CLF, Cliff Natural Resources Inc. update

December 10, 2016 Hamilton

Here we have the usual then, Oct. 2014, and now charts, two years apart, but on a different scale;

The Dogs of the Dow is a great newsletter that covers more than just the Dow. So in the latest edition it shows that CLF is up 391.5% from the start of the year, so not from the low. Two other stocks are featured with about the same percentage gain, US Steel (X) and AK Steel (AKS) with resp. a 427% and 403% gain. but neither have the same EW “flat” structure that CLF does have. Vale and Teck have similar structures and that allows you to predict within somewhat vague parameters what will happen next, (see our blogs for all three).

Because the flat is a corrective structure it follows that once it is complete, the stock should be going up again. The only remaining question is how low is low enough. The only way to find out is to examine the last wave down meticulously, but all too often that does not work in a determinative way so you have to guess on a value below the A wave and above zero. In this case roughly between $5 and 0 or $2.50 on average. Bubbles tend to retrace all the way to below their starting point!, here pretty close to zero. Suppose you bought at the high end, at $5, you would still have a double within a year! Moreover it is an almost guaranteed result even if the actual execution can be extremely painful.

Right now we have no idea, again, what the count is for the short term chart and would therefore step aside.

MSFT, Microsoft revisited.

December 5, 2016December 5, 2016 Hamilton

We have been wrong on Microsoft in 2012, 2013 and 2014. But at least we were consistently wrong which is why we are revisiting our view instead of updating it, just in case you wondered.

EW can be hard to apply properly and if you aspire to perfection – a task almost by definition impossible – you are bound to be disappointed from time to time, sometimes most of the time. But EW is like doing a puzzle of, for instance, a blue sky over a blue sea. In the beginning you don’t see it and then all of a sudden the picture becomes clear, that is the pieces fall together quite nicely.

Microsoft is a sell here if you are a prudent, thinking investor. Here are some good reasons;

1. We are, or have double topped. This is not an EW criterion but it tends to work often. Once you climbed the mountain you become disoriented and aimless, which is why most car accidents happen a very short distance from home – 52% within 5 miles. Once the goal is met, what is next?

2. Markets just love symmetry, and even though this could go on for another year, the move down to the 2008 low from the 2000 high, and then the move back up to the recent highs are almost vector equal. This is the signature of a very large “flat” A-B-C with the C still to follow.

3. The short term chart is displaying a set of lower highs and higher lows in the shape of a wedge. Perhaps it is a “diagonal” which essentially calls for a drop back to the level of the base, as a minimum, that is about $38.

4. Unrelated to EW, but nevertheless important are the readings of the RSI and MACD. Both are screaming that an accident is just around the corner.

5. The high of this stock was at $61.41 This is within spitting distance from the Fibo number of 61.8 or the ratio of the parts in the Golden Section, a cornerstone of aesthetics.

6. Fundamentally, which has nothing to do with EW but definitely can have important predictive value, we are most certainly in the post-PC era. Smartphones, tablets and so on have overtaken the personal computer. Soon the average person will no longer be able to read or write and will not need Windows to tweet! Elementary math skills are already a thing of the past. Furthermore Bill and Melinda Gates have already received the Presidential Medal of Freedom (ironically for spending a fortune on the controversial Common Core initiative) and really do not need a higher stock price.

7. Intel (INTL), that other great computer stock whose products are also in every computer, is barely trading at 1/2 of its peak value despite having a higher dividend and a P/E that is less than half. Its chart also suggests a sell.

BLK, Blackrock update.

December 4, 2016 Hamilton

When this stock approached $400 more than a year ago, we thought it was done. Recently it has gone a little higher ($380 or so) so that was a wrong call. But today we have a very nice diagonal or wedge. Invariable these are 5th waves that end a sequence of some degree. A drop from about here of about $100 is to be expected if this interpretation is correct.

Blackrock is big! It has more assets, 3x as many, as the the Federal Reserve and equity to match. It is run by Larry Fink, one of the original bond traders from First Boston who has successfully transformed his career from a “big-swinging-dick”, to use bond trader parlance, to an , not all that old, eminence grise. He has been a behind-the-scene power broker in just about every deal that took place in the last twenty years, including the bail-out. Now Trump has selected him as one of many members of his advisory council, together with Stephen Schwarzman as chair (CEO of Blackstone, the incubator of Blackrock).

By conflating economic and political interest Trumps presidency becomes more dependent on the economic wellbeing of US industry and Wall street. If BLK is a guide to what the future might hold things do not look that hot.

GS, Goldman Sachs

December 3, 2016 Hamilton

Pretty well exactly two years ago (see beige annotations) we expected the stock to go into a dive. At the time it was about $200 and seemed to have completed a counter-trend a-b-c, itself the B in a larger A-B-C. Despite a , give or take, 30 % drop initially this prediction did not pan out ( see blog of Dec. 10 2014, the last time we commented on GS).

This bank, which in reality never was a bank but simple became one along the same lines that Henry IV with his alleged “Paris vaut bien une messe”, chose pragmatism over religion, has always been reviled and hated as some sort of unscrupulous money making machine. Its power is undeniable. Many of the world’s central bankers hail from GS. Together with Harvard, Yale and Morgan Stanley they constitute the rolodex of America’s Who is Who. It is not surprising therefore that the stock went up $50 or more in the initial euphoria of Trump’s election win and even more once it became clear that some of the key people in his cabinet are alumni of this bank.

Morgan Stanley is the other powerhouse. Like GS it was formally formed as a consequence of Glass-Steagall (1933). It has done just as well recently, ironically as Trump promises to do away with Dodd-Frank, but has a completely different longer term chart and is nowhere near a top. See below, together with GE;

As you can see, both these stocks started their drops years before GS, AND both have uniquely clear - at least for the most part - A-B-C corrective structures. Unlike GS we have been bullish on both, in fact you would have quadrupled your money with MS.

Getting back to GS, the only clear possibility that I can see is that the stock never peaked in a 5th wave and is only doing so now. The best count would be for a diagonal, that is a wedge, rising all the way from the lows of 2008. Alternatively we may have a triangle followed by a 5th wave (not shown). Much less likely (but quite possible in MS’s case) is a 1-2, 1-2 situation. That would imply that GS is presently in a third wave and is ultimately on its way to $400 to $500. For this to happen every single bank regulation would have to be scrapped and GS would have to almost become the de facto administrator of the US.

We think GS is a sell here or a few dollars higher.

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