VRX Valeant Pharma update

Hamilton

vrx sept 2012 bvrx sep 2012 s

On July the 26, 2011 we opined that, given a little wedge that had formed, the stock should not trade much above $56/$57. It only got to about $55 and dropped immediately by about 30+% (now classified as wave 4, maybe). Then, unexpectedly to us, it goes right back up but again does not trade much above that target range and then only for a very brief moment. Presently it looks like a first wave down from the top ( May 2012) was formed followed by a wave 2 which is hitting its head against the lower channel boundary. Wave 3 should be next. The target should be around $20 or so when all is said and done.

P.S. When you predict, do it often. So the stock shot up on the 2.6 bln purchase just made, the 15th so far over the past year or so. One thing one should keep is mind is that this company excels in not paying for these acquisitions, that is much of the cost is booked to “goodwill” which is one of these accounting fantasies that allow you, over time. sometimes a long time, to gradually take these costs through your P&L by amortizing the goodwill. VRX has a total of about $14 bln is assets, about $11 bln of that is goodwill. I do not remember ever seeing such a lopsided ratio anywhere other than in Alice in Wonderland.

DELL update

Hamilton

dell sept 2012 bdell sept 2012 s

Dell has completed, or is about to complete, a very clear 5 wave sequence down. It could go the extra 50 cents to get right to the channel line but that should do it. A rebound to at least $12.75 should be anticipated after that, even if the stock drops unexpectedly to , say , $9 or even $8. That would be good for a 25% return no matter what!

Looking at the big picture we have an a-b-c down from $53 to $8 or so. That is a nice bear move in and of itself so it may indeed be complete. We assume for the moment that it is and since that point the stock has done a first wave up in a new bull followed by a rather long a-b-c wave 2. If correct wave 3 should follow and the upside is considerable larger than the 25% indicated.

There is , however, always the possibility that the a-b-c or double zig-zag correction could become more complex than it already is by adding a third a-b-c. That would make the $10 level the bottom of the a part with b and c yet to follow. The two previous b’s were good for $5 so why not this one too, so , in all scenarios, you should make at least 25%. Good luck!

Dell sept 2012 vb

XFN , capped financials ETF

Hamilton

Every quarter Canadians wait breathlessly for another round of “earnings season” for the banks and , in a broader sense, the financials. Every miniscule move, up or down , is met with a barrage of analysis that is essentially a waste of time as the banks will always be able to extract what is needed to continue to perform. The only exception is when they are blind sighted and do not see “IT” coming. The next such event, they come up like clockwork every so many years, should be just around the corner. We use the XFN as it provides a nice cross section of the industry (but RY or BNS are pretty well identical);

xfn vb aug 2012XFN aug 2012 s

In the big picture we are still looking for a very large A-B-C and are constantly amazed how high the counter trends manage to take it back up. But the pattern is sufficiently clear (so clear that we anticipated a few of these moves!). It is a series of 1-2’s and given the action in the RSI and MACD wave 3 down could start literally any moment now. Of course we have no idea what “it” might be this time but it would not be all that hard to point to certain developments that could upset the apple cart seriously.

IBM

Hamilton

IBM aug 27 2012

Back in Jan. 7th 2012, half a year or more ago, we confidently predicted that IBM would not trade above $195. The actual high was $210,69, so we were wrong again. The argument then was that for most stocks the 3d wave is by far the strongest and longest, even if that is not an absolute requirement. Many exceptions exist but for the most part they occur with commodity related stocks, not with the IBM’s of this world and therefore it is reasonable to assume that a 5th wave will NOT be longer than a 3d wave. This still may be a correct assumption as it all depends on where you start the 5th wave. We had originally assumed that there was a triangle from 1999 to 2006. In retrospect it would seem more appropriate to assume a large flat all the way to 2008/9. This has the effect of pushing the starting point a little higher and making the 5th wave channel bound within a very narrow range. The speed at which the stock travels from one side of the channel to the other is the same for the 96 to 99 move and the 09 to 12 more recent one, both being about $100 in 3 years.  The very clear periodicity we pointed to earlier still applies when using the mid point of the B-wave (2006). Roughly every 6+ years this stock changes direction and loses at least half its value. The $210 high was probable such a turning point.

For most of the past century this company was probable best known to outsiders for its dress code. Dark blue or grey 3 piece suit, white and only white shirt and an unobtrusive tie. Now few people have any idea what they stand for or do. Even the, very heavy, electronic typewriter that seemed to grace just about every office has disappeared from the face of the earth.