Month: January 2012

IBM update

Hamilton

ibm jan 2012

Back on July 19th 2011 the chart on IBM suggested that the stock would not trade much above $193 ????.  Now , 1/2 year later this prediction can be refined. The stock will not trade above $194,90, a recent intraday high. Then and now the reasons are mostly the same. First of all we have reached the parallel trend-line that connects the lows of 2 and 4 and is drawn through the high of 3 (standard channelling). Secondly the stock exceeded the line drawn through the highs. And thirdly wave 5 is now equal to wave 3 and as 3 is usually the longest 5 can not go higher without violating that guideline. To that can be added the Mnt. Everest X2 effect and the interesting fact that , despite Warren Buffett’s professed agnostic view on all that is technical, he bought a nice chunk of this stuff and the stock immediately cratered about $10 but came back to a new high after that. Today the stock sits at $182

Curiously, if one cares for cyclical things, the stock has displayed a relatively stable cycle of about 12 or so years. Each time it peaks it suffers a loss of at least 50% or more. Assuming history repeats itself you are about to lose half your money; one needs a lot of faith in the oracle to put up with that. Also be careful not to infer that since this company is known as Big Blue, it is a blue chip stock, they simple do not exist anymore.

The book value per share for this stock is $18.91 according to Yahoo finance so this stock is trading at almost 10x book.

NAV, Navistar and PCAR, Paccar (DAF)

Hamilton

NAV 2012NAV s 2012

Navistar’s B-wave from the lows of $15, is either an A, running flat B, C (shown in green), or an A-B-C with the C as a diagonal, wedge (shown in blue and purple). It does not matter which is correct, both are perfectly plausible and the ultimate outcome should be a new low, that is a low below the $15 level.

The drop from the $70+ recent high was pretty rapid and erased about $40 or 60+% of the B-wave. So far at least the stock has been unable to regain much of that and is presently sitting at about $10 off the recent $30 low. This is a little odd as heavy vehicle manufacturing is booming (see also Paccar, PCAR owners of DAF). As with so many other stocks we suspect that a triangle of sorts is forming in this stock. The count is not entirely clear. The triangle could be complete right now but the plausible alternative is that we are only in c of the triangle with d and e yet to come. Either way the upside is limited to $42 or so (just $2 above today’s value. The downside is about $15 judging from the size of the mouth of the triangle, but considering that a new low should be made, it could be substantially more than that. For completeness we have added the PCAR chart below. It does not have a triangle but the count is essentially the same.

PCAR jan 2012

BNS/RY pairs trade

Hamilton

On Dec 5 we recommended a pairs trade, long BNS short RY, simple on the basis that the two stocks were out of phase. BNS was still dropping whereas the RY had already rebounded a good part of its most recent fall. For those not inclined to do this relatively “safe” trade , we suggested just buying BNS. Here are the charts;

BNS 7 jan 2012RY 7 jan 2012

From Dec 5 BNS has gained about 51.43 – 48.25 = 3.18 and RY  52.05  – 49.10 = 2.95, for a net gain of only 23 cents. Going long BNS only clearly worked out best with an 6% gain in just a week. We would exit both trades acknowledging that there may be a little more to go for BNS

ABT, Abbott laboratories

Hamilton

abt jan 2012

Abbott Laboratories  did very well for ten/fifteen years or so and then it started to flat line at around $48. In doing that it differentiated itself from the rest of Big Pharma that for the most part dropped like a stone, see for instance MRK, PFI, LLY and so on. The question now is whether or not it is ahead or behind the group. We would sell the stock as we are in the process of triple topping, always a reason to step aside. There are 3 possible triangles here, one of which has already had its thrust leaving only the possibility of the 10 year triangle thrusting to just over $72 or the present one (see below) going to $69. The alternative count is of course a 1-2 or a series of 1-2’s making the next wave down a little more dramatic.

abt s 2012

The risk/reward is such that there is no justification to hold on any longer. There is about $10 to the upside (very maybe) and $30 to the downside (an almost certainty), comparable to playing Russian Roulette with four bullets in the chamber.