HSI, Hong Kong’s Hang Seng update

October 7, 2015October 7, 2015 Hamilton

We start with the usual, then March 20, 2015 (there are earlier blogs!) and now charts;

We got the peak right within ten days, but not the height as the throw-over certainly did exceed our expectations. This, of course, is your standard wedge, pennant or diagonal. It is a classic pattern and is highly reliable in predicting what lies ahead, which is down to the base, 16000, as a minimum. Why should we here in Canada care? Well for one thing Vancouver is now North America’s costliest city according to a Bloomberg article, at 2.3 mln. C$ for your average detached home, a double since 2005! Partly this is due to the fact that this port city is surrounded by mountains and consequently the usual sprawling expansion in all directions is not available. More importantly it is the Chinese connection which goes back to the days of the railways. Much of the real estate is bought with offshore funds and much of that is from HK.

Vancouver proper with a population of about 600,000 is Canada’s 8th largest municipality, Toronto weighs in at about 2.6 mln. so at least 4x as big. Furthermore the climate is more agreeable and there is an abundance of nature in the area. So just imagine what happens when a few million people from China or Hong Kong decide to buy a pied a terre in this paradise for themselves or for their kids. There are 265,000 international students in Canada, 80,000 from China. The impact is bound to overwhelm the locals.

With stock indexes imploding, the Can.$ perhaps bottoming things may change in the near future. But first there is the J-curve effect which basically means that things initially go in the opposite direction of what one would expect because investors are trying to get in under the wire before things get seriously worse. For the Hang Sang index we expect a further drop to about 16,000 and ultimately perhaps to 8000;

Canadian Dollar

October 7, 2015October 9, 2015 Hamilton

The usual then, July 17, 2015, and now charts;

In the text of that blog (tag; Canadian dollar) a target of about 1.35 or 74 cents is suggested. This corresponds roughly to a 61% retracement of the bull move from 1.61 to 0.90 Fortunately I have a lot of experience trading currencies and that paid of in this case as well. Here it is in detail;

These are futures so they do deviate a little from the spot rate but at 1.3450 the prediction was essentially spot on, no pun intended. At the time a reporter at one of our largest papers had some real nasty stuff to say about the competence of our CB governor. Wisely they chose to ignore it rather than start a defamation suit which , no doubt, would have opened a whole new can of worms.

The improvement in the C$ has been fairly dramatic and coincides with moves in oil. Where it goes from here is not entirely clear but from an EW perspective a move back to parity is definitely a possibility and one that the market does not appear to consider. For completeness we add oil below. For the moment at least it seems to be making an a-b-c correction targeting about US$54 per barrel;

TSX update.

October 4, 2015October 4, 2015 Hamilton

Remember the difference between first and second order errors? Not sure I do but vaguely it was that in one case your hypothesis was wrong but the conclusion was nevertheless correct and in the other case the conclusion is wrong but you throw out the correct hypothesis. In the case of the TSE our hypothesis is that we are in a big flat A-B-C and have most of C ahead of us. Best guess we are in or at the beginning of wave 3 of 3 of C. Of course nobody believes any of this, which is why we repeat it ad nauseam.

There are a few hurdles along the way. The first one, appropriately annotated with a 1, we have already passed. Right now we are on our way to 2. In the mean time we did manage to loose 2000 points or about 15%. For a US investor you can add another 25% for the currency for a total loss of about 40% and the party has not even started in earnest.

If our hypothesis that we are in the 3d of 3 is correct, the next 3000 points will evaporate faster than lighter fluid. That (point 2) will, by the way, set us back to where we were 16 years ago. This should continue at least to point 4 but, perhaps, much further. The reason is fairly simple. Janet Yellen, who is also the head of the Bank of Canada, was recently (Sept. 17) asked if it was possible that she would keep interest rates at zero forever. She responded by saying, quote “I can’t completely rule it out but really that’s an extreme downside risk that in no way is near the center of my outlook.” With that all economic theory is thrown out of the window, in fact the very word economy loses its meaning. Simple concepts like savings, financial risks, investments, pensions etc. etc. are reduced to rouble and the always fragile TSX will follow.

QCOM update

October 1, 2015 Hamilton

The usual then, March 7, 2013 and now charts;

Obviously our take on this stock was anything but perfect. It took a year longer and about $10 more than we expected. That is the Yellen effect. In the mean time the big picture, that of a large B wave, remains the best interpretation. Short-term it is near impossible to put a reasonable count on this stock but things will, no doubt, come into focus soon. The first target is at about $30, after that at $10.

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