Year: 2011

WTIC, West Texas Oil

Hamilton

wtic aug 2011

Once oil (West Texas) had peaked around $115 a barrel, the wedge shaped structure that had propelled it there almost promised that it would come back to, at least, $84. Moreover it should do it quite rapidly. It did to about $95 and then it started oscillating for more than a month roughly around the $100 level, a nice triangle for sure. What was not clear is whether it was a B or a 4th wave triangle. It’s size, relative to the preceding drop suggested a B-wave. As in an A-B-C drop the C is often equal to the A, that gave a target of $82 or so (see black annotations). Problem is, it never got there and instead only barely flirted with the $90 level. This fit a 5-wave count much better (light blue). It also called for a return to about the level of the apex. This invariable happens with 4th wave triangles but not necessarily with B-wave triangles. The formation once again of another, much smaller, triangle more or less confirmed what was going on. The end result is that the outlook for oil is now far more bearish than it was originally. 5-waves in any direction never stand alone. We should now get at least one more set down to about $78, more likely a more prolonged move with more than just one more leg. Time will tell.

IMN, Inmet update

Hamilton

Then (June 7th) , and now charts;

IMN June 2011 imn aug 2011

A month ago it was pretty clear that IMN had pretty well completed a triangle and consequently the stock should fall. Not only did it look like one but it fit the bigger picture equally well.  Turns out that technically, if that is the word, this could not be a triangle as the e-leg cannot exceed the height of the c-leg. Whatever it is, it may simple be an input error by the vendor, it is a consolidation pattern and these are normally pauses in a move that is then continued in the same direction. In the meantime the stock is down some 18%.

TWX , Time Warner

Hamilton

Time Warner is a great example to illustrate the point that a triangle is not always what it seems (they just reported with reasonable results, so the stock is down);

twr

A few days ago one would be forgiven to think that this is a triangle, an irregular at that since the peak point at the b-leg is above the start of a. Clearly this does not work anymore. Two other counts may be applicable. First, the actual top was the March high and not the May one; this would lead to an a down, irregular b up and now in c, perhaps 3 of c. C can be and usually is much larger than a. Next, if the top was the May top we could be in the process of doing a 1-2,1-2 series and again we are in wave 3 of 3. In both cases you can easily drop to $28 or so. One way to anticipate all this is by looking at the RSI or MACD, they should be rather flat and not directional! Looking at a slighter larger perspective, we get;

twx b

We know that triangles occur exclusively in wave 4 or wave B positions. Superficially there are two triangles in this chart. The one in the middle takes up almost 1/2 of the chart and, even if the subdivisions are not perfectly clear, rotates very evenly around the +/_ $30 level. Given its sheer size, and assuming that it is indeed a triangle, it would almost have to be in a wave b position and not a wave 4. We are not sure which low was the real one , the Dec. or March one. If it was the March one it is more difficult to count 3 waves into the start of the triangle. Also on this longer chart the RSI peaks in Aug of 2010 (a year ago!) and deteriorates from then. The MACD is not much better having peaked in March of this year. Furthermore the stock is stalling by spending most of its time in the lower half of the channel. So the smaller triangle would have to be a 4th wave triangle. This is indeed easy to count except that the triangle becomes completely disproportionate to the rest of the c wave.

It does not matter much at this juncture if the move up from the low was an a-b-c correction or a 5 wave initial bull wave. A retracement of 60%  will follow either way.

twx bb

Depending how that goes we can asses whether or not a return to $70 or more wealth destruction is in the cards, after all, just because a stock has lost 95% of is value, does not mean that it cannot do it again.