MCD update.

We thought it was a sell at about $94. Not so. Again it looks like a sell, even more so now;

mcd dec 2011mcd dec 2011 log

Here is MCD in both a arithmetic and a semi-log scale. If you concentrate on the arithmetic one you get the feeling that you are at nose-bleed heights and want to get off as soon as possible. The take from the semi-log chart is that you might just want to stick around un till you hit the upper trend-line. In both cases, superficially at least, clearly discernable 5-wave sequences are visible, either for the 5th wave or for the entire structure. In more detail we get:

mcd dec 2011 bigcharts

Very compelling reasons to sell now are’

a. The Mnt. Everest phenomenon appears to be at work here. The stock is pulled up to reach that $100 magic target. In the process it is creating a considerable “throw-over” at two different degrees!

b. Even if it is not patently clear where it begins (and ends) there is nevertheless a triangle wave 4 for wave 5 and perhaps another one for wave 5 of 5, which is itself sub-dividable in 5 waves.

c. The distance travelled in wave 5, from $45 to $100, is now equal to that travelled in waves 1 through 3, $10 to $65, a common relationship.

In my humble opinion any prudent investor should say “thank you” and move on. An aggressive investor should consider shorting this stock, or buying put options;

mcd options

Just an example. You can buy a put option valid for more than a full year at a strike of $87.50 for a premium of $5. If the stock were to drop at the same rate that it went up (over the year) it would be somewhere in the order of $72, consequently you would be “in-the-money” by about $15 and assume a time value of zero you would have a gain of 300%. Socks always drop faster than they rise so this could happen a lot earlier and there would still be time value. This is just an example as theoretically all options are priced according to the risk and one should be indifferent to which one to chose.

By the way the p/e is close to 20, fairly rich compared to a market average of 12 or so. This is , of course, a growth stock?

TRP, Trans Canada Pipelines update

Late October we called for a further rise in the stock to complete a B-wave into the heavens. It is doing exactly that and is now close to it’s destination:

trp b 2011trp s 2011

We are approaching the upper trend line and should hit it in a matter of days. My best guess is around $45 or just a little higher. We are now in the 5th wave of the thrust out of the “megaphone” and it is already almost equal to the 3d wave in that leg.

This is of course a blue chip stock and it’s earnings are regulated by government edict so one might wonder what could possible go wrong. Fundamentally earnings per share have been dropping and the tolls levied on users have been rising at an alarming rate whereas put through volumes have been declining.  There are major cost increases and  the delays in the new pipe through the US are not helping at all. Furthermore one might well wonder why a utility that is regulated (NEB Nat. Energy Board + provinces) should be allowed a return of 9% in an environment where 10-year Gov. bonds earn 2%. It recently moved into the solar business where it has little experience.

BBBY, Bed Bath and Beyond (or not for now?)

bbby

It spent all day at that same Fibo ratio (even if it had been a dollar higher earlier). This is a throw-over. It is also a wedge;

bbby s

Lower highs and higher lows are usually indicative of a wedge, which is invariable a sign that things have gone a little to far.

MG, Magna update

Back in January of this year we warned about double-topping (and , of course the EW patterns) by way of this chart:

mg jan 2011

This was the 21st and must be just about dead on the day it peaked. The text wholeheartedly suggested you get out of the stock. Always when you double top and definitely if there are 7 years in between you should step aside or use a trailing stop. If on top of that you happen to be sitting on the Fibo number of 61.8 (the high was $61.65) the decision should be al that easier. Fast forward to today;

MG dec 2011

We hit a low of $31.91, that is down 48.24 % and we should go still lower!