Tim Bovee, Private Trader: APPG: A fairy tale, for fun

One of the pleasures of being a private trader is that my name is on every stock-tout mailing list in the country (or so it sometimes seems).

The most recent glossy brochure, from an outfit calling itself Currin Technology, has its "Tech Stock Wizard Who Beat the Dow 7 to 1!" praising a company called Apptigo International Inc. (APPG), which trades on the over-the-counter bulletin boards. It holds out the prospect of the price gaining as much as 1,169% over a year.

Seeking Alpha published an article on Aug. 15 setting forth in no uncertain terms the author's opinion of APPG. The headline says it all: "Apptigo: The jig is up, the same `sexy' pump and dump story with a different app".

I love a good fairy tale as much as the next private trader, and on occasion, it amuses me to take a tout's dream and treat it analytically as though it were a Fortune 500 behemoth.

And so,

The Chart

APPG began trading June 2 at $1 a share, peaked Aug. 11 at $1.89, and since then has headed south. The chart shows the great-grandpappy of all downtrends.

Its low point on Thursday was 78% below the peak.

APPG crossed below its 20-day price channel on Aug. 18, and confirmed that signal by trading still lower the next day.

Click on chart to enlarge.

APPG 90 day hourly bars

Elliott wave analysis suggests that the Aug. 11 peak marked the beginning of a major downtrend. The price has fallen well below the initial public offering price, and so I labeled that peak as the end of wave 5, meaning the end of the uptrend.

The present decline is in the third, or middle, wave of five, and under circumstances that apply to normal stocks, the end of the wave will be marked by a correction to the upside.

However, within an Elliott wave frame, APPG is in a downtrend, with the potential to go much lower.

The Company

The Seeking Alpha article, linked to above, gives much detail about the people behind APPG and their history. I'll focus on the public record, as I would with any company.

Apptigo, headquartered in Miami, Florida, offers a wide variety of apps and services. The "About Us" page is a collection of carefully crafted generalities: "Let's rock. Let's roll. Let's entice the soul."

Incorporated in Nevada, the company filed a quarterly report Aug. 14 stating that its first project, a matchmaker app, is in beta testing. The company has six full time employees and a part-timer.

Apptigo has made no profit in the last six months.

The company's assets amount to $420,233. The $48,389 debt load is 13% of shareholder equity.

No analyst opinion. Average volume of 1.3 million shares a day. No options. No dividends.

Decision for My Account

Never, ever, not in a million years would I trade this stock. Rather, I did the analysis as an exercise, to test a point: If the methods I use in analyzing big, established companies are valid, then they should work equally well with a miniscule company, or even with what the Seeking Alpha article calls a "pump-and-dump" scheme.

APPG in fact would never make it past my first round of analysis. True, it gave a bear signal and confirmed it the next day. But it has no options and is too illiquid for me to construct a bear position. So, out the window it would go.

But, for the sake of argument, let's take it another step.

In my second round of analysis, I focus on the chart itself, which is clearly bearish and supports the signal generated by the channel breakout.

However, the company has traded for less than a year, and I never trade companies that have less than a year of history. So, APPG would fail at this point.

I then take a quick look at the fundamentals. Zacks Investment Research, the service I use to short-cut my analysis of financials and Street opinion, doesn't list APPG, so there's no help there.

Being a diligent trader, I go to the quarterly report filed with the SEC, and learn that APPG has never earned a profit, which is great for a bear trade.

I also learn that it is a poor company, with very little in the way of assets. And I learn that it doesn't yet have a product ready for market.

Those last two points trigger alarm bells in my trader's brain. A company that poor and that early in development can't pose anything but an unacceptable risk. This is called the "gut test" or the "hunch test". If something doesn't fell right, then it probably isn't.

At that point, APPG would fail the second round of analysis. The chart and fundamentals are all bearish, but the company is so poor I would be concerned that it would file for bankruptcy before I could get my money out.

So how did my methods do? Quite well, really.

The break below the price channel eliminated any chance that I would consider a bull play, no matter how great the profits dangled before my eyes.
The lack of means to do a bear trade would have eliminated any chance of taking the trade.
The lack of at least a year's history in markets would forbid me from trading.
Even if a trade were possible, the "gut test" would end the matter without a trade.

Three technical hurdles keep me from this trade, as does a fourth non-technical test.

My takeaway is this: Technical tools can do much to avoid bad trades, but in the end, the trader must never ignore the "feel" of the symbol, the instinct that makes a trade comfortable or scary. The more I trade, the easier it gets to make the distinction with a high degree of confidence.

So, finally, it comes down to the old saying, "Practice makes perfect", or at least allows us to make a closer approach to perfection.

-- Tim Bovee, Portland, Oregon, Aug. 21, 2014

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my shorter-term trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.