EEM, Ishares Emerging Markets

May 23, 2012May 23, 2012 Hamilton

We correctly (within a single dollar) anticipated the high point of the “right shoulder” and the subsequent drop (so far at least). So it is a good time to have another look. In EW terms the Great Recession drop was wave A, the very large rebound wave B that did not double–top by a mere $5 or so, and now we are in wave C. Wave C should unfold in 5 separate waves so that the entire structure becomes a flat, which, as the name more or less suggests is a mostly sideways structure which subdivides as a 3-3-5. The C-wave, more often than not is the longest, perhaps as a result of the investor having to go through the same humiliating experience twice, usually having learned nothing the first time which gives the structure a slightly downward skew.

EW , which, for the most part, is pattern recognition does not use the H&S pattern as such. It, the H&S pattern, has its origins in the DOW theory, but a pattern is a pattern and the predictive value is recognizing it before everybody else does. Using this in the above chart we have draw the “neckline” horizontally at about $35. Neckline is a bit of a misnomer, armpit line would describe it better. In any event that is the level of support, when it is broken there is a void underneath and the stock should drop by an amount equal to the amount the head sticks out above the neckline. In this case that is at the $20 level. EW has the point of recognition which is where the bulls realise that the are barking up the wrong tree. This point usually lies at the mid-point of the 3d wave. Whatever approach one prefers, all hell should break lose at about $34. Add it all up one should look for a target between $20 and $10 and a time of arrival between early 2013 and 2014

For those that are interested, it is possible to scroll down two blogs and enlarge the chart of the TSX60 Capped index. It can then be dragged up (takes a little dexterity) and then put next to this chart when that too is enlarged. After playing around with those two charts for a little while one is tempted to conclude that Canada too is an emerging market, or alternatively and more kindly, that the world has become one.

NDAQ , Nasdaq Exchange, DB and X, TMX group.

May 23, 2012May 23, 2012 Hamilton

This is the Nasdaq Exchange. Lately they have been accused, among many others, of bungling the Facebook IPO. The top for this stock (and most other exchanges) was back in 2007. To date it has retraced just 42% and appears to be ready to go down again. The pattern is a simple A-B-C (in blue) or a little more complicated one with a triangle in the B-wave position. Either way the stock should go down further, perhaps even to about $5. If that sounds a tad extreme, have a quick peek at the Deutsche Börse (Frankfurt);

Despite the fact that the DAX retraced much of their losses from the Great Recession , this exchange is still only trading at 1/5 of its peak value. On a comparative basis that would put the NDAQ at $10.

The big exception to this theme is. of course, our own X, TMX group or Toronto Exchange. Caught up in the bidding war the stock has been suspended in thin air for the last year.

We would have sold it quite a while ago and would still do so today. It is not yet clear that the deal will pas scrutiny with the two dozen or so agencies, committees and so on that have a say in the matter. Should the deal pass, then at least the stock will cease to exist, a fate it would then share with a whole slew of other companies that did not consider the unintended consequences of demutualization . If it does not pass the stock will probable crater and join the other exchanges at the bottom of the charts instead of the top.

TSX60C, TSX 60 Capped index.

May 22, 2012May 22, 2012 Hamilton

Here is the TSX 60 capped index, indistinguishable from the “normal” TSX but the weightings of the individual stocks do not change. As an aside, you will notice that even if different, it looks an awful lot like Potash below! This index makes calculations a lot easier. From 1000 to 500 is 50%, back to 900 is 80%. The ideal EW target is at 350, the 4th wave of previous degree, also about where C=A even if that point lies 100 points higher depending on when this might happen. Our Head & Shoulder friends should be delighted by this chart. Each shoulder takes a little more than a year (so we may just have a little bounce, in wave 2 of 3 of C). Also the top line and the bottom line are at respectively 62 and 38 percent of the decline in A. 750 would be the dead centre of the whole H&S structure. The pattern targets 600 as a minimum, which point is also found by connecting the lows of ‘02 and ‘09, but if symmetry holds we should be at 500 in about a year. Time will tell.

Originally we would have expected the retracement to stop, on average, at the 62% line from where we would have expected the decline to resume. So , in effect we are wrong by 2 years, but now we are back at the same point equally convinced that the bear will soon grind this market lower.

POT, Potash

May 22, 2012 Hamilton

Back in Feb. of 2011 we argued that POT was within $5 of peaking when it was at $182 pre split (3 to 1). In post split terms that would imply a high of just over $62 (nice Fibo #!). We have not commented on it since. Here is today’s chart;

According to the company’s CEO and also the premier of Saskatchewan where the company mines and which province used to own this business as a “crown” corporation, the stock was worth more, a lot more in fact than the take-over bid of US $130 per share made by BHP at the time, which today is about C$45. In the frenzy following BHP’s unsolicited bid the stock managed to go right up to the target. Then the deal was officially killed for unexplained reasons having to do with Canada’s interests and here we are , roughly $20 or 30% lower. In our view the damage has only just started as the stock could literally be quartered on its way to $10, the 4th wave of previous degree, our original long-term target.

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