Year: 2015

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.

FXI , iShares China large caps.

Hamilton

FXI july 27 2015

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

Hamilton

oil july 27 2015

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.

Gold july 27 2015

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

Hamilton

amzn july 26 2015

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;

amzn july 26 2015 s

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.