CL, Colgate and Joe Granville’s OBV

Joe Granville is rated the number 1 “technical” analyst in the US. He had his 15 minutes of fame back in the early eighties when he correctly predicted the 50% or so drop in the stock market, before it actually happened which is not always the case with analysts. His views should not be dismissed lightly, as he has been around a long time and is the inventor, if that is the word, of OBV, On Balance Volume. It is the main concept on which his predictions rest. Simple put OBC is the running total of the volume on up or down days. If the volume of trading is low but the price up the OBV rises, if the volume is high and the price is lower, the OBV drops , by more etc. etc. Underlying this is the concept that volume precedes price, which means that the price cannot go up without the volume rising (even allowing for very long periods that the link does not work directly).

His prediction now is that last Friday’s high is THE high for the moment and that the DOW will go down by about 1000 points every quarter, back to the March 2009 lows. Lets look at this concept using Colgate–Palmolive , a stock we expect will go down big time on the basis of EW analysis;

CL Jan 25 2012.

As you can read in previous blogs, the EW count here is that of a large 5th wave contracting diagonal that has been operational since 2005 and takes up most of this chart. The initial target is just under $45. As you can see the OBV was rising up to the time of the top of wave 3 in the diagonal, after that it drops again like a stone.  All of this of course supports our view, at the very least for Colgate.