it stands to reason that a downtrender carries larger loss potential than we thought, and an uptrender carries greater profit potential than we thought.
Here is one of the most profit-enhancing pieces of advice that any trader or investor can ever embrace.........
"Don't spend your time searching for stocks that you think will go up at some time in the future. Focus your efforts instead on finding those that are already going up RIGHT NOW."

Bunyip

Just to make you feel better: 5.60% 7 day trade! Go stick your opinion :fu:

 

[RichKid]

I agree wholeheartedly with Bunyip's great post, but then I'm biased as I'm a trader.

An important question is: is GNS in a downtrend? Imo it's overall long term trend is bullish (see monthly chart) and short term it's up (or arguably sideways- see daily chart), medium term (last year- see weekly chart) is down.

Note that the downtrend resistance line has been broken and supporting volume has increased. Still a riskier trade as there is no powerful uptrend in place yet. TA theory also says that once a trend is in place (recent year's trend is clearly down) then it takes overwhelming evidence to the contrary to say it's ended. I think we have that evidence here with the buying volume and higher lows and break of the resistance line. So, imo, d/t has ended but has the new uptrend started? This appears to be that choppy period between an old trend ending and a new one commencing. Another view is that this is a pause in a powerful downtrend, althought I doubt that very much on the evidence as momentum has slowed far too much.

Bunyip's caution from what I see is that if you're hitching a ride on a fast tram going down the hill, chances are it'll take you further down...it takes a lot of energy to slow it, stop it and then turn it around and get it going uphill fast again.

Eitherway, it's good to know that some can make money regardless of whether they follow this technical view, there have been valid short term signals in this stock for short term traders, lucky or skillful long term buyers could have opened positions there too, so well done Snake!

 

[bunyip]

Hi Michael

I note your comment that...... 'following the trend is only good around the beginning of a bull market'.
Let's find out by having a look at a couple of stocks.

NAB is presently in an uptrend that began in August 04....(a full 17 months after the All Ords started it's current bullish trend.) A dyed in the wool long term investor could have bought NAB a month or two after August 04, once its new uptrend was confirmed, and if he follwed the weekly chart (as long term investors should) he'd be still riding the trend today.
While the weekly NAB trend has been consistently upward since August 04, over the same period the daily trend has deviated from the weekly trend on a number of occasions. The dyed in the wool TRADER (as opposed to investor) had numerous opportunities to buy NAB each time the daily trend got back in tune with the weekly trend. The most recent of these opportunities was on 20/1/06 when NAB broke above resistance on heavy volume. The price rise since then has been in the order of 12%, which is not bad for a big blue chip in just two months or so.

Another example is NCM, which is a stock that you and I discussed in another thread. Similar story to NAB.....back in November last year NCM was a buy when it's daily trend got back into line with it's weekly trend. It then offered a nice profit opportunity of more than 20% before it's present downtrend set in. Its interesting to note that NCM's buy signal back in November was more than two and a half years after the overall market turned bullish at the outbreak of the Gulf war.

I could name you dozens of other uptrending stocks that gave buy signals months and even years after the bull market began, and these buy signals have resulted in very profitable opportunities for both traders and longer term investors alike.

I also note your comment of......'u should look for stocks that have been hit bad which may give a better return (if "fundamentals" are still good) over stocks that are uptrending'.
I think that's a pretty sound policy, PROVIDING you wait for them to start uptrending before you buy them.
Think about it. Can you pick bottoms?
If you named me six stocks that have good fundamentals, but have been hit hard, and I said to you "OK Michael, tell me the price at which these stocks will bottom out".
How many correct answers do you think you'd give me? My guess is that your score would be zero out of six. And if you asked me the same question I wouldn't score any better than you

Consider this.....
1. We don't know how far a stock will fall.
2. Most downtrending stocks (even those that are fundamentally sound) will fall further than we think.
3. If we buy a stock we can only make money if it goes up (irrespective of how good it's fundamentals are.)

Now, considering these three points......If your policy is to buy fundamentally sound stocks that have been hit hard, it clearly makes sense to wait for these stocks to begin uptrending BEFORE you buy them.
The most serious shortcoming of fundamental analysis is that it lacks a timimg element. This shortcoming can be addressed by combining trend analysis with fundamental analysis.

