Hamilton’s E-Wave Analysis

If you had a really good broker he/she would not bother you with all the minute little details that can be reported on just about any stock all day long, 95% of which is simple noise. A good broker would take the Less is Better approach and suggest that you invest either in the HXU or the HXD , not both, alternatively. That would cut out all the BS. It would also be unacceptable as it would negate most silly rules and principles adhered to religiously, when it suits, by most practitioners. What it would do is show you if the emperor is wearing any clothes. Most times he /she is not. Here are some updated charts, but also see previous blogs;

As usual, click to enlarge. This is the HXD, D is for down 2x because this thing is leveraged which is not an added risk provided you keep a comparable amount of money idle (in T-bills). Over time , as the bear market progresses, this one could again trade at $40 or even a lot higher. To see how the HXD trades relative to the HXU, the U is for up, I have created the chart below on Bigcharts , it does not show absolute values so I have inserted them, roughly;

In black is the HXU, which acts like the TSX itself, up or down. Notice that the B-wave retraced a fairly precise 62%.  In light-brown we have the HXD which is the inverse of the HXU or the TSX. Both “track” reasonable well and both have been in a range of about $40 to $8. Soon the two lines might cross once again. The extreme was reached back in March or April of last year. In both the HXD and HXU we should be in the beginnings of a third wave, when the moves are fast and large. Do not count on your broker calling you, we all know the adage about reversing your money and your broker’s experience. And QE3 is just around the corner.

For the record, the HXD is the only stock/etf that I own. I do not normally trade my blogs, it interferes with ones objectivity. By the way , the HXD was recommended back in late Feb. 2011 when it was trading at about $8 and as it is now almost $12 you would be up about 50% for the 14 months. The HNU was recommended big time at $8 just before my departure from DS on Nov 6, 2009. It hit the $8 target purchase price a few months later and then tripled.

Oh, and before I forget , that little sailing boat featured in the brochure (see below), is not yours after you followed all the recommendations, it is your broker’s.

HXD HXU

This blog was filed less than a month ago under “Natgas HNU GAS”. The recommendation was to buy HNU then at $8.42 and GAS at $8.50 Here they are today;

The HNU traded well through $14. and peaked at $14.22 today, so far. GAS peaked at $12.44 We are out, not because we think these ETFs cannot go higher, but because we are not sure. Take the 50% or so profit for the month and move on.

The HNU actually peaked today at 14.74 but closed lower. The trading has all the earmarks of desperation but given all the other excesses who knows what can happen.

EW seldom provides an unambiguous answer, there are always little things that do not fit perfectly. PAA is a good example. A case can be made that the stock hit a major low yesterday. But the notoriously imprecise long-term chart still leaves a little leeway to the downside. The short term chart allows for two different counts depending on which top was the real top. If the first one is chosen (in black) this should be it. The RSI, MACD and the 62% retracement support that scenario. The fact that waves 2 and 4 do not alternate is the only fly in the ointment but it does not categorically negate the count! When all is said and done, the difference is only about$2 at the most. The first (lowest) target for a rebound is about $20 and the most probable target is $25. Given that the stock is down almost $30 these targets are not unrealistic or overly optimistic. Take your pick.

PS. Previous blogs sketch the path this stock would take quite some time ago and, if I may say so on behalf of EW, with uncanny precision. Just plug/search the index for PAA.

PAA

Just a quick reminder of where we are in the big picture. Things happen on an incremental basis and what feels like perfectly normal may actually be totally absurd if you care to step back for a moment. It is true that at roughly 11000 the TSX has not moved for about 12 years. But it is also true that in the past 25 years the TSX has only been higher than it is today for less than perhaps 2 1/2 years, this while the world supposedly collapsed financially! It would appear to me that the realists that think that the index might drop to say 8000 should not have to prove their point  and that the burden of proof  should be put on the armies of pushers-of-stock that are, forever,  looking for higher levels.

