SKF AB, Swedish Ball-bearing Factory.

Do not confuse this one with the other SKF, the Pro Shares Ultra-short Financials ETF. Your results would be dramatically different over the past 3 years.

SKF is the worlds most renowned maker of ball bearings. They trade here only as ADRs . Moreover, since we live in a throw-away society and nobody takes anything apart anymore , nobody has actually seen or heard of them. As Sweden has this preoccupation with “neutrality”, understandable if you live next door to the Russian bear, their products have probable been banned by law in the US for anything remotely related to defense , which is to say, about half the US economy. But chances are that if you tinker with your Volvo you will find dozens of them. Any European car for that matter will do.

Here is the chart;

skf july 2011

Like Colgate-Palmolive (CL) this stock is a prime example of why the stock markets are, or soon, will be in trouble. EW is always about probabilities and never yields absolute certainties, but it can provide much better results that listening to your broker who is swept off his feet by the latest irrelevant  news  item and barely knows the difference  between double-entry bookkeeping  and cooking the books.

There is a lot in this chart and a lot of ambiguity at the detail level. For instance the top could be the first top (in green) or the second (in purple). The low, in this case in Nov. of ‘08, could just as well have been in March of ‘09., if one assumes a “failure”. etc. etc.

In the big picture things are quite clear, and there are a good number of hints that add credibility. If this is a large B-wave it should not exceed the length of the preceding down leg by more than roughly 30% (about 9 blocks against 12),; it is a little beyond that but not dramatically so.  The triangle, which itself can be counted in two different ways, sits pretty well in the middle and, using the above mentioned “failure” as an excuse, the time taken for each leg is roughly equal, making the A and legs almost vector equal.

If the last up-leg was NOT a B-wave, it can easily be counted as a 5th wave (in purple lettering). The triangle, if there is one, would then have to be wave 4, the 5th of 5 would be about equal to 1 and 3 of 5 combined, a normal relationship.  Whether there is a B-wave, or a 5th wave, does not alter the fact that the stock first climbed to the lower trend-line, clearly attracted by it as a moth to light, only to be rejected once the line (light blue) was hit.

To sum it up, even though there are some unclear elements in the details, the big picture is perfectly clear and it is quite bearish. A drop now to $19, the apex is a minimum. $16 would be normal – even in a new bull market – representing a decline of about 62%. After that it gets real ugly; waves of this huge multi-year “flat” (the green lettering) typically drop below the origin of the corresponding A wave, $6 or below. There is a nice H&S pattern that is downright ugly as well

All of the above could still be wrong, we might be in 4 of 5 and go up another $5 above the high to meet the upper trend-line at about $37. A prudent person should not take that chance and should be happy with a move from $6 to $32. Some might be consoled by the thought that Sweden cannot again be caught in the next big financial downdraft, it already had its asset bubble and banking collapse back in 1991, which, by the way, resembles almost in every detail what has happened in the US and the World. Sweden is a small country (population wise) and its “Riksbank” has been around since 1656 (257 years , or 14 Greenspans longer than the Fed.), so it was better positioned to extract itself from that predicament by grabbing the bull by the horns, so to speak. If it comes from outside rather than from internal problems, things could be a lot harder to deal with.