S , Sherritt

Hamilton

S july 2011 l S jul 2011 s

Sherritt has worked out well a few times.(see also Feb. 23 blog) There is a distinct possibility that the stock is tracing out a “megaphone” (an expanding horizontal triangle). There are a few question-marks attached to this count but from a risk/reward perspective it is a rather compelling possibility worth pursuing . First, the stock yields about 2.5% and trades at a P/E of about 8. It has mining operations in Cuba which from an American perspective makes you persona non grata as you are trading with the enemy, but Cuba may soon have a management change and all of this will be forgotten. Secondly these megaphones can only occur in waves 4 or B. In both cases the next big move is up and up fast, most often close to where the upper trend-line runs ($11) The game here is to buy as close to $5.60 as possible (bottom trend-line and about 62% retracement). In the worst case the stock could continue to drop but then it would probable not go further than $4.5 (previous 4th wave) after which it would return to $7 anyway.

I have tried to contact some of you by e-mail. Your mail box is full!

Nikkei 225, update.

Hamilton

The Japanese market has been one of a few, if not the only one, to go up the last few months while everything else was going down. This fits perfectly with the earlier view that the Nikkei 225 may be making an expanding triangle. Here is an update;

nikkei 225 july 2011 arith

nikkei225 july 2011 log

Both charts are from Yahoo finance, one of a few charting sources that carry this index. Frequently the A and C waves travel the same distance. On an arithmetic scale that would put the Nikkei below zero, so that is not possible. On a log-scale the distance travelled was already equal at the most recent low. But the pattern was not yet complete. Once this latest rise , an e-wave in a triangle , is complete the last part of the 5th wave should take the index to, say 4000 where again the two down parts are equal. All this is going to be spectacularly wrong if we trade substantially through 11000 or so.

An alternative count would be a triple zig-zag. The outcome would be just as bad. See also Ford for another example.

DAX , update

Hamilton

DAXb daxs

The German economy has, to some extent, been the beneficiary of much that has gone wrong in Europe as a whole. It’s status as the world’s largest exporter of, primarily price-inelastic durable goods and machinery, remains in tact even if China has overtaken them in sheer volume. It’s unemployment rate has been dropping now for some 20 years. Confidence is high etc. etc. Nevertheless from a charting perspective it looks as if the DAX has the same pattern as everywhere else, that is a large B-wave. Not very elegant and perhaps not very relevant to this point since it has retraced 90+% of the drop, but it is there.

Just a week or two ago the DAX was trading at levels that it had reached back in early December , so for about 7 months it had gone nowhere. Even at today’s level we are where we were in early Feb. , five moths ago. The latest gyrations may be attributed to Greece, going bust, being saved , going bust who knows. We still have Portugal, Spain,  and perhaps even Poland to contend with and nothing has even remotely been solved. With that backdrop counting the latest gyrations as a first wave down , followed by an a-b-c wave 2 up retracing most of the fall which is normal, is not that far-fetched. It will be negated soon as in this scenario the DAX should NOT make a new high (7600).

If you compare the DAX to the TSE (just click on the charts and move them one below the other) you will see that all the moves are synchronized but have a different amplitude. The TSE being commodity driven is by far the worst performer and has not nearly regained as much of it’s loss.

TSX update.

Hamilton

TSX1

This is the bullish case, it is an A-B-C correction and by definition should be followed by a new high. The C is an expanding diagonal that should be retraced entirely (which must happen in order to get a new high). The critical point is the upper trend-line around 13600. This also corresponds with a 50% retracement of the entire drop of about 1500 points. Given the large number of stocks that have clear B-waves I doubt that this is the correct count.

tsx2 tsx3

On the bearish side there are a variety of 1-2, 1-2 scenarios that could apply. As the last down leg is from 13900 to 12750, or roughly 1150 points a 62% retracement would lead to 13500, close to today’s high. A little higher is still possible but beyond that the immediate  bear case gets very dicey. Look for an update soon.