Year: 2014

FXY, Japanese Yen

Hamilton

fxy b jan 24 2014fxy s jan 24 2014

We have done only a few bits and pieces of analysis on currencies despite half a career spent precisely on that. The reason is simple that it is not clear that EW should work.  As the reader certainly knows by now under EW 5 waves is up and 3 waves is down. This works just fine if you work with absolute values, not if you work with relative values. 5 waves down in New York also has to be 5 waves up in Tokyo, not 3, so it cannot possible work. Nevertheless some patterns do show up in FX frequently, in this case a triangle in the Yen (against US dollar). Triangles always occur in the 4th wave position and therefore they are a clear warning that things will turn around.

At about 130 to 127 Abeconomics comes in vogue in Japan. It is announced with a great deal of fanfare so the markets accepts the direction (yen down) with almost total certainty. So every bank, hedge fund, very rich individual etc. and his or her brother borrows the stuff by the truckload and then leverages it 2 to 60 times and buys US treasuries or other Government paper. This takes very little capital as even the banks get near zero haircuts for Govies. So if you are wondering who the idiot was that bought  10 –year US Gov. Bonds at a yield of 1.6% a year ago, here is your answer, and it is not that idiotic either. The Yen has gone from 130 to 94, most of it in the last year and a half, almost guaranteed!! The more the better.  But at year end things changed and now things look like they are running in the opposite direction. Our target for the yen, given the triangle, is 104 which, from 94, is a colossal move that has the potential of affecting everything that was bought on the other side of the trade. The turmoil in the markets for the past few days may just be like a picnic in the park once the “carry-trade” starts to unravel in a serious way. Thank you central bankers all over the World for making all this possible. Beggar-your-neighbour policies are now back in full force, Canada and its dollar are excellent examples despite the fact that the Canadian Central Bank does not have a mandate to pulverize it’s currency.

LULU update

Hamilton

Then and now charts;

lll nov 18 2011lulu jan 19 2014

LLL seems to have disappeared so the two charts are not entirely comparable. Nevertheless the gist of the argument was that Lululemon  was a sell almost two years ago. It did not pan out perfectly as the stock stayed in suspension for that entire time, on average, right around the $68 mark. Frustrating, but arguable the correct call.

This has to go lower, as indicated then, $42 would be a minimum and around $30 very likely if not even lower. Presently we are probable in wave 3 of C, so a rebound for wave 4 could occur at any time. Care should be taken when trying to play that move as it is not clear what degree this wave 4 might be, that is 4 of 3 of C or 4 of C.

To remain bullish, the stock should not drop below about $30 as that would cause overlap, at least in the larger count presented in the chart.

NUS , Nu Skin Enterprises

Hamilton

NUS 1 jan 18 2014nus 2 jan 18 2014

Same chart, one is just a little bit longer. I am reasonable familiar with the company if not the stock. Back in the early nineties a good friend of mine asked me to join him in selling the product. I declined on the grounds that I thought the business model resembled a Ponzi scheme or some form of multi-level merchandising. It was amazing how cult-like this guy reacted with almost the same indignation as you might get from Amish shunning. That was the end of that friendship.

After that the stock apparently dropped to about $4 (almost 90%), only to regain its lustre and climb to an incredible $140. Then it drops 50% supposedly on news that the Chinese are looking into this company’s operations. If you Google it you will find dozens of references to the effect that it is a Ponzi scheme, not the least of which are comments from Citron, a well known short selling outfit run by Andrew Left.

The question now is why would anybody of a sane mind buy this stock at $139 knowing all that? Part of the answer can be found in how the financial industry slices and dices all the information to come up with a warm recommendation. Here is one from the Globe and Mail.

nus 3 jan 18 2014

NUS is number 15 out of 20 using this particular filter which compares the company metrics to itself at an earlier date which essentially assures that the stock is more attractive as it climbs more parabolically. The other part is that a ponzi scheme is entirely dependent on growth and can continue almost forever un till some exogenous factor throws the proverbial monkey wrench in the wheels, in this case the Chinese  investigation. That NUS’ performance has not raised eyebrows is in no small way explained by the fact that, when you think about it, the entire market has become an immense Ponzi scheme orchestrated by none other than the Federal Reserve. Should Janet Yellen drop the baton for whatever reason, NUS may just be telling us what to expect. Our target for NUS using EW would be the 4th wave of previous degree, about $30. That is a minimum.