Month: July 2015

TA, Transalta update

Hamilton

TA july 29 2015

We are way too optimistic for this business, primarily because we used charts that did not go back far enough. In this modern day and age you would think that all chart services would be eager to go back as far as possible but that just isn’t so.

This Globe & Mail chart goes back to 1980 when the stock was $7.50. If we get vector equality between waves A and C, we will go back to that level. If the magnitude (vertical distance) of those two legs is equal we could hit $5. This is an electricity generating company, that is a utility. It is down 80% when utilities enjoy a wind in the back from cheap financing costs, i.e. interest rates. The $7.50 level is also the starting point of a pattern (the whole chart!) that looks an awful lot like an expanding diagonal which would then call for a return to that level.

There is a whiff of Enron attached to this stock. They have been found guilty of manipulating prices by orchestrating brown-outs or something like that. Compared to Enron that is nothing. Furthermore they are appealing the verdict at a higher level. Sooner or later all this will be forgotten. $7.50 is the time to buy, but then maybe I am too optimistic again.

10 analysts that cover the stock have, on average, a hold rating. The trailing p/e is around 23 and the yield about 8.70%, about the same as it’s profitability.

Below is a detailed view;

ta july 29 2015 s

WJA, Westjet and AC, Air Canada

Hamilton

wja july 29 2015 bwja july 29 2015 s

There is very little in this chart that is clear. However it would appear that the last leg up is one of those diagonals or wedges. The are always in either 5th wave or c wave positions. The immediate expectation then is for a drop to the base of that pattern which, at around $19, is not that far away. When using EW you do not have to get it all, as long as you have one pattern that is recognizable without a doubt you can sort of construct the whole picture. It helps in those circumstances to get confirmation from another stock that is in a similar business etc.etc. Air Canada fits that bill:

ac july 29 2015 bac july 29 2015 s

The timeframes are not the same but at least here you see that the diagonal or wedge is as perfect as it can get. This implies that we are at a fairly major top and that there is still considerable downside, at least for AC, ahead.

Airlines do not own the infrastructure they operate in. They do not own their planes as these are often leased on an operational basis so that the capital costs can be amortized by those that are in a better position to use the deduction. Sometimes they even “wet” lease the planes. Fuel costs are entirely out of their control all though , at times , hedging might be appropriate. In short you control very few of the inputs and consequently, and history shows this, it is not unusual for management to get carried away with some expansion programme that soon kills the whole thing. Life expectancy in this business is fairly short, these are speculative investments at best. AC , of course, fell some 90% as it flirted with bankruptcy as a result of the great recession. The diagonal in that case may actually be part of a B wave which would spell disaster. See also our prescient blog of June 4, 2015.

RGR, Sturm Ruger & Co. update

Hamilton

Then – Feb. 21, 2014 – and now charts.

rgr july 28 2015 old blogrgr july 28 2015

The target at the time was $35, or more precisely the low point of the triangle. It did exactly that losing 50% of it’s value and about 62% of the last leg up. It is now probable in a wave B of an A-B-C correction. That wave B is not quite complete so it might go a little higher. Then wave C should start.

   The gun industry is in trouble. The US is the ONLY civilized (?) country where you can buy these things without too many questions, sometimes no questions at all. The right to bear arms is in the constitution which was ratified in 1788. 227 years ago circumstances were slightly different than they are now but that right is defended tooth and nail by all sorts of people. However the laws are chipping away at it, most recently Obama came up with a plan to disarm the elderly on grounds that they are over 65, receive Social Security and fall in the category of,  people who have     "marked subnormal intelligence, or mental illness, incompetency, condition, or disease."  Apparently there are some 4.5 million of these and you sure would not want some senile opa shooting squirrels from the porch next door with an AR-15. Not good for the neighbourhood , the elderly, or this industry.


DD, E.I. Dupont de Nemours & C0.

Hamilton

dd july 28 2015 bdd july 28 2015 s

If we were ever to write the 10 rules of trading – do not worry as it will not happen -  then one of them would most certainly be step aside at the double top level. DD is a good example particularly as in this case there are no less than 17 years separating the two events. Double topping is very much like the Mount Everest phenomenon, you climb to 100 because it is a round number and because it is there. The reason for the rule is that once reached the target becomes truly meaningless, that is it is now recognized as such and consequently all the “motivation” evaporates.

Google charts has the second top at $80.66. Several other charting services have different numbers. Stockcharts has the recent peak at $74.66. Bigcharts has a different number all together. For our purposes suffice to say that DD is either doing a big flat or completed waves 4 and 5. Either way it should go down to, at least, $36 but more likely into the high teens.

We had a nice wedge going into the peak (we were not watching so this unfortunately is hindsight). That all but guaranteed a move down to about $52 where the wedge started. Presently it looks like that completed waves 1, 2 and 3. Next, and we will be doing that in the next few weeks will be wave 4 and then 5 to complete the first down-leg, either 1 or A.

This company is in the business of making commodity chemicals. Things like nylon, kevlar, gunpowder  and chemicals used in the agri-business. Last quarter they increased the dividend and this quarter they lowered it. We would sell at about $58 as it is not entirely clear that wave 3 is done. We could be in 4 of 3 and not 4 of the entire sequence.