Back in October of last year I thought this was a sell at about $55. At that time you had a three-wave move up and you had reached the level of the B wave in the previous down-leg, a very common occurrence. I was dead wrong ; the stock just kept on going like the energizer bunny. Now that things have gone this far it is clear that an “irregular” B-wave has formed ; irregular meaning not normal. What is not normal is that the B-wave did not stop at the previous top but kept on going , almost as if things are too good to be true. Well they are, and that is why we would sell, now.
The move into the high of early 2008 is a near perfect 5-wave move ( this is clearer using semi-log scale!). The fourth wave in this structure is a triangle. As is to be expected, the thing peaks precisely perpendicularly above the apex and then drops, again as is to be expected, back to a level that equates to the lowest point of the triangle. The drop is an a-b-c which could be an entire correction or just the A wave of such a correction. Given that it took less than a single year to erase an 8/9 years advance, the suspicion should be that the correction is only partially done. Ergo, this could be a B-wave. Given the circumstances under which this low occurred – a smaller investment-dealer/mutual fund operation was long this stuff but due to margin calls from their house bank was forced to sell indiscriminately – explains the initial rebound. The China story probable took care of the rest. Here we are at $75, through the upper parallel trend-line and at the highest possible trend-line. A very nice a-b-c has developed and both the RIS and MACD are , once again, pointing downward.
(Irregular) B-waves are usually driven not by fundamentals but by a story, a theme , or simple momentum trading. Loewen, the funeral home operator had a beautiful B-wave that took the stock right back to its highs before diving into the ground under the weight of the Mississipi legal system. You can just feel that that these prices are too good to be true. Step aside.