A close reading of a stock's movements can yield significant rewards, writes Rod Myer.
The Australian sharemarket is at the same level it was in 2005, meaning there have been no real price gains in seven years for the average stocks comprising the index. The general market index, the All Ordinaries, is between 10 per cent and 15 per cent higher since a major dip in September 2011.
Robert Brain, a director of the Australian Technical Analysts Association, reminds us that it is possible to identify stocks that will deliver stellar returns, even in flat or depressed markets.
"Syrah Resources is one such gem, having risen [by] 900 per cent since last October from a mere 10? to a recent high above $1.30, a point where some people may have been taking profits," Brain says.
To find other such investment possibilities, Brain suggests scanning the market every week, looking for stocks with a spike in their weekly volume. That is identified where the vertical volume lines on the bottom part of the graph break through the five-week moving average (the blue line snaking horizontally on the bottom graph). Such situations warrant further investigation using candlestick graphs.
The candlestick graphs on the top chart represent weekly prices. Where the candlestick is white, the stock finished the week higher than where it started, and the height of the candle denotes how big the rise was. A wick on top of the candle shows there was an intra-week high that was higher than the week's closing price.
A black candle indicates that the share price fell that week. And wicks, or downward wicks, indicate intra-week movements either higher than the opening prices or lower than closing prices.
Back to the chart. We can see that Syrah was stuck in a consolidation phase at less than 10? between August and October last year. Then things started to change, with the tallish white candle for the week beginning on October 31, when the stock pushed through the 10? level and closed near its weekly highs.
The next week volumes rose dramatically and Syrah's stock rose again, finishing the week on its highs. A second major upstep occurred in the week beginning on November 28, with the tall white candle with no wick indicating that Syrah finished that week on its highs.
A canny buyer would have used those two major bullish signals as a chance to get in, Brain says. Had they done so, they could have ridden Syrah up to $1.42 earlier this month. Since then profit takers have pushed the price back to $1.05, still a handy profit for anyone with the foresight to use Brain's analysis.
Syrah is a small explorer with a market capitalisation of $133 million. It has returned investors 863.7 per cent in the past year and 200.7 per cent annually for three years. It has exploration leases in South Australia, the Middle East and Africa and is looking for a range of minerals, including copper, gold silver, lead and uranium.