For more than a month now, MS has followed our script quite nicely so here is another update most of which can be found in the previous eight blogs. First the “big” picture. The charts that are available to me are flawed in that when you look at things over a longer period of time the charts are based on daily or weekly values that often deviate substantially from reality. I will use MSN and Yahoo charts as follows;
Notice that in the MSN chart the high in 2001 is well in excess of $100, whereas in the Yahoo chart it is $90 at best. Similarly the lows shown in in the latter part of 2008 are about $15 on both charts. In reality the lows occurred at around $9.68 if I am not mistaken ( Mitsubishi bailed them out with $9 bln. at the time.) , so we have not broken that level since as the most recent low was $11,58. In any event it is rather obvious that we are dealing with a nine year time frame during which the stock dropped more than 90%. (Prior to 1986 the company was a partnership and consequently did not have stock.) We dropped below the fourth wave of previous degree (at about $20) and the whole structure appears to be rather symmetric. Therefore it is possible that the entire correction for this stock is over in which case the situation looks like this;
It is normal for first waves in new bull markets to retrace almost the entire first leg so this count is totally credible particularly since it is a standard 3-wave a-b-c, the hallmark of a correction. The only problem is that there seems to be a triangle forming over the past three months!!! Here it is once again;
So far at least it is clearly a triangle. These structures can only occur in waves 4 or B positions, both of which are bearish. The former immediately and the latter after a corrective c-leg up. For our big picture scenario to hold the stock may not drop below the old low (of 8?) So if it gets there, buy it around $10. Alternatively there is no triangle and it would probable be a buy already.
MS
Sears, originally Sears Roebuck, has been around for more than 130 years. Once upon a time it was the largest retailer in the US. It’s catalogue once upon a time was almost 600 pages long. It has such in house brands as Kenmore, Craftsman and a dozen more. I used to own Allstate insurance , Discovery credit cards , Dean Witter and so on and so forth. When it merged with Kmart in 2005 the name changed. As is so often the case they build the largest office tower in the world in 1974,( it still is the largest in the US but is now renamed the Willis Tower) just before the gradual decline started to set in. The Eaton center has the largest store.
The chart is not entirely clear but we do need to make a new low, say at $20 to hit the trend-line. Then the C wave should become a 5-wave sequence which is virtually impossible without this stock going a lot lower from here. Sad when you think about it.
Despite a drop of roughly $400 for the stuff itself, from a little over $1900 to almost $1500 (the charts do not necessarily show this, as they are weekly), the direction of gold from here remains unclear. In the short-term chart there is an A-B-C pattern that could stop right here on the lower channel line. If it does we go up, if it does not we will go a lot lower, it is that simple. The trend line is just under $150.
GLD
Once upon a time, not that long ago, Nortel Networks was worth 1/3 of the Toronto stock exchange. Nokia still is worth that much of the Helsinki exchange, even after dropping about 90%. It is Finland’s largest employer. The charts tell the story;
The stock has gone down in two, more or less equal legs. The bottom part of the second leg looks like a wedge even if it is not, strictly speaking, a diagonal (no overlap). The low should be fairly close to $4. This symmetry is almost identical to what we observed with RIM, even if the time frames are substantially different. With a capitalization of about $18 bln. this company is almost 3x the size of RIM. Furthermore is was only recently dethroned as the largest cellphone manufacturer by Apple. Perhaps the Fins will prove to be less indifferent towards Nokia than the Canadians towards RIM and it will finish ahead.
NOK
Most Canadians look the other way when they see a stock with “Networks” in it. The irregular B-wave from the lows of early 2009 caught my eye and I could not resist. This stock should ultimately make a new low, below $12 or so at the very least as that is what the B-wave means. Using the very fallible theory of the gap-in-the-middle , a target of $10 is obtained. That is another 50%. Superficially it looks like we are in a wave 4, which may or may not resolve itself as a triangle. If it does that, it would probable revolve around $23 and then drop down in the thrust. If the 5th wave thrust equals wave 1, or the mouth of the triangle it should drop to about $13. The slightest extension will get right into the target of $10. We will see.
jnpr
Started in 1972 this company has worked it’s way up in the world of cruise line operators. In fact it has almost succeeded in monopolizing the business entirely. It owns quite a few “brands” that are easily recognizable even if you have never set foot on one of these boats in your life. The most prominent ones are Cunard of the “Queens” fame as well as the Titanic and HAL, Holland America line. At over 1000 feet and 130,000 tons these vessels are among the biggest ever built. Buying one of these will set you back a little over 3/4 of a billion once everything is said and done. These ships are equipped with stabilizers so you barely notice that you are at sea, so much so that you might as well go to Las Vegas and have one drink too many to experience the same dream.
