I was asked what I thought about TCL as a long-term investment. Now while I don’t provide financial advice the following is what the charts told me.

TCL has been trading in a rising channel for over 10 years – which is a pretty good determinant of price movement – but, nothing lasts forever either.

TCL1

Last week's price movements confirmed a formal downtrend as prices have been moving lower for at least 12 weeks. If I was looking to buy I’d be waiting until price closes for 2 consecutive weeks above the downtrend line (black line in the chart below).

TCL2

$13.50 is a level of support/resistanceand as price broke below that it suggests there is a risk prices could fall back even further – possibly to around that blue dashed line which has proved support previously. The bullish engulfing candle (last week) often means a change of trend – ie price will move up in this case. So conflicting messages.

The daily chart below shows price bounced lower off the downtrend resistance on Friday – but as Friday was a terrible day for most stocks I’m not reading a lot into that.

TCL3

Summary:

I’m expecting prices to fall lower but if it does move up and close above that downtrend for 2 consecutive weeks it is a technical buy. I’d also like to see it make a higher low followed by a higher high on the weekly (another buy signal). Once it makes a new uptrend (12 weeks higher) then it is clearly on the road to recovery (but you can lose a lot of profit waiting for 3 months!). However, until it reaches that milestone it remains in a downtrend with a chance it will resume that trend.

I did a backtest of TCL from 2009. This showed TCL is a tricky beast as it usually breaks below an uptrend for 3 or so weeks and tosses you out of a trade before recovering and going higher. The test also suggested that you shouldn’t buy into TCL until it has made a higher low and higher high on the weekly chart and is in a formal uptrend – 12 weeks of higher prices.

Unlike the vast majority of stocks, the backtest also showed if you bought in at the start of the test period and just held until now you would have made a return of 162% or 15% pa – more than the 97% return from a trendline managed trade. The reason the technical trade did less well is because price largely went sideways from 2016 to 2019 and trades in that period kept getting stopped out. Also the Covid fall in March this year saw a lot of profit go up in smoke with no entry point since the end of that fall (until last week that is)

Sit and hold isn’t a policy I can subscribe to because you must always have a stop loss – but apart from a stop loss below a buy in price, I wasn’t able to arrive at a workable stop loss rule. However, not one to be beaten I moved to a monthly chart (which filters out a lot of the short-term fluctuations) and if you bought after one monthly close above a monthly downtrend line and sold 2 weeks below a monthly uptrend line I showed a profit of 189% over the decade or so as against the 162% sit and hold. Not a lot more admittedly – but you have the insurance of a stop loss (which worked once during the period).

Contact

Robert Norman

Phone: 0428 346 951
Email: robert@sharecharting.com.au

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