Hamilton’s E-Wave Analysis

Big Pharma has been giving mixed signals. Amgen is a good example as it has , arguable, spent the last two years going absolutely nowhere with higher lows and lower highs, suggesting the possibility of a triangle. These only occur as waves 4 in a 5-wave sequence, or as waves B in an A-B-C. The short-term chart on the left seems to favor the notion that the triangle is a B wave and consequently an explosive thrust up should start any moment (perhaps today with the announcement of a new prostate cancer drug). The longer-term chart on the right leaves more possibilities, one of which suggest that this might in fact be a 4th wave of C in a multi year corrective move that is not yet complete. A breakout either way will clarify the situation.

By comparison I have added charts of PFE , BAX  and MRK.

Pfizer, see previous comments, overall favors the bull case having already lost 80% of its value. Today’s dividend announcement may push the stock through the upper trend-line.

BAX also favors the upside, that is at least to the level of the b-wave in the last A-B-C correction. MRK, see previous comments, is presently sitting in the middle of nowhere

In conclusion, a buy with a tight stop would be the way  to go on AMGN.

AMGN, BAX, MRK, PFE

The “diagonal triangle” a.k.a. “pennant” or  rising flag, is a fairly common pattern that indicates an upcoming reversal as it invariable occurs in the 5th, or last, wave in a 5-wave sequence, or in a C of an A-B-C. At the very least the market should take the stock back to the base of the pattern and , in the event that it was a C in an A-B-C, usually a lot lower than that. EMC Corp. , a tech stock that was named, I suppose, after Einstein’s famous E=MC2 formula, is providing us with a text-book example of one of these patterns, right now!

Nothing in this business is ever straight-forward as there are numerous valid ways of counting this wedge. In red is the smallest, green is a little bigger, blue bigger than that and then purple. Given all this ambiguity one might , justifiable ,  comment that perhaps there is one even large than all of these. However, since the apex is just a few months away, at the most, and the angle at which this pattern rises – about 50 cents a month – is so low that even in that event the stock is not likely to runaway from you by much more than a single dollar at the very most. Against that you are virtually assured of at least $5 to the downside making this, essentially a 5 to 1 proposition. By the way, both the MACD and the RSI are not confirming the recent highs! Also, looking at the big picture, we get;

From the big chart there is no specific target that is compelling , one way or another. But from the intermediate chart an argument could be made (in contrast to the above) that the stock completed , ( or is about to complete ) , a 5-wave move from the most recent lows of $8. The present level to about $23 would complete the pattern.

These wedge patterns are extremely reliable and work  as scripted most of the time. That , combined with a 5 to 1 reward ratio, makes this a very attractive trade!

EMC

On BNN they had this hedge-fund guy, Einhorn, talk about some of his favorites, one of which was Sprint so I thought I would look at it from an EW perspective. It confirms the possibility that this stock may go up. This is in the same category as Starbucks which I do not understand either but it sure worked well! Here are the charts, starting with the short-term.

From a low of $1+ back in November 2008, out of synch with the market overall, it quickly regained  it’s composure by rising almost 6-fold after which it went comatose for nearly 2 years. As the saying goes, do not sell a dull market; this may well be a (wave b)triangle within an a-b-c correction from the lows. If so an explosive wave c is yet to come once the triangle’s waves d and e are completed. The stock should not trade below it’s most recent low and the “thrust”, if equal to wave a, should take the stock to $8/$9. Once there the $10 wave 4 retracement level is within spitting distance! Long-term this is all very plausible as can be seen from the long-term charts, arithmetic and log-scale;

The log-scale best illustrates the a-b-c corrective nature of the drop from $80 to $1. There is no need for this stock to drop further simple because there is no room left to do that. So the question is will this stock disappear entirely or will it rebound, or more importantly, will it rebound enough? As the stock has not completed an a-b-c yet from the lows a rebound is extremely likely, at least to the 4th wave of previous degree, in this case wave 4 of C at about $10. If it materializes that would constitute a gain of 150% or so.

S

ABX is a reasonable proxy for gold being the largest producer and, only recently, being totally un-hedged . Here are a few charts;

I am very agnostic about all the arguments that are doing the rounds that gold can only go up. For 15 years or so this stock has made no progress whatsoever. Even after doing away with its hedge programme, a change that really sounded more silly than ever at the time, hardly a budge for this largest gold miner. Looks very much like a wedge, that is for the c part of an a-b-c correction. These sometimes go on longer than one could reasonable anticipate, but since we are pretty close to double-topping , my guess is that it is game over.  It is actually quite a non confirmation between the ‘stuff” and the stock. From the lows in 2001 , or so , this stock has gained about 150%+ in value, the stuff  itself is going up by 5 to 6 x.

Some silver stocks, poor man’s gold, equally suggest a little caution. Here is one out of many.

Nice 5 waves, maybe?

ABX, FVI

A dollar or two this looked like an excellent short. Now that a few months have passed and the stock is worth a few dollars more , it looks like an even better short The big picture from last August, to refresh;

More time was consumed but it has traced out the stylized top much better this time. The $60 is a good level to go short.

EMP.A

Manulife, as discussed earlier, is a near perfect barometer of where the TSE and other markets may go. This company believed the nonsense that was widely circulating like no other and, having eaten its own cooking  is very sick. In a sense it is the proverbial canary in the coal mine. So far the bird has not succumbed to the toxic gasses but should it fail to cross the upper trend-line soon, things are starting to look downright ugly! The a-b-c (temporary) correction to say $30 would then not apply. Instead a 5-wave C wave would become more plausible dragging the stock down to $4 or lower. Vector equality between the two down legs would occur approximately in March or April of 2012, but a break below $13.50 or so would suggest the bear case is the right one.

MFC

Initially bought at $0.33, and sold subsequently is worth revisiting just in case it is still owned.

The correction from the lows is looking a lot like an A-B-C in which the C is forming a diagonal triangle, a.k.a. pennant or rising flag. These are bearish structures and this one has lasted a full year and travelled the exact same distance as the first up-leg. The RSI and MACD are dropping. A sell in my book.

MAL

We first recommended this stock at about $5.75, then suggested a sale at about $9 and later again at $15, each time pointing out that the stock could go much higher. After all it had done an A-B-C “correction” from $22 to below $4, a big move but still a correction implying , at least the possibility of a new high. Always mindful of how painful it is to lose money we are always a little eager to take profits, perhaps too eager. The stock is being taken over at $21, here is the chart.

It did drop by about $3 after reaching $15 and it did spend about 8 months in the dog house but in just the last few months it shot up by almost $9 to essentially double top. The important message that can be taken from this is that when you have a perfectly symmetrical A-B-C it is possible that the correction is the entire correction and not just part of it, so a new high is just around the corner. This pattern occurs frequently, see for instance Ivanhoe IVN and, arguable , General Electric, GE.

DW, GE, IVN