EW contains a lot of ambiguities which is why 2/3 of the time you are really not sure at all what might happen. To put it in other words, sometime the light is green, sometimes it is red and most of the time it is yellow. Two stocks that have nothing much in common are green for the next few years (but not necessarily months). Gen. Electric and Morgan Stanley both have very articulate A-B-C corrections which are somewhat stylized in the charts below. By the way, these charts do not show the intra-day or week lows, for instance GE actually did get below $6).
Unfortunately I cannot get them on the exact same time-frames, unless I put them together in one single chart;
Both these patterns would strongly suggest that these stocks are back on their way up in a new bull market. MS has already retraced 50%of the first wave up, whereas GE may have a little more to drop in what is presumable a wave 2. In both cases a retest of the lows cannot be excluded completely but the odds are better that you will win with these stocks than with, for instance a Pepsi;
This one is bright red. Should it make a similar A-B-C as the others a target of about $40, where wave 4 of previous degree resides , would fit the picture. That is down some $30 from where we are now and there is only $10 to the upside until you hit the upper trend-line. There is nothing particularly wrong with the stock. It has a P/E of 17 and yields about 3% .
GE, MS, PEP
Just some rough stats; Cap. P/E Yield
General Electric 206 bln. 16.6 2.91%
Siemens 110 20.54 2.89
Philips 30 17.5 3.26
Supposing you wanted to buy one of these what would be the best choice? all three yield about the same percentage, Philips having a slight advantage. From a P/E perspective General Electric would be the winner by a fairly wide margin. If you like heavy industry Siemens might be your choice but the GE is well represented in that area as well. Medical equipment is made by all three. Lets look at the charts.
The charts do not have the same time frame. Interestingly, when GE was still close to its highs Siemens was closer to its lows. This was when Jack W was superman and the guys at Siemens were ridiculed for their arterial sclerosis. One had 6-sigma managerial expertise envied by all and the other was viewed as a make-work project. After almost blowing up while trying its managerial skills on “banking” GE dropped 91% to just under $6. Siemens only lost 72% by dropping to a still respectable $45. So much for owning “blue-chips” at the wrong time.
Philips , now Royal Philips is the baby of the three. It is best known for its lighting/glow-lamp division as its full name indicates. Interestingly, it is the only company of this size that uses replacement-cost accounting. Just to avoid the inevitable confusion, it also reports using the traditional historic cost method. As an aside it is somewhat ironic that the FASB in the US has been arguing in favor of mark-to-market accounting – arguable a form of replacement cost accounting but for valuation rather than depreciation purposes – precisely where it is inappropriate, i.e. traditional banking. The chart for Philips resembles that of GE the most and at the low of the C leg it loses72%, the same as Siemens. Presently it is right in the middle of the range and for that reason alone should not be bought! Given the respective positions of the other two within their range of the last 10 years, GE should be bought and Siemens sold at a 6 to 1 ratio. See the chart on the left , below;
This is not the best pairs trade chart but it will do. Each stock is given the same starting point and the charts simple shows how far the stock is deviation from that starting point in a percentage. The lower chart shows those two percentages added together. A few weeks ago we were at the widest point in the past ten years (and probable also over a much longer time-frame). This trade would be based on this gap narrowing as in 02 and 08. A drop by SI to about $90 and a rise for GE to $25 , both fairly reasonable assumptions, would close the gap to about 65% from the present 135% , a gain of 70% on the notional investment. Observe that at the end of 2007 the gap was almost as wide as it is today. It took less than a full year to narrow to almost nothing. This is , of course , market neutral as the market’s direction is not relevant to the outcome. The chart on the right does the same for SI and PHG. Clearly the higher degree of correlation makes that spread (now at +60%) a lot less robust.For GE and PHG the equivalent number is –60%.
GE, PHG, SI
Both BCE in Canada and GE in the States were, once upon a time considered to be “blue chips”, which, freely translated meant that these stocks were more or less impervious to down cycles , too big to fail, and dividend paying, in short excellent investments for widows and orphans and all those other investors that did not want to play roulette. Here are the charts.
BCE dropped from $50 to $18 or , give or take, 62% and GE did an even better job by dropping from $60 to $6 or 90%. BCE was always considered a grossly mismanaged company and GE, in contrast, the learning school for the latest sophisticated techniques in advanced management. One blew up by falling asleep and the other by not sticking to its knitting, by aggressively becoming a bank. The moral to be drawn from this is that there are no blue chips, period.
Both these stocks may have completed an entire correction lasting about 10 years, which would imply that they are now in new bull markets. This view is more compelling with GE than BCE! All the more so if one looks at what they make. One is in phone services where the costs are gravitating to zero and the other makes jet-engines, dish-washers and a million other things. I would put my money on GE.
Short – term BCE may try to get back to the $40 level (top of B of C ) where it briefly was just prior to the debacle with Teachers et al trying to take it private. I have NEVER seen a chart that is so trend persistent – for over two years this thing has been on track without any pull-back. The RSI and MACD are already turning and this cannot go on for ever. It is about $3/4 from its target. Get out or use a tight stop, $34 where the lower line runs or even higher. Even if this is a NEW bull market, typically first waves up are retraced by 60% or more.
BCE, GE
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
As stated a few days ago, we expect at least an a-b-c up, either as a correction ( a bull correction in a bear market) or we are witnessing a real bull market that will continue beyond where c=a. The problem is we do not know so it is better to get out and wait for the next train. Same for GE that hit $9.78. Assuming it was bought between 8 and 7, for an average of 7.50 your return is about 30%( where you should sell) On RY the buy (second time) was at $26 so the return would have been 34%, but since we sell at 30% that is all there is. Idem ditto for C.
C, GE, RY
We do not know if we are in a bull market, even so a correction would have at least two up-legs with a pause in between which we do not have! So the correction may be bigger or we have a bull move; in either case we would start of with 5 waves up. Using the gap in the middle theory we should get to $9.75, so I would sell at $ 9.50 and see what happens thereafter.
GE
If you own GE (you should as it traded well under $7/8 ) where to sell. Moving average (50-day) and trend-line are around $12. $10 would give you the proverbial 30%. The opening indication is just above $9 but the RSI is nowhere near the 50%= level that it typically returns to. On previous occasions it managed to do about $7 so from a low of $5.88 that would put it again at $12/$13.
By the way, GE might as well be a bank, see below correlation with S&P Financials
GE
With a low at $6.85 intraday and closing on $7, the lower end of the suggested range, this is now a buy IMO at say $6.50. Yes they did not act very truthful in saying that they would not cut the dividend but that is in the nature of the business, sometimes it works like a charm think TRP ten years or so ago. at around $6 two trend lines run from different channels and as they say “De Wall keert het schipâ€. There is that “wall†again : freely translated it means that if you (the boat in the channel) hit the wall you will change direction. At 1/10 of the peak value, lets hope so.
GE
Loading...