We are now within 100 points or less from where we were 2 years and 5 months ago or 1 year and 8 months ago. Oil and Gold are still half in the tank and banks are through the roof. What has changed?
Month: January 2017
Nasdaq again
Just 12 days ago we had a chart of the Nasdaq showing , essentially, the same picture except that a little time has been added without much action. So far this is a near perfect setup for a very sharp drop all though the Fed et.al. will provide the usual resistance.
This, as mentioned earlier, is a wedge. It is either a “diagonal” 3-3-3-3-3 or a straightforward 5th wave, 5-3-5-3-5. Diagonals are usually followed by a rather violent reversal all the way back to the base. This is not necessarily the case with normal 5th waves, but there also, the target is the 4th wave of previous degree, so the same level. There is still a little potential to the upside but it is limited if wave 3 is not to become the shortest!
Untill yesterday I have watched the circus of the US presidential elections with mixed feelings, mostly amazement. Yesterday’s short speech at the offices of the CIA went beyond what is acceptable even at the low standards of a New Yorker with too much chutzpah. Clearly this fellow suffers from some form of narcissistic personality disorder which, combined with other circumstances, may lead to the universal understanding and recognition that he is simple unsuited for the task. That could become a tipping point for the markets.
BRK.A, Berkshire Hathaway
For some unknown reason we chose BRK.A this time instead of the B. Both look pretty much the same so it should not matter. The above charts are identical except that the first is arithmetic and the second semi-log. The semi-log has the added advantage that a certain pace of growth is represented by a straight line or, in this case, a fairly narrow channel. So for the first twenty years growth (in the value of this stock ) is almost constant. Then from the tech bubble to the “great recession” growth slows down only to start up again after 2009. But growth remains slower than previously, that is the first twenty years.
If we were to tentatively put an EW count on these charts, the 2009 drop would most likely be a wave 4. Alternatively it could even be a wave 2, implying the end of one bull market and the start of an entirely new one. The one year duration strongly argues against this alternative and therefore we will work with the wave 4 idea. That makes everything from the great recession low in early 2009 a wave 5 that already has 5 clear subdivisions and has exceeded every possible channel or simple line. The 5th wave of wave 5 may not yet be complete, but it is getting there.
The great recession of course gave rise to the even greater bailout and and an even more forceful embrace of the Keynesian philosophy of very low interest rates. With it we got perhaps the most concentrated and single minded academic theories ever on the impact of monetary policy. Apparently this ill-advised approach contaminated economic thinking all around the World like a gospel. One of the many unintended consequences, income inequality, quickly became a lot worse. In the context of the Davos summit, Oxfam, just a few days ago, reported that now, today, the 8 richest people have as much wealth as one half of the world’s humanity or about 3.6 billion people! This is down from 43 in 2010. By the way, they are, Gates, Ortega, Buffett, Slim, Bezos, Zuckerberg, Ellison and Bloomberg. Warren Buffett having invested his income from his proverbial paper route at the tender age of 11, is perhaps the most deserving in this lot.
The form of capitalism that is embraced today, primarily but no longer exclusively in the US, where wealth is the single most important variable in the perception of one’s status in life, cannot continue as soon we will end up with one or two people as wealthy as all the rest. The nominees for the new cabinet in the US are for the most part very rich and they as a group will naturally want to continue this idiotic interpretation of capitalism. Already the assertion is that this cabinet has the highest IQ ever. A perfect misrepresentation.
We would lighten up on Berkshire, just remember that Gates once tried to sell his part in Microsoft for all of $50,000. Intelligence and luck are not the same thing.
NFLX, Netflix
Here are the long and short term charts for Netflix. We show a count on the long term chart that suggests a completed , almost, first five wave sequence. We are not wedded to this idea as we may just be looking at only waves one and three complete. i.e. the degree of the waves is smaller. However whether or not the next leg down is going to be a wave 2 correction of the complete move up, or a wave 4 that just corrects wave 3, the downside targets are both at least $80.
As it is not perfectly clear where the triangle may have started, we use both measurements to get an idea of how high the stock may peak. We show the two in blue, the bigger one, and pink. the smaller one. $165 and $150 is my best guess. Perhaps it would be advisable to sell at the lower of the two, $150. Either way, if this is correct, the stock could be almost cut in half. With a Beta close to 1.70 and a P/E of 330, that is entirely within the range of possibilities.