Month: December 2016

DB, Deutsche Bank update

Hamilton

The usual then, Feb. 8th, of this year and now charts;

DB feb 8 2016db dec 18 2016

At the time we mentioned that it still had a long way to go. It did, about 50% down again. However it seems to be following the anticipated script which is a double zig-zag or a-b-c X a-b-c. Often the legs are vector equal and in this case they almost are.

The bank was very vocal about how misguided the Fed. was with its low interest rate policy and, not surprisingly, the stock starts to rise almost in perfect tandem with the US rates, having gone up nearly 100% from the recent lows of about $11+.

This bank has derivatives on its books to the tune of 20X Germany’s GDP. If there ever was a bank “too big to fail” this is it. What that means , by the way, is that it wont fail. That does not mean that it cannot stay down for a long time, see for instance RBS, Royal Bank of Scotland, but it does mean that the future performance is going to be asymmetric.

Short term it should trade up to about $21, the top level of a triangle. Then it will probable fall back $5 or so as it is presently a little overbought, but after that it could easily go to $30-$45.

AMD, Advanced Micro Devices

Hamilton

amd dec 17 2016 bamd dec 17 2016 s

In the Dogs of the Dow stock screen covering the last year there are 50 stocks, the second best performing one is AMD with a gain of 319.7%, just behind AK Steel (AKS) at 374.0%. The reason I try to find these stocks is that I do believe that “what goes up, must come down”, the only question is when. In the case of AMD it looks like that is now. Given the 5 wave up sequence a second wave correction should occur soon. These typically retrace much of the initial (new) bull run but normally do at least 50% or to the level of the 4th wave of previous degree, which is around $5.50.  An April 2017 $11 strike put option can be had for about $1.75 and should be worth about $5.50 or 3.1X. Ask your broker!

DJT and XLE

Hamilton

The Dow Jones Transport Average index is the oldest of the two ( the other is the Industrials), at about 130 years (1884). It consists of 20 different stocks but only one survived that period, UNP or Union Pacific. The index is price weighted. Here it is on the left;

djt dec 16 2016xle dec 16 2016

Now you will notice that both the DJT and the XLE dropped a lot, about 30 and 40 percent resp. only to regain their composure by both gaining about 50%. More importantly, the timing of the ups and downs are almost perfectly synchronised. This is extremely odd as “fuel” is a large input cost for any transport company, whereas it is a major output or revenue component for the energy companies. To find such a positive correlation – at least over the past 4 years – is downright amazing and contrary to most economic tenets. It is even more amazing as with walls all over the place and high import duties, taxes or whatever, you would expect less demand for transportation.

From an EW perspective both up moves from early this year look, for the moment at least, like B-waves. In the DJT that would have to be an irregular B-wave since it is making a new high. Looking at two components of the DJT, Fedex and Ryder we get the following;

fdx dec 16 2016r dec 16 2016

Again both display a B-wave, FDX an irregular, and Ryder Systems a normal one. Both can, of course, still morph into something else but for the moment this is the best count and it does not bode particularly well. A closer look at UNP supports this outlook and, by the way, coal is one of UNP’s most important businesses.

 

unp dec 16 2016

OIL, update

Hamilton

oil dec 12 2016

See also a few earlier blogs on oil, the commodity.

Not to long ago the narrative was that low oil prices, that is gasoline prices, were good for the consumer who would end up with lots of dollars in his pocket that would then stimulate retail sales, the backbone of the (US) economy. This was akin to a reduction in personal and corporate  taxes, that other- aside from low interest rates- way of stimulating an economy. This macro economic effect was quite obviously true at a time when the middle east was the main producer  and the reduction of camels being exchanged for Bentleys had very little direct impact on the US.

       But somewhere along the way Wall street learned that the US itself was now numero uno in the oil bizz thanks to shale oil and  Alberta,  that was fast becoming as formidable a player as Saudi Arabia used to be. The relief to the masses of consumers was quickly trumped by the excruciating pain felt in Texas and Alberta. The narrative was changed and now high oil prices are good for the economy. Better yet, high margins on oil are good for the economy which is why, oddly enough, the superficial success of OPEC to come out of a dormant slumber of 15 years is met with applause. This is part of the “art of the deal” where monopolies are always to be preferred over sweating it out in competitive behaviour. In any event, just to make sure all this works, the new president-elect has promised to all but shut down the EPA, deregulate oil and make sure that the next “scientific” studies show that earth warming is just a hoax. Perhaps even the state department will be drenched in oil. All this will lead to a gusher of new oil and, as we all know, increased supply leads to increased prices.

      As far as EW patterns are concerned we have always favoured the position that we are still in a 4th wave of wave C in a large (10-year?) A-B-C “flat”. We have not yet reached the level of the 4th wave of previous degree, nor have we seen a full retracement of the bubble into the 2008 high, both are normal events.  Also wave C will have travelled the same vertical distance as wave A at about $20 which also has not been reached. What we do have is a relatively clear wave 3, all of which suggests that the low is not THE low and that we are presently in a wave 4, wave c of an a-b-c to be precise. It should, just eyeballing the chart, reach about $60,  $65 or possible even $70 if it retraces about 40% of wave 3. It will take 2 to 6 months! See detail below;

oil dec 12 2016 s