In relation to your question........'Btw do u think GTP and EXL are "clearly defined downtrending" stocks?'

GTP weekly trend is up and it's daily trend is sideways.
EXL weekly trend is sideways and it's daily trend is down.

Finally.....Most stock market players only look at daily charts. Since there are 5 trading days in a week, if you look at both daily and weekly charts your perspective will be five times greater than that of your opposition.

Bunyip

 

[bunyip]

There are profit opportunities all over the place, even under less than ideal conditions. Snake proved it by buying a stock when it's daily trend was sideways and it's longer term trend was down, yet still making a handy little quick profit

However, the fact remains that the best buying opportunites and the largest profits are offered by strongly uptrending stocks.

Some of us are willing to trade under less than ideal conditions.
Some of us try to trade when conditions are dead against us.
Some of us like to stack the odds in our favour by trading only the class A setus where everything lines up perfectly.

Because the market offers us more opportunities than we can possibly utilise, my thinking is that is makes good sense to cherry pick the opportunities and choose only the very best ones.

Bunyip

 

[Dutchy3]

Not a buy for me, I have on the watchlist.

The worst appears to be past for this stock. The volume and price activity of 10/02/06 sticks out too much not to be significant. Getting close for a small anchor LONG position

 

[RichKid]

Dutchy,
Watch for the exDiv drop on Monday, about 6c plus the franking figure (fully franked). Not sure if the Tassie election result will change that. Tried to enter this a few weeks ago but missed out, better chance in the next week or two imo.

 

[Julia]

Bunyip

Thanks for some interesting and useful posts.

Do you have any comments re my apparently considerable talent for watching an uptrend long enough to feel safe to enter, then within days it goes into a downtrend?

If the stock is a blue chip consistent performer obviously I'm not going to be concerned, but it is irritating when it happens with a company with fewer long term credentials.

Julia

 

[It's Snake Pliskin]

There are profit opportunities all over the place, even under less than ideal conditions. Snake proved it by buying a stock when it's daily trend was sideways and it's longer term trend was down, yet still making a handy little quick profit

However, the fact remains that the best buying opportunites and the largest profits are offered by strongly uptrending stocks.

Some of us are willing to trade under less than ideal conditions.
Some of us try to trade when conditions are dead against us.
Some of us like to stack the odds in our favour by trading only the class A setus where everything lines up perfectly.

Because the market offers us more opportunities than we can possibly utilise, my thinking is that is makes good sense to cherry pick the opportunities and choose only the very best ones.

Bunyip

Good points Bunyip. :bounce:

With regards to GNS it has had more money flow into it then sell out it recently. Breaking $3.10 will be watched with interest. Ex-div tomorrow see how it fares.

 

[bunyip]

Bunyip

Thanks for some interesting and useful posts.

Do you have any comments re my apparently considerable talent for watching an uptrend long enough to feel safe to enter, then within days it goes into a downtrend?

If the stock is a blue chip consistent performer obviously I'm not going to be concerned, but it is irritating when it happens with a company with fewer long term credentials.

Julia

Greetings Julia

It sure is frustrating when you buy a stock that appears to have begun uptrending in earnest, but shortly after your entry the damn thing turns around and starts heading south.
I know so little about your trading sytle that it really is difficult for me to comment on why those stocks are going against you once you enter.
For example, I don't know your method of trend identification, or if you place any importance on measuring the strength of the trend, rather than just buying into any old uptrend. And I don't know your entry setup, or even if you have one.

Some stocks tend to trend in a relatively stable manner. Others are far more choppy. I like to focus on the larger more liquid stocks whose uptrends are strong (as measured by technical indicators) and buy them after the first retracement during the new uptrend. That's not to say you can't buy them on subsequent retracements if you happen to miss the first one.
By zeroing in on the strong trenders and buying them at strategic times (after a pullback) you reduce the likelyhood of them going againt you shortly after you enter. But of course you can't eliminate the possibility altogether. That's why you need stop loss orders to ensure your loss is kept small if the trade doesn't work out.
If you add to the equation a rule for letting your profits run, you find that you can lose more than you win, and still make good money.
Not that you'd expect to lose more than you'd win.

Cheers
Bunyip

 

[It's Snake Pliskin]

It`s bullish today shaking off the dividend and breaking $3.10 easily. It has come back down and interesting to see where it ends.

