MS , Morgan Stanley, update.

October 25, 2012 Hamilton

See previous blogs as well. When you look at this Yahoo chart (which because it is monthly, does not always show the extremes properly!) you might be forgiven in believing that the entire correction was complete, in the same way as that might be the case with GE. After all the A-B-C is perfectly formed with all three legs equal. Also the loss from $110 to $6 certainly qualifies as a bear market correction. But the waves are there to fool just about everybody so we are considering the possibility that the C-leg is not yet over. Once or twice now we were very bullish on the stock but missed buying it by a few dollars only to see it almost double. So here is a slightly different take;

For the sake of the argument we assume that the great recession drop, wave C, was not yet complete. It could simple be 3 waves still requiring a 5th, or alternatively the big B wave was not a b-wave but an X-wave instead, as in a double zig-zag down from the 2000 high. In any event if we are not already in a new bull market the most probable interpretation is that we are working on a triangle. This idea is supported by the fact that if it is not a triangle waves 2 and 4 are both zig-zags and therefore do not alternate ( they do not have to but it is most common). Also a triangle is the pattern par excellence for killing time by breaking the channel and moving sideways. Time will tell but in all cases a buy at around $9/$6 would appear to be a safe bet, if it ever gets there.

POT, update

October 25, 2012October 25, 2012 Hamilton

Nothing has changed. The company reported earnings that were down by 21% and guided down again. Of course sales to China and India were not up to snuff.

We continue to believe that this stock is heading (a lot) lower. From the Big chart it is clear that the Chinese (and Indians) fasted from 1996 to 2004, the stock did not budge. Then it starts to move slowly and then faster and faster in a parabolic fashion normal for bubbles. Bubbles almost always retrace entirely, in that regard our $10 target is perhaps too high.

BHP, the worlds largest miner is looking to get into this business that has , for years now been run as an oligopoly. Their Jansen project, the world’s biggest, is progressing slowly but relentlessly. It will take another $12 bln. or so to get it done but then it will be the biggest mine on the block. The natives are worried that these foreigners might not play by the good old supply management rules. This at a time when pressure is already mounting due to oversupply.

The best times for Potash may have been when it came out of obscurity as a collection of provincial crown corporations to enter into the limelight of the agricultural theatre (07,08). Everything thereafter is downhill.

According to Profitimes this is what a “classic” bubble looks like;

CP, Canadian Pacific and CNR

October 24, 2012October 24, 2012 Hamilton

See our previous blog of July 2nd. We got CNR just about right, a month too early and a couple of dollars too low , but it has already dropped quite nicely. Not so with CP which is at least $10 higher than we expected so here is the update;

Enthusiasm for Mr. Hunter Harrison’s talents is unlimited. The 67 year old rainmaker is quickly solidifying his reputation gained at CNR as a train-maker. Profits were up 20% with the top line up 8%, most gains stem from cost cutting. Accordingly the operating ratio went down from 75.8 to 74.1 , all though some detractors point out that the storms that played havoc last year did not occur this time. The stock has doubled in a year and we think that is enough for the moment, actually way too much. With a p/e close to 25 (CNR is more like 14) the stock is grossly overvalued.

In EW terms the stock appears to have completed, or will complete, a text-book flat in which the A-B-C has three legs approximately the same size. The subdivision are nicely balanced and symmetric. Next stop is $35/$30 if this scenario proves to be correct. Sell on the open or use a tight stop-loss.

BTU, Peabody Energy update.

October 24, 2012 Hamilton

The then (a year ago)& now as usual. The stock did precisely as expected , peaking the next day at $47.27 but the stock only dropped to just under $19, shy of the target that we would have had derived from the big chart (see below) Given that the RSI and MACD are already very high we suspect that the sequence may not yet be complete. It is possible that we are presently about to complete a wave 4 with 5 still to go.

Teck seems to be following the same pattern, they are of course also in the coal business;

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