Month: May 2015

Australia, All Ords Composite Index and EWA

Hamilton

aox may 16 2015 baox may 16 2015

Using charts allows you to “prove” anything you want but, on the other hand, they also save you a thousand words which is why I am using two of them. This is the Bigchart and the Globe and Mail chart of the Australian index. This index should be of particular interest to Canadians as the two countries and their economies have a lot in common despite being at opposite ends of the World. Particularly their respective currencies appear to be listening to the same drummer. We suspect that this will change in the future as the “Britishness”, if there is such a thing, erodes and fades away, we hope, in both cultures.

There are a few things to take note of. This index has “behaved” exceptionally well as is plainly obvious at a glance. Looking at the longer channel in the G&M chart, in yellow, the index is content to stay within the confines most of the time. Very briefly, in 2009, it is below the channel but that is only once in 37 years. It is above the channel 4 times but seriously only in 2007 and , perhaps, now. Interestingly one must conclude that Greenspan was not looking down-under when he made his “irrational exuberance” comments in 1996 as the index then was pretty well in the middle of the channel. The reason we point all this out is that most people take EW with more than one grain of salt but nevertheless do subscribe to the inevitability of “regression to the mean”. That means going back into the channel, usually all the way to the other side and then some, as per the swinging pendulum.

    In EW terms we are looking for a big flat which should normally take the index back to the level of the 4th wave on the way up and erase at least 50 to 60% of the 5 wave sequence that was completed in 2007 and probable started in 1974. Furthermore that should take the form of a three wave structure, an A-B-C where often the C is equal (as a vector) to the A. In many cases all three legs are vector equal (as is the case, more or less, in the Bigchart) but this is, of course, a function of choosing the relative dimensions of the units on the y and x axis.

    A last point is that indices are measured in their own currency, in this case the Australian dollar, which means that if you are an investor with your feet firmly planted in the US you are misinformed. Better to look at EWA, the iShares that trade in US dollars;

ewa may 16 2015 bewa may 16 2015 s

This gives a very different picture. First of all most of the recovery takes place immediately after the lows of 2009. Then there are 3 attempts over 4 years all of which fail while the average stays at the average set in 2009. This B-wave looks decidedly different from that of the index. We have done the same using Stockcharts, which is now only available for free for 5 years. The entire chart shows the c leg of the B wave, but for some inexplicable reason * rather than dropping, the three points are rising and together with the 4 points on the lower boundary, form an absolutely perfect “diagonal” or wedge. Enough said.

* ETFs can be shown by using the spot price  or as a total return value from some defined point in the past in much the same way as a mutual fund. We suspect that Bigcharts uses the former method and Stockcharts the latter.

MCK, McKesson Corp.

Hamilton

mck may 13 2015 bmck may 13 2015 s

This drug retailer has done very well. There is nothing wrong that we know of with this company, but all good things must come to an end and in our estimation that point is close by, somewhere around $240 or so. Here are some of the reasons;

1. From the 2009 low this is one single wave, we think.  So even if this is not THE peak it is nevertheless a significant one. A correction of $100 or more is certainly a real possibility.

2. Looking at the short-term chart there appears to be a triangle wave 4 recently complete. The thrust up which is now underway should take the stock to about $240. That would complete the 5th wave that started at around $162

3. Both the RSI and MACD are at least not confirming the new highs.

4. Analysts, who are all bullish, have a collective target just above $240. As we have the greatest admiration for analysts we take heed of what they say.

5. The stock trades at a P/E that is roughly double that of  the rest of the market, which itself is not exactly cheap.

Other stocks that are in a similar position are Allegheny (Y) and Blackrock (BLK). From a risk/reward perspective they should all three be sold.

MG Magna

Hamilton

mg may 12 2015 bmg may 12 2015 s

Magna is up tenfold or something like that since the lows of “the Great Recession”. That is pretty impressive and quite surprising as this company is primarily in the business of making cars. That business definitely did not look that hot at the time.

   The chart is intriguing in that there is overlap at the top which suggests either a wedge or a series of 4-5’s. We think the latter is applicable even if the exact count is a little problematic. In any event it looks like there is no more than $5 left to the upside, if that. Also the RSI and especially the MACD do not seem to be promising anything more either. Time to bail.

IBB update.

Hamilton

ibb may 12 2015

Last May the 15th, just before the peak, we did a blog on this ETF in which it was suggested that it would be wise to get out of this but that we did still expect it to continue up for , perhaps, another 5 months. Almost two months have gone by and, so far at least , the chart seems to support that outlook.

    What we have here is a “flat” a-b-c correction that fits in a box that, in this case, has a slight downward skew. This is a particularly well formed example and consequently it is a credible predictor of the next move, which should be up to at least a new high.

    Looking at the bigchart (see previous blog) a reasonable guesstimate of where the ultimate top should come in, is around $400 or so. We know that there aren’t any bubbles, we have that on good authority. But what we also know is that bubbles occur invariable far away from home, that is in areas that we know very little or nothing about. Gullibility increases with ignorance, which we all know is itself bliss. We would not wait all the way to $400.