Month: November 2010

DW, Dundee Wealth Management

Hamilton

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.

DW Nov 2010

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.

S&P500

Hamilton

S&P Nov 2010

Here is a chart of the S&P, the broadest , and for that reason perhaps the most applicable index to use. Everything else has failed in various degrees by charging straight through the 61.8% retracement level, as we have seen, but the question is does that negate the plausibility of another leg down. No, if you use the S&P. (by the way, the 61.8% is not absolute, just a common occurrence.) In his latest Theorist, B Prechter makes a point of noting that the last 6 months have added 7 points- no wonder nobody, bull or bear is enjoying this market – , but however you slice it, closing, intraday or whatever, we are dead on 61.8%. No good counts are available and I have no idea how you would count the move from the May lows, for that matter I am not even sure that the initial drop into those lows was actually 5-waves (to me in a lot of instances the count works better as an a-b-c. What does often work is symmetry and as it happens the A-B-C as drawn above is perfectly symmetric. If that were to continue we would get another leg down (perhaps more than one) into the vicinity of 350. The whole thing might become a flat, perhaps a little distorted but still a flat. As always, time will tell.

RDS.A ,Royal Dutch Shell, XOM, Exxon

Hamilton

 RDS.A feb2 RDS Jan 26, 2010

The Canadian market seems to be able to go only one way, regardless of whatever news there might be that day, so perhaps it is worth looking elsewhere for some clues as to what lies ahead. Energy is a very large component of the Canadian market and Royal Dutch Shell is a very big integrated oil company. The two charts above are old ones that worked out fairly well. Below is today’s picture, long  and short term.

rds nov 2010 2 rds nov 2010

This stock must have read Elliotte’s work as it meticulously follows all the rules perfectly. Every leg of the30+ year bull trend channels  very nicely. Wave 3 is the extended wave. Now looking at the short term chart it is obvious at a glance that the drop from $90 to below $40 is about 61%, and, it is also right at the level of the 4th of previous degree. The drop may, or may not be a 5-wave move but what matters now is the rebound from the low, which, so far at least, is a very clear a-b-c . This may yet change, but until it does so, this is very definitely corrective; the implication is that the bear market from the 2008 highs may not be over yet! After all it seems counter-intuitive to assume that a 30 year uptrend would be corrected in just a year or two.There is some leeway left to the upside before the stock would start it’s down- trek again, perhaps to $75 or so, but this is definitely something to keep an eye on.

A quick glance at XOM, the other big one, confirms that this is very plausible.

XOM nov 2010

Again there is a consistent 30+ year uptrend. However in this case the drop ,that initially took a little more than a year, did NOT retrace the usual 61%, nor did it reach the territory of the 4th wave of previous degree ( about $50 t0 $30 ). furthermore the move back up from the first low, so far at least, looks itself like a little a-b-c to form a B in the larger down-trend. This scenario would allow for a further rise to about $78, then down for the second leg to about $40. If nothing else it is food for thought as unless someone figures out how to make water burn this scenario could really only work if there is some sort of economic down-turn that would , most likely hit all commodities. Not good for the TSE, but for the moment just a possibility worth keeping an eye on.

TSE update

Hamilton

TSE nov 19 2010

Still pretty certain that first leg down was NOT 5 –waves and given the sharp rebound it will never be 5-waves, which simple means that this “correction”will be more complex. A flat a-b-c is possible with the b leg almost complete or becoming a triangle. Alternatively the whole thing could become a triangle and the legs so far are a and b with c,d and e still to follow. That would imply that the lowest point in this correction has already been reached. At about 600 points after a 2000 point upswing that would be very shallow indeed! With all the hype surrounding GM anything can happen. By the way, for every one applauding the resurrection of GM, there is probable someone else lamenting the fact that the free-market was not allowed to follow the “creative destruction” script a la Schumpeter. Excess capacity has been allowed to stay which will make the future of the auto industry in North America all the more difficult. The writing is clearly on the wall, after an absence of nearly 30 years FIAT is looking to make a comeback, never mind the huge wage differences from companies in India and China that we have yet to hear from.