Recent Predictions: FB & AGI breakouts. How’d I do?

Tuesday morning I immediately bought:

  • 1 share of Facebook (FB) at $113.59 ($113.59 total)
  • 15 shares of Alamos Gold Inc. (AGI) at $9.33 ($139.95 total)

Why I Bought

FB and AGI were the first two companies that I bought based on my excel spreadsheet outlining each company’s fundamentals.

You can see that FB and AGI are the only two company’s I have followed that have a solid buy recommendation, based on the information I entered into the spreadsheet. NOTE: A friend of mine recently asked me to outline exactly how my spreadsheet is calculating its recommendations, so I’m going to follow this post up tonight or tomorrow with a detailed explanation.

For now, I’ll just run through my analysis of both companies, starting with the fundamentals:

  • To start, Facebook and Alamos Gold Inc. both have P/E Ratios over 200, with FB’s share-price 2oo times greater than its EPS and AGI’s share-price 40 times greater than its EPS. This was my initial indicator that the two company’s held industry confidence.
  • Additionally, each company had extremely impressive YoY Q1 EPS increases of over 100%, with Facebook inching towards 200%.
  • Hinting at a positive trend, FB and AGI also had YoY Q2 EPS increases of over 100% and 70% respectively.
  • Things became slightly trickier for AGI in the revenue department. The company had solid YoY quarterly revenue increases for all but Q1 2015, in which it dropped 25% from the year before. With that said, it quickly rebounded, jumping 61% between 2015 and 2016. That indicates a growth-rate increase of 86% points. Additionally, every other quarter had positive YoY revenue growth. I decided that the 25% dip was an anomaly and that AGI had a generally positive, strong upward trend.
  • FB had straightforward YoY revenue growth of between 40% and 50% across the last several quarters and had a growth rate increase of 10% points between Q1 2016 and Q1 2015. While not as strong as AGI, it’s a big-cap / bluechip company that shows less volatility (AGI is a mid-cap company).

Assessing the technicals was more difficult and required reading into more subtle clues.

Given the complexity, we’ll have to break this down by company. Let’s start with Facebook:

The above chart shows Facebook’s price fluctuations over the past 6 months. The blue line follows its price’s 10 day simple moving average (SMA); the orange line follows its price’s 20 day simple day moving average; and the red line follows its price’s 5 day simple moving average.

Each average is considered a point of resistance (e.g., the price at which the stock struggles to overcome). Typically, a stock shows signs of breaking out if it surpasses one of the averages (e.g., one of its points of resistance). The size and length of the breakout depends on which averages it crosses. Surpassing the 5 or 10 day SMA indicates small breakouts that could last a few days or a little longer. Long-term traders don’t typically follow these smaller SMA’s because they don’t help analyze larger trends. Additionally, short-term traders and day-traders don’t follow the 50 or 200 day SMA’s because they don’t help analyze the daily or weekly micro-trends. Here, you can see that FB is clearly surpassing its 5 and 10 day SMA’s and flirting with its 20 day SMA. Looking at its 3 month history, you can see that it does occasionally surpass all 3 points of resistance without breaking out. That’s a good reminder that no single measurement is enough to determine the proper buy-point.

That brings me to the volume. Facebook’s average volume is 29.75M. On Friday, it was half that: 14.98M. This indicates that selling has been exhausted or is nearing exhaustion, and buying hasn’t yet picked up. That’s the perfect time to buy because it means that the price has already corrected and is preparing for a volume spike and share increase.

On top of that, if you look at the Bollinger Bands (pictured below),you’ll see that FB has been following the very bottom band for a little while now. When a price is closer to the bottom band, it means it’s being oversold; when it’s closer to the top band, it means it’s being overbought. Recently, the price has shifted towards the center band. This makes sense, considering our volume indicators: selling has been exhausted. While the center Bollinger Band doesn’t tell us anything (the price could fluctuate either up or down), the combination of FB’s volume indicator and fundamentals told me that the price was preparing to go up until eventually it’ll hit the top Bollinger band and decrease again.

The combination of positive fundamentals and technicals led me to buy up another share of Facebook. At one point, I was going to buy up 5 shares because the indicators were so clearly positive. I held off, wanting to avoid additional exposure. After all, I’m new to this. Everything I do is a first-time experiment. Might as well play it safe. I can always make more money, so long as I never let myself lose it…

So that’s Facebook, what about AGI?

AGI’s technicals were not nearly as clearly positive. It was, in every way, a greater risk than Facebook. However, at the same time, it opened me up to less exposure because its shares were much less expensive.

The above screenshot shows AGI’s price, 5 and 10 day SMA’s, and Bollinger Bands (top, middle, and bottom red bands).

IT’s clear hear that AGI was already well surpassing its 5 and 10 day SMA’s, but it was riding right up against the top Bollinger band — a very bad indicator that it’s being way overbought and is getting ready to drop. Additionally, it’s volume was at 2.183M, less-than but not drastically below it’s 30 day average volume of 3.09M.

All in all, AGI did not show the clear, positive indicators that FB showed. It looked to me like a hit or miss.

I decided to buy it on a gamble based on its positive fundamentals along with macro-economic trends: the market was volatile, investors were running to gold as a safe-haven, and AGI was a gold producer. It seemed like a solid 3–6 month investment.

How did it all turn out (so far)?

As of this writing:

  • FB was up 2.37% during NYSE hours and up another .06% after-hours, with volume spiking to 24.25M. My average purchase price was 112.74 (because I already owned an additional share that I bought on June 28th for $111.90); current price is $116.76. Not bad so far. The price still sits at the center Bollinger band, but but it is also standing directly on its 5 day SMA (still above its 10 day SMA). I’m hoping the spike will continue for at least another day or two. I’m going to carefully watch all of the technical indicators to determine if I want to hold it for a longer period or sell within the week.
  • AGI was up 3.88% after Bloomberg at other prominent media outlets starting covering the possibility of gold entering another bull run and reaching $1400/ounce within the next few months. It’s volume hit 3.09M (matching its average), and the price went up an additional .61% in after-hours trading. Not sure what to expect with AGI long-term, so I’m going to continue carefully watching it and reporting on progress.

That’s it! Let me know if you have any questions or comments.

Have a good Thursday!