Year: 2011

RBCDS’ Focus List

Hamilton

It has been quite a while since RBC DS allowed First Trust (for a fee) to use its methodology to set up a fund here in Canada. Presumable they did not want to do it themselves for, perhaps, obvious reasons. Dry swimming is always to be preferred to wet swimming if only because the chances of drowning are a lot smaller. Soon this is going to end and First Trust’s fund will change to a more generic format. Below is an excerpt of the Dec. 1 announcement, having regard to the goals of the new fund.

firsttrust.cadpproductinfoFTC46proposedchangeannouncementrcdscdnfocus

Gone is the Focus List and presumable the arrangement between RBC and First Trust. The question now is this an improvement? First Trust has a large base of “rule based” funds where , at specific intervals you mechanically make the necessary changes. The Dogs of the Dow is , perhaps the best known. It remains to be seen who decides to buy what, why and when. The mandate moreover is defined rather loosely!

Concerning the Focus List fund, here are the latest charts;

focus list dec 2011focus list dec 2011 s

See also previous blogs under RBC’s Focus List . This year the unit value traded between 20.09 and 15.55, a loss of roughly a quarter of its value. The 5 year performance is now a negative 4.20% which, presumable is after the quarterly dividend that consists entirely of “capital gains” if any. The MER is at 2.19% which is a lot to pay for a fund that has underperformed the TSX (see previous blog) for some time. A simple ETF at 17 basis might do just as well.

NA , National Bank

Hamilton

This bank has done exceptionally well; together with the TD it is one of the few Canadian banks that is trading at levels above what they were prior to the second great recession. It trades at a p/e of almost 10 so,by that measure at least, it is not even overvalued. Today’s action by the Fed and half a dozen other Central Banks, boosted bank stocks all over the world except parts of Asia where the news came out too late. The market took comfort in the idea that at least the world banking system was not going to come to a screeching halt due to lack of liquidity (this came as a surprise, most were expecting QE3, but the writing was on the wall. Our own CB Governor Mr. Carney only a few days ago, remarked that the situation was “barely contained”. A level of frankness that is unheard of in those circles. He should know given his new side job). We will probable never know quite how dire the situation really was, but the message that a chain is only as strong as it’s weakest link, was brought home rather abruptly a week earlier when the Germans could not sell a government issue. All of a sudden they are all in the same boat, and not just the Euro zone , but the world at large.

There is just one little problem which is best illustrated by the following example. Suppose you go out for a night on the town with 17+ friends and forget to make arrangements about who pays what and when. It is 3 o’clock and most of your friends have left. You are presented with a huge bar bill that you really do not want to pay. The barkeeper offers you credit for a few days. Does this solve the problem? Obviously not. The problem is not liquidity, but solvency, something the central banks have little or no influence over. I suspect that in EW terms we are looking at part of a wave 2 of C as shown with the National Bank charts.

National Bank of Canada, nov 2011 b

It is near impossible to be absolutely sure that the leg up from the 09 lows was a B wave. However if you look at TD bank that has followed a similar trajectory and you stop to consider that the C part is an almost exact 62% of the A, it is a very plausible assumption. On top of that it really is rather academic as, if this was a fifth wave, you would still fall  to $25 (4th of previous degree) instead of $15. Here it is in greater detail;

NA nov 2011 mNA nov 2011 s

You can always enlarge the chart by clicking on it. First the B-wave. Clearly it is divided in two almost equal parts and it is almost impossible to construct a 5-wave move out of this. Then looking at the short term chart, it too is quite clear. The triangle is a wave 4 of 3, the only proviso would be that the 5th wave may not even be over as it is hard to subdivide into 5 waves, even though it’s length is more than adequate. Also, though unlikely, we could still be in a wave 4 triangle, having completed the a and b and now in c with d and e still to go. The sheer size of the second leg in the triangle makes it very unlikely, certainly relative to the channel. Time will tell.

AQN , Algonquin Power & Utilities Corp.

Hamilton

AQN l nov 2011AQN s nov 2011

This used to be an income trust which may be why you own it. As one can see, the combination of the income trust debacle and the market meltdown in 2008 and 2009, clearly was not very kind to this company. But it has managed to climb back from the lows but, so far at least, has not been able to regain more than 40% or so of the loss. Given the way it did this, this may well be it. From the lows the stock traced out an absolutely precise a-b-c correction, followed by an irregular b-wave. This does not bode well at all. A stop-loss at around $5.25 could save the bacon without compromising the possibility of much higher levels, which I very much doubt.

R, Romarco update

Hamilton

R l nov 2011R s nov 2011

Sometimes things just do not do what you expect. Romarco is a good example. I did not expect it to trade much  below about $1.50 (see previous blog) and here we are at around 94 cents having been even lower.

With the benefit of hindsight I now assume that the stock did not do a simple wave 2 correction as an a-b-c, but did a triple a-b-c, that is a structure that follows the basic  a-b-c X a-b-c Y a-b-c pattern. You never get more than three so if this assumption is correct you cannot go much lower. Furthermore the stock has lost 2/3 of its value, roughly, which just happens to be a nice Fibo ratio.

The company recently added almost 95 mln. to it’s cash reserves and at the present low burn rate could continue operations for many years to come. The waiting is on an environmental report by the US Corps of Engineers which should take slightly less than another year. After that things should become very profitable and there is no political risk as this mine operates in NC, USA. Management is also good looking which is seldom the case with miners.