 

[RichKid]

It`s bullish today shaking off the dividend and breaking $3.10 easily. It has come back down and interesting to see where it ends.

I was watching this too, checked price this am before open and since it showed strength- which I didn't really expect, I thought it would come back down- I placed an order at 3.15- got filled at 3.13.
My stop is just below $3 (about 4.8% gross loss of initial position), I expect quite a few others would have placed stops there too, a high risk entry imo but I can always have another stab at this if I'm wrong.

 

[It's Snake Pliskin]

I was watching this too, checked price this am before open and since it showed strength- which I didn't really expect, I thought it would come back down- I placed an order at 3.15- got filled at 3.13.
My stop is just below $3 (about 4.8% gross loss of initial position), I expect quite a few others would have placed stops there too, a high risk entry imo but I can always have another stab at this if I'm wrong.

Richkid,
I would say it is not as risky now because it has more going for it technically than the last breakouts. Moving averages have been breached and left behind, volume is up as is positive money into the stock, and it has ignored the ex-div day effect in an extremely bullish way.

You should see $3.30 in the short term if it keeps up its strength. Passing that point should see unfettered resistance when all the late comers get on board.

I`m bullish as all looks well - plenty of accumulation and buyers chewing up the weak including me last week.

Cheers
Snake

 

[Dutchy3]

I'll weigh into this one now.

Its an initial buy for me - position will take months / years to play out.

 

[It's Snake Pliskin]

We`ll have to agree to agree. I can only call it as I see it.
I`m holding again.
Pops and grans will load up tomorrow morning no doubt.

 

[Dutchy3]

Oh you beautiful thing.

Will 3.05 be support this time ready to load up for better times ahead?

 

[Dutchy3]

Took additional positions in the days leading up to the Easter break. The 3.05 has taken over from 2.80ish as the line in the sand

 

[Smurf1976]

This company seems to be having serious trouble selling it's product. Sales down 35%+ it seems and they're putting contractors off (sending them permanently out of business in some cases) which won't make it simple to return to full production.

This is front page news today in the Mercury newspaper (Hobart).

http://www.themercury.news.com.au/common/story_page/0,5936,19118977%5E921,00.html

Also they seem to have caused some sort of air pollution incident forcing the closure of roads, cancelling school bus runs etc in NE Tas yesterday (media report). Gunns' isn't exactly the Greens' favourite company to start with and by the sounds of it this pollution from regeneration burns was somewhat over the top. One report said that a ute driver couldn't see the bull bar on the front of the vehicle because the smoke over the road was so thick. Police closed the road, effectively shutting down much of NE Tas for a few hours. Others reported bleeding noses etc from breathing the smoke.

So losing sales, cutting jobs and upsetting the community at the same time. At least there's always the contrarian view - how much worse could things possibly get?

 

[RichKid]

This company seems to be having serious trouble selling it's product. Sales down 35%+ it seems and they're putting contractors off (sending them permanently out of business in some cases) which won't make it simple to return to full production.

This is front page news today in the Mercury newspaper (Hobart).

http://www.themercury.news.com.au/common/story_page/0,5936,19118977%5E921,00.html

Also they seem to have caused some sort of air pollution incident forcing the closure of roads, cancelling school bus runs etc in NE Tas yesterday (media report). Gunns' isn't exactly the Greens' favourite company to start with and by the sounds of it this pollution from regeneration burns was somewhat over the top. One report said that a ute driver couldn't see the bull bar on the front of the vehicle because the smoke over the road was so thick. Police closed the road, effectively shutting down much of NE Tas for a few hours. Others reported bleeding noses etc from breathing the smoke.

So losing sales, cutting jobs and upsetting the community at the same time. At least there's always the contrarian view - how much worse could things possibly get?

That's interesting Smurf as the chart shows resistance but emerging support as the higher bottoms are holding, prices coiling a bit. Can't say I agree with the pollution etc, I thought the new plant was to be good news. Time the instos put pressure on this co to lift its game- so much for Corporate Social Responsibility.

 

[It's Snake Pliskin]

Took additional positions in the days leading up to the Easter break. The 3.05 has taken over from 2.80ish as the line in the sand

What do you think now Dutchy3? Is it still a long term play that you hold?