CL Colgate Palmolive (see previous blogs!)

CLapr 2011 CL apr 2011 s

Colgate has one of the best EW patterns I have ever seen. This makes the predictive value so much greater. The only unclear part is this last 5th wave, is it a wedge or a 4-5, 4-5. We will keep an eye on it and assume (for this market that seems appropriate) that it is a wedge and therefore could continue its climb towards $90. It is a bit like watching grass grow but sometimes things speed up a little at the end.

All waves within a wedge are always 3-wave affaires,not 5-wave affaires as is common for impulse (bull) waves. In the detailed chart that would require just one more leg up of about $10 ( the same is true for a 4-5. 4-5 situation except that the starting wave at the bottom is included). Once it reaches $90 it should retrace the wedge in its entirety. That happens to coincide with a fourth wave of previous degree and a 50% retracement level.

For those that do not wish to short a stock , I would suggest going long a put option! Do not do this today!, wait for the stock to get up there. Today’s quotes are as follows;

cl options

Above the line is out-of-the-money and below is in the money, at least for the puts on the right.. I prefer close to the money if not at the money which today would be a strike of 80 with the stock quoted at $81,28 . The bid ask is ridiculous at 6.85-10.55. The 75 is trading at 4.50-7.00. In the event the stock reaches $90 that is approximately where the 85 would trade. Lets assume you pay the ask of $7. Should the stock then drop to the $45 level within roughly a two year time-frame your option would be worth $40, assuming no time value at all was left That is almost 6X your money with a very high level of accuracy. Talk to your broker to decide how far out and what strike best suits your risk profile. By the way, if it reaches $90 the P/E would be close to 20x. Below is the “model” for this entire pattern, except that the wave 4 triangle is stylized away.

diagonal model