TLM, Talisman again for EW-ers.

January 31, 2012January 31, 2012 Hamilton

Here we have 30+ years of Talisman Energy. It is very helpful to look at long-term charts as sometimes certain predictions that seem ludicrous or preposterous, if you look at just one year or so, become quite reasonable and acceptable if you widen your horizon. First of all, notice that the stock does very little the first 12 years, starting and ending at about $1. Oil was twice around $10 during this period and ultimately shoots up to $147+, or about 14x. This stock correlates well and even does a lot better doing 23X. This happens mostly during the 5th wave which, at least for commodities, often is the longest and strongest move in contrast to stocks that usually do this in wave 3. The $11.70 where the stock is now, could be the termination point for the “flat” correction over the past 5 or 3 years. However, and here is an example, there is a problem with that;

The basic structure is a 3-3-5 A-B-C. The B tends to exceed the starting point of A and then the C tends to drop below the low of A. This last thing has not happened yet!. Furthermore we have not yet reached the 61% fibo level either. Next, if you happen to believe in the regression to the mean concept, we still have a little more to go. $8 would get us back into that channel.

On top of that there is a whole body of literature about “double-retracements” in the wake of extended waves. Without boring the reader to tears, suffice it to know that often extended waves are retraced to the top of wave 1 of the extended wave, arguable at $8 here as well. The beauty of all this is that once you reach the low , a 38% rebound is almost a minimum expectation (see blue arrow). That being the case you presently have a risk-free trading opportunity, provided you are willing to wait, say, a half year. The minimum return would be about $3 or 20%, which, annualized equates to $40%. The potential is for much more, either as a result of getting the stock cheaper, or having a larger rebound.

As always, you are on your own, but in good company according to Thomson/First Call !

TLM, Talisman

January 31, 2012 Hamilton

We have had an $8 target for this stock for quite some time (see previous blogs). That target may turn out to be just a little bit too low for now. Here are the charts again;

The 4 year flat pattern does suggest $8 or thereabouts. However a trend-line connecting the lows would presently run a little higher, more like $10. I cannot get stockcharts for more than 3 years and consequently the A-B-C shown missis the real low in late 2008, but the picture is nevertheless pretty clear. The count for the down-leg not entirely. 5 waves could already be complete and we are now in a b wave to be followed (at the very least) by a c up to around $15. Looking closely at that last leg, it could also be a diagonal 5th with much the same results;

You can buy the stock now in the knowledge that it should go to $15 either way. Or you can chose to be patient and wait for it to drop to $10, perhaps even $8 and then watch it go to $15. Obviously you run the risk of missing the proverbial boat. The stock has a book value of about $10 and is down 50% this year. It has a beta of 1.5 so it listens mostly to its own drummer. Suppose that you do buy now at $12 and the stock drops to $8. By that time it will have dropped about $16 in a single move. Typically a rebound would then take it up about 38%, or $6 which would still leave you with a gain of $2 or about 16%. Pick your own poison.

NVLS, Novellus Systems Inc.

January 29, 2012 Hamilton

Novellus is in the semi-conductor business; it does not make them but supplies the systems that make it possible to make them. It is a very interesting company and according to Stockcharts has the highest possible technical rating, mostly I suspect , on account of momentum. There are a good number of reasons to sell this stock between where it is today and at $61 (nice Fibo #). Trendlines suggest it has gone far enough. If it is an A-B-C up C will equal A at around $53. If you follow the gap in the middle concept, the target is a little lower. Ultimately a double top would be at $61. Take your pick.

The Central Banker’s Toy

January 29, 2012 Hamilton

This is a pretty neat chart from J. Mauldin’s weekly e-letter taken from http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/

These are the BS’s (Balance Sheets) of the 4 main central banks in the world, the Fed, the ECB, the BoJ and the PBoC. Notice that up and un till the beginning of 2007 the total for all four was about 4 trillion. Today the total is about 13 trillion. Roughly the same size as US GDP, and close to 1/3 the value of all equities in the world. This is how you get cows to $30,000 (see previous blog). The numbers for the US and the Euro zone are, not surprisingly, pretty close as their economies and populations are roughly equal. The outlier here is clearly China. With an economy less than 1/2 the size of the US and/or the Euro-zone and more or less equal to Japan, it’s 4.5 trillion central bank’s balance sheet is proportionately 3x the size of the next two and more than 2x Japan’s. All of this is essentially created out of thin air. For the moment this was done with impunity as the velocity of money, however measured , dropped as fast as the balance sheets expanded. But some day this will have to stop and be reversed. Going by the ECB and the Fed, we suspect that it will be soon.

You can click on either chart to enlarge. For the ECB I could only get a Bloomberg chart for the last 5 years but it will do. There is a very clear two year period of consolidation that requires very little imagination to see a triangle. These , of course as we know, occur at the end of the ride which should then reverse itself. The chart from the St. Louis Fed. is much longer and allows for a 5 wave count. What this means and if it is appropriate to apply EW to these charts is an open question, but something is about to happen.

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