Year: 2015

Nasdaq

Hamilton

Nasdaq feb 8 2015

This is the Nasdaq Composite index, known for its tech. stocks and .com’s. The constituting stocks change fairly rapidly as the darlings of yesterday, MSFT, CISCO, INTC etc. etc. are replaced or pushed aside by Google, Facebook, Amazon and so on. It is a continuous renaissance of sorts but the ups and downs should still be subject to the, entirely pragmatic, rules of EW.

    Under EW rules bull moves should subdivide in 5 separate waves and bear moves in 3’s. So if we are in a true bull move we should expect 5 waves up from the 2009 lows. So far there are only 3 so it would take a 4 and 5 still to complete. Given alternation, proportionality and all that other good stuff, the ultimate high could still be 6 to 9 years down the road.       However if we assume that this is part of the big bear move, that is a B-wave within a large flat A-B-C, than we only need 3 waves which we already have. The question then is simple if it is complete. Maybe yes, maybe no but a double top would certainly pose a lot of resistance. I remember the previous top as March 5 of 2000 as I moved from WG to DS on that day. Maybe the market wants an even number of years between peaks (4 weeks away?).

    Instead of EW we could try using Common Sense , a commodity that is seldom counselled in the financial world. To add a little perspective we have put a little red balloon and arrow to reflect the precise time when the Maestro, Greenspan, first uttered the earthshaking concept of IRRATIONAL EXUBERANCE. He said a few things at the forum where he was speaking that were and are of special interest, quote;  We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability.
But how do they know? Well they do not and that has become painfully clear since. But for the moment we are only concerned at what level in the chart things became irrational or exuberant or both. It would seem that if things were that giddy already then, that things must be as bad or worse now. And now we have Yellen who is determined never to see a bubble anywhere.

We will go for the B-wave. C to follow any time between now and early March. By the way, the bull case, is not a very good risk/reward proposition in any event! Nasdaq as compared to the S&P and DOW is shown below to add just a little more exuberant perspective.

Nasdaq compared

Employment

Hamilton

Employment-1939-2015Jan

This chart is from www.UnemploymentData.com . I have made a few annotations or additions, the principal one being the green line from the lower left to the upper right. It is a straight line so the number of people working is a linear function of time and demographics. Using 1945 as the starting point, this function can be described as X=40+1.618(Y-1945) – the Fibo. number is pure coincidence!-.

    Fill in the numbers and you get a value of 140.3 mln for 2007, and 151.6 mln for 2014 a difference of about 11.3mln or about 7.5% (on 151.6mln). As there are now 7.5% more people available for work than in 2007,and the number of employed has stayed the same, the unemployment rate must now be equal to what it was then – 4.4% – plus the 7.5% which equals 11.9% , represented by the red triangle, quite a bit more than the “official” rate of 5.6% or so.

    The participation rate is not a variable in the above function. For the most part it should be fairly constant in any event and certainly should not have abrupt changes simple because Lehman went bust. The roughly 12% rate is in line with other non-official estimate such as those of ShadowStats. The bad part of all this is that you cannot trust government, the good part is that QE could go on for a lot longer unless some black swan comes down the river.

RIG, Transocean Inc

Hamilton

rig feb 7 2015 lrig feb 7 2015 s

The ticker says it all, these guys are drillers, ocean drillers to be more precise. Deep water drilling is expensive and in order to survive the price of a barrel of oil extracted under these circumstances is somewhere in the order of >$110. No wonder then that demand for their services has dropped off a cliff.

    These are both semi-log charts. When the movements are very large, as they are here from $195 to $15, the semi–log scale gives a better expression of the proportions of the movement within the frame of the chart. Looking at the Bigchart we suspect that we have an a-b-c, with the b being a triangle. We are not sure where the a ends and the triangle starts (it could be one step to the right from what is shown in red ), but this does not change the essence of this corrective structure.

    Often the c is (vector) equal to the a. That suggest a low of about $12. If that is all there is to it, this stock would be a buy right now. However, c waves always subdivide into 5 separate waves and , so far at least, we appear to be missing a good part of 4 and all of 5. So this correction is not yet finished. It may take a while, maybe a year.

    If you believe oil will shoot back up soon (I do not share that opinion), than Transocean must be one of the better buys given its leverage to oil.

BCE, Bell Canada Enterprises.

Hamilton

bce feb 6 2015 bbce feb 6 2015 s

Apparently the stock was downgraded today by one or two dealers. This is very unusual as this is one of the few remaining blue chips in Canada and investment dealers do not normally quarrel with success.  However they may be right!

Like our banks this company has had a monopoly/oligopoly throughout it’s existence. It is the largest of three and mostly the price-leader. It is very well politicized and serves quite often as a career destination for high ranking civil servants that are in need of a boost to their pensions. You will not find this company on any list of the best managed enterprises ever.

EW tells us something is brewing. Notice that in the G&M chart on the left, wave 3 and wave 5, if that is what they are and we definitely think so, are almost the same size. Except perhaps for commodity based stocks it is unusual for the 5th wave to be longer than the 3d. If you have to assume anything at all than it would be that the 3d wave is the longest. Effectively that limits any further upside. So does the upper trend-line.

    In the more detailed chart ( I can only get 3 years without paying) the peak value at $60.20 looks like a throw-over, the last gasp of exuberance. RSI and MACD also both suggest a turn is in the cards. This is definitely a sell here.

   For those that have an ACB of a few dollars and are enjoying the dividend income that is more than 3x what you get on a Can. 10-year bond, a different strategy might be more appropriate. That, by the way, goes a long way in explaining the blue chip status.