FXI , iShares China large caps.

July 27, 2015July 28, 2015 Hamilton

This is the iShares China large cap. ETF. We have shown it before some 4 years ago and were impatient then. Now we show the chart for the sheer beauty of it. It adheres to a lot of the “tenets” of EW even if it is not absolutely clear whether this is a double zig-zag or a large flat. Here are some of the astonishingly precise features.

a. The initial leg down is composed of either 5 waves or three waves in an a-b-c. The a and c legs are equal within a dollar or two.

b. The total retracement – in wave B – is precisely 61.8 % of the drop in wave A. Trust me I did the math with a calculator. Also it reaches, within a dollar or two, the 4th wave of previous degree or, alternatively the top of the b wave of A down. The total travel in the a and c parts is about equal (in purple).

c. The b leg in the B wave is clearly a triangle that is perfectly confined within two lines and the individual 5 legs relate, alternatively , to each other by a factor of .618.

d. The mouth of the triangle perfectly predicts the size of the thrust from the triangle after wave e has found it’s bottom.

e. The top of the B wave or the thrust is above the apex of the triangle, at least roughly.

f. If we draw the coming C wave proportionate to the A wave – not equal as there is insufficient room – we get exactly at the starting point of this ETF which is where we should be heading.

The only thing that one could not have predicted, and we certainly did not, is that this whole process, that is the retracement, should take the better part of six and a half years. Normally it should have been two or three at the most. For this delay, that has no productive value at all, we can thank the Central Bankers. Amusingly one quasi member of this august club, the IMF, now has the gall to berate the Chinese for what they have learned from the Fed. Manipulation of free markets is now frowned upon, not in the US but of all places in China which no sane person considers “free” in the first place.

For the record, EW does not have any “tenets”. It is not a theory. It is simple the outcome of deductive and pragmatic observations. There is nothing to quarrel about.

Oil update and Gold

July 27, 2015July 27, 2015 Hamilton

Oil traded lower overnight. It appears to have completed a wave 3 which would imply that waves 4 and 5 should follow. Then a first new 5 wave sequence, and with it a wave 1, would be complete.

Alternatively this is just a B-wave of a correction that is becoming more complex and taking more time. If so a C should follow from here back to ,say, $65. We have no idea but for the nimble trader it would be a buy here for a gain of $3 to $5.

Gold is in a similar, but slightly different, position but went down a lot further in relative terms.

The A-B-C down could be a larger B wave in a large correction. The upside in relative terms is much larger than the downside so, if anything, a long position would be more appropriate.

AMZN, Amazone update

July 26, 2015July 26, 2015 Hamilton

So it did not stop at about $500. In fact it shot up another $100 in overnight trading only to loose a good part of that even before the markets opened the next day. This is pure vertical and, perhaps, a “throw-over” depending how you draw the trend lines. At $260 bln. it’s market cap exceeded that of Wallmart, the World’s largest retailer and the US’ largest employer, by some $30 bln. Reportedly the main shareholder’s wealth increased by roughly $7 bln. in one single day, albeit only briefly. The detailed chart is more revealing;

A number of things point to this being a top. We are at the trendline, at least we were briefly in after hours trading. If there is a triangle, we are vertically above it’s apex. There are three gaps in this wave up. The RSI is overbought and was so three times in the last 1/2 year. The MACD is deteriorating. The $100 gain overnight representing something like 17 to 20% of the value is completely disproportionate to the improved earnings as reported that day.

When the market sobers up on this stock we would expect it to be back at $300. That does not really change even if the stock has one more move up. This is RBC’s top pick. It wasn’t that long ago that they had little to say about .coms or internet companies. Now they want to display their financial acumen and simple have become part of the momentum problem. Their is an enormous self-fulfilling element in these situations and you play this musical chairs game at your own risk, they benefit both ways.

Nikkei 225 revisited, the “diagonal”

July 25, 2015July 25, 2015 Hamilton

The expanding diagonal triangle is showing up in many different places, the most recent in ABX. We have had them work right to the extremes and in other cases they seem to depart from the expected path a little early in the game. The Nikkei (see our blog of Dec. 28, 2012) which we got wrong, we got carried away is a better description, is instructive and provides a good lesson with regard to these wedge structures. Here is the Nikkei 225;

The diagonal occurs either as a 5th or a C wave. In ABX, the previous blog, it is a 5th wave. Here in the Nikkei it is a C wave. The main characteristics of this pattern is that it has overlap, normally not allowed, and that the amplitude increases with time as in an unstable equilibrium. The tensions are very high and nothing seems to be obvious which, perhaps, explains the violent retracement that invariable follows. Where we went wrong is that we expected to get closer to the lower boundary of the pattern. Each of the 5 legs within the pattern has to be a 3 wave affair. It all would have looked better if it had dropped another 2000 or so points. It might have if we had not had Abeconomics in about 2013. Japan was already running the largest deficit of any civilized country in the world, but that did not seem to matter as the theory had it that this island nation was borrowing from itself, so no problem. The Yen was taken down from 130 in 2012 to 78 today. Not quite but almost 1/2! The events in beige never happened but the return to the base line is almost complete, so watch out as then we could easily drop back to 14000 or even lower.

Using this wisdom on ABX, we know that it should go back to about $23. We know that an ideal low would be on the lower trend line but we do not know if it will get there. It may even exceed it by a fraction. It has already traded as low as $8.87 This is a double and even if the stock briefly trades at, say $7, the upside does not change.

Whatever causes the change, it is never expected. This must be so as otherwise the violent reaction would not happen. Abeconomics was, and is , a completely idiotic approach which would never have been accepted were it not for the dire circumstances of Japan’s economy. The same was true for Ford when it decided not to follow the rest of the gang into bankruptcy in order to become eligible for big hand-outs. Perhaps in the case of gold the Fed. will awaken to the fact that perception is reality and will announce the creation of a rainy day strategic gold reserve fund and mop up all the excess supply. Below is the chart for Ford, just as an example. We nailed that one and NOBODY believed it. You can click on the charts, enlarge them and move them around to compare them. All three are identical except for Abeconomics.

Note; Like Reaganomics, Abeconomics or Abenomics was coined to describe a previously non-existent economic approach , at least not in this mix of of fiscal stimulus, monetary easing and structural reforms. A soup of QE and Mercantilism plus a good deal of interference in markets etc. It is an experiment the consequences of which are unknown, certainly not at this scale.

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