This is a capital intensive business. The liners have to sail close to capacity (3.500 passengers) just to break even. Nothing is left to chance as every possible activity , no matter how seemingly innocent, is engineered to add to the bottom line. But Murphy’s Law presumable also applies to the cruise business and when it does this stock will be extremely vulnerable. A reasonable target would be around $7 or so but that could easily be exceeded. Royal Caribbean Cruises Ltd. (RCL) is another example, perhaps an even better one given the greater swings that it has displayed in the recent past. A nice example, by the way, of a triple top! The wave count is identical.
CCL, RCL
The Baltic Dry Index is constructed in such a way that it gives one an immediate idea of what it costs to move (dry) goods by sea. It is compiled in London and apart from historical connections with the Baltic, has nothing to do with that specific area as it is a world wide barometer. Charts are hard to get and it does not express the value of certain stocks like the Dow Jones Transport index, which recently made an all time high. This index provides a measure of the costs to move freight, or, from the other perspective, what shippers can charge.The Philadelphia Exchange has a similar index SHX, shown below.
The charts are very similar and they both indicate that charter rates have dropped by almost 4/5 over the past three years. The rates for VLCC’s, Very Large Crude Carriers, have reportedly dropped even more dramatically to under the cost of operating the vessels. This essentially explains the situation below;
The fleet has grown much larger and the amount of oil gas stayed about the same. Worse yet there are a good number of these VLCC under construction so capacity will grow even further by about 14%;
But it is not just oil transportation that is suffering as a quick look at EXM (Excel Maritime Carriers) makes abundantly clear. This company’s motto is, like Atlas, “We carry the World” and it certainly looks very painful.
Bank of America almost went under in the late sixties early seventies as a result of bad loans to the shipping industry. Not only does the income dry up fast but the value of the ships themselves can drop even faster. The moral of the story is that one has to be very careful when investing in capital intensive industries that have questionable growth prospects. Things can and do change fast not only as a result of Schumpeter’s creative destruction but also simple as the result of cyclical over capacity. Think airlines, pipelines, perhaps infrastructure in the wrong place (China) etc. etc.
Baltic dry index, FRO, XEM
A small oil and gas company operating in places like Columbia and Peru. Used to be part of Paramount Energy , I believe, but was spun out as a separate entity. It trades on Toronto and on the Columbian exchange a.k.a the Bolsa de Valores de Columbia, which may, one day, be an advantage given how well we here in Canada are able to integrate our 13 regulatory bodies and two languages. Here are the charts;
Needless to say I have never looked at this stock before, but then using EW you really do not need to have. Only the waves count!
Clearly there could be a 5-wave structure up from the lows in early 2009. That would coincide with most of the rest of the world so that is not to big of a stretch. Furthermore, as we are now overlapping the preceding bump, that must have been wave 3 and, all though there is no history prior to mid 2007 one must assume that a complete 5-wave sequence ended at the $41 high. If that is the case that would be wave 1 up and this drop should be wave 2. Standard first target, all other things being equal, is the 62% retracement level at $16 where we were a few days ago. In detail:
Typically a correction is an a-b-c, three wave affair. Often the waves c and a are vector equal due to some mysterious law of nature that just loves symmetry. With a little imagination that is exactly what we have here. Last , but certainly not least, the RSI with not one but two drops below the 30% line is clearly announcing a change in mood. The MACD is not far behind. An initial target, by the way would be at $32, but even $21 for starters would be nice.
By all means use a stop, say at $16. This is Columbia so who knows.
Happy Holidays!! and “yeni yiliniz kutlu olsun”.
PMG
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