TSX

Siemens was predicted to go to about $81. It is getting there but it has taken a long time. The outlook remains quite bearish (see previous blogs), but rather than regurgitate the EW analysis it occurred to me that it might be refreshing to use the Head & Shoulder pattern, something I know very little about. Here is the chart;

The left shoulder and the right shoulder sort of fit into a band that should run close to horizontally. Then, after the break-out under the lower channel line, the stock should fall by an amount similar to the distance that the head exceeds the upper trend line. It is as simple as that. Target $60. The EW target, by the way, is half of that.

This just happens to be the biggest bank in the Euro area. It gobbled up the likes of ABN-AMRO, albeit only briefly, and a whole slew of other banks or finance companies. Originally it hails from the Santander region of Spain. In terms of building headquarters these guys out spent most of the competitors.

When they say buy when there is blood in the street this is what they mean. The stock is trading at a P/E of 6.7 and yields 20.6% and it may just get a little better than that over the next few weeks. The magical number seems to be $4, and should it get there it will be the third time in less than ten years. Then when it bounces it moves quite impressively.

From an EW perspective the pattern is a large A-B-C X A-B-C , which is simple an A-B-C, except that the details differ. Theoretically the ideal target would be $4 or a little below. Presently we are either in the 5th wave of a thrust out of a triangle (having already completed the triangle measurement), or we are in a “wedge” type of structure with very little left to go down. Today’s low, so far , was at $5.52 or about a single dollar above the lows. A buy at $4.50 would only be suitable for those that are willing to loose it all, but it is exactly those people that become rich.

Like Discount Corp. (now defunct) Morgan Stanley was created as a means to circumvent Glass-Stegall. It is a spin-off of JP Morgan. Now, of course, it is legally also a bank but  no doubt that can be changed back with the same speed as it was done in 2009. Apart from GS this is the only other remaining big gambling casino, but without the bad reputation or the over-sized rolodex. Here are the charts;

This is a little different from the last blog. With all due respect to the Gainesville gang, it would seem to me that this chart looks a lot like GE and that it is conceivable that MS has done the entire correction! Alternatively, as shown before and in the chart below, we are still in some 5th wave, in fact the 5th of the 5th. The large A-B-C down is almost perfect, starting at about $100 and going to $10. The pattern is very symmetric.

Supposing we are in a 5th of some sort, waves 1 and 5 would be equal at about $9, just $3/$4 from where we are now. (probable 3 of 5 of 5). The stock trades at a p/e of 20 but that is meaningless. We caught the $11 to $21 move correctly but did not execute well. This time there is a chance of doing both. For the moment this should be a buy at $9 for sure but for the more courageous perhaps already, if, for instance, this is a b-wave almost complete. Perhaps, once again, their will be a stream of talent flowing from JPM to MS. The RSI and MACD certainly suggest a change is in the air. Below is that comparison in a chart, MS in green and GE in blue.

Click on the chart to enlarge, one dropped from 100 to 10, the other from 60 to 6. MS is more volatile as would be expected when compared to industrial turbines and so on, but by and large, the correlation is inescapable.

MS

We are rather agnostic about the precious metals. The idea of buying them as a hedge against the world collapsing does not seem to be fact based. They drop together with stocks. That they constitute “real” value as in contrast to fiat money is also a little stretched. Both are highly dependent on a “mutual understanding” with respect to their value. And everyone can readily sympathise with the notion that it is a complete waste of time and money – better used elsewhere – to dig up the stuff and then bury it in a vault, why not just agree on who owns it where it is? But apart of all this it does look like silver is at a critical point here or near here. We are at a 4th wave of previous degree, a normal retracement level. It has lost 50+% of its peak value and more of the run up over the past 10 years or so. The RSI is oversold and the MACD is already pointing the other way for 1/2 year. We are aware that some EW-ers like to suggest that the whole structure is, somehow a triangle. There is no such thing to our knowledge. The count that might fit is the one shown. An initial a-b-c down followed by an a-b-c up which has yet to complete the c part. This is bullish only on an interim basis as it targets about $37. Even so it could lead to nice gains on such silver stocks that have recently been cut in half (proportionate to silvers price). FVI would be an example even though we do not recommend the juniors. A Kinross at $7.40, down from $25 is starting to look a little like value, at least relative to where it was.

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