Summary & Discussion of My Trading History of Emulex (EMLX) in 2000 Based on the Post Peak Bounce Pattern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New World Technologies, Inc.
www.nwtai.com

Michael Fouche
mfouche@nwtai.com

Table of Contents

 

Introduction. 3

EMLX Trading Executive Summary. 4

Discussion, Charts, & Results. 5

Original Return on Investment. 6

Alternative Return on Investment. 8

Conclusions. 10

Appendix – Transaction Receipts. 11

 

 

 

 

 

 

 


 

Introduction

 

In 1989 I was introduced to Ted Warren’s book, “How to Make the Stock Market make Money for You” (originally published in 1966) – his claim was that one could discern specific patterns in stock histories to predict future performance (this is also called “Technical Analysis”).

In order to validate his claims, I studied many stock charts from the local library in 1990 – interestingly I found that the same type of patterns that Warren had used as examples from the 1950s and 1960s, were also present in the stocks that I’d studied from the 1970s and 1980s. 

Thus the next step was to begin investing - which is where the “rubber meets the road” so to speak, using the techniques that he had described in this book. 


During the early, mid, and late 1990s, I was successful for the most part, in selecting and investing in good stocks based on specific patterns – my primary downfall was in not being patient enough to wait for the stock to meet its full potential.

This document discusses the details of one of thirty documented stock investments which were made based on the patterns discerned from that particular historical stock profile.


 

EMLX Trading Executive Summary


The following is a synopsis for this particular investment.  The next section includes more details on the trading history.

Return on Investment (ROI)

-0.8% in 2 months

 

 

Maximum possible ROI

286.9% within 9 months

 

 

Reason for Purchase

Post-peak bounce

 

 

Time Frame When Purchased

2000

 

The next two sections include more details on the reasons for the trade, the trading history, and the maximum potential ROI. 

Copies of the original stock transaction receipts, for each of the trades (buy and sell), are included in the appendix at the end of this document.

 

 




 

Discussion, Charts, & Results

 

These are my original notes from that era (2000 to 2001 time frame).  The original triangle pattern that I observed while watching the stock is shown below in Figure 1.  Note that the actual investment was made over a year later based on the “Post Peak Bounce” pattern (shown on the next page in Figure 2 and Figure 3).  Also – “Anchor” was a typo (another stock that I invested in) – should have been “Ancor”.

 

 

Figure 1 – Original Triangle Pattern

Original Return on Investment

 

This stock had the appearance of the “Post Peak Bounce” pattern that I’d observed on my own (outside of Warren’s book) – so I got in near where I perceived the bottom to formed.  The two charts shown in Figure 2 and in Figure 3 are the same relative to each other – the difference is time scale (several years on the left chart and under a year in the right chart).  However, note that there was a 2-for-1 stock split so the charts in Figure 3 are half the values of those in Figure 2 because of the stock split.  I purchased and held the stock for only a month and sold out at a slight loss. 

 

 

Figure 2 – Observed Pattern, and Buy / Sell History

 

 

 

 

Figure 3 – Observed Pattern, and Buy / Sell History – 2nd Perspective

 

The transaction summary for this investment is shown below in Figure 4.  Note that this does not account for transaction costs.

 

 

Figure 4 – Transaction Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative Return on Investment

 

As shown in Figure 5, months later the stock climbed steadily and peaked at around the post-split value of $100 (bounced around that average value – the pre-split value was $200).  If I’d been patient, the ROI could have been approximately 287% in about 9 months assuming that I’d sold in the peak time frame. 

 

 

Figure 5 – Illustration of Actual ROI vs Potential ROI

 

 

 

 

 

 

 

 

A projected transaction summary of the “maximum projected ROI” of 286.9% (assuming that I’d sold out at the maximum ROI percentage) is shown below in Figure 6.  Note that this does not account for transaction costs.

 

 

Figure 6 – Projected Transaction Summary

 

 


 

Conclusions

 

Given that the stock increased to a peak ROI of 287%, there was plenty of room to sell within a few month at a 50% ROI, 100% ROI, etc.  Thus had I been patient, this would have been a big winner within a relatively short amount of time.

The “Post Peak Bounce” is not anything that Warren talked about – it mainly was a pattern that I observed after studying many historical charts.  Keep in mind that not all stocks have this pattern – that is that they recover relatively quickly from a steep fall.  A lot of it has to do with the previous build-up (over the last several years). 


 

Appendix – Transaction Receipts


The records of the purchase and sell transactions are shown below.

 

Stock Purchase Receipt

 

 

Stock Sell Receipt