CL Colgate Palmolive (see previous blogs!)

Hamilton

CLapr 2011 CL apr 2011 s

Colgate has one of the best EW patterns I have ever seen. This makes the predictive value so much greater. The only unclear part is this last 5th wave, is it a wedge or a 4-5, 4-5. We will keep an eye on it and assume (for this market that seems appropriate) that it is a wedge and therefore could continue its climb towards $90. It is a bit like watching grass grow but sometimes things speed up a little at the end.

All waves within a wedge are always 3-wave affaires,not 5-wave affaires as is common for impulse (bull) waves. In the detailed chart that would require just one more leg up of about $10 ( the same is true for a 4-5. 4-5 situation except that the starting wave at the bottom is included). Once it reaches $90 it should retrace the wedge in its entirety. That happens to coincide with a fourth wave of previous degree and a 50% retracement level.

For those that do not wish to short a stock , I would suggest going long a put option! Do not do this today!, wait for the stock to get up there. Today’s quotes are as follows;

cl options

Above the line is out-of-the-money and below is in the money, at least for the puts on the right.. I prefer close to the money if not at the money which today would be a strike of 80 with the stock quoted at $81,28 . The bid ask is ridiculous at 6.85-10.55. The 75 is trading at 4.50-7.00. In the event the stock reaches $90 that is approximately where the 85 would trade. Lets assume you pay the ask of $7. Should the stock then drop to the $45 level within roughly a two year time-frame your option would be worth $40, assuming no time value at all was left That is almost 6X your money with a very high level of accuracy. Talk to your broker to decide how far out and what strike best suits your risk profile. By the way, if it reaches $90 the P/E would be close to 20x. Below is the “model” for this entire pattern, except that the wave 4 triangle is stylized away.

diagonal model

VRX and CEPH

Hamilton

vrx apr 2011 ceph

Recently we commented on VRX that it would be advisable to have a tight stop-loss on this stock. Today we would suggest that it is an outright sell. A few reasons for that. The count looks like %-waves up from the low could, repeat could  be complete. Also it went through the $41 target set by RBC DS and knowing how very astute these guys are it looks like we have gone far enough beyond that. Next, last time I went to an air show it did not take long for the bi-plane to drop back into its own exhaust fumes after going vertical, again it looks like we are there. Also I keep hearing that the King in Alice in Wonderland asked the people to believe six unbelievable things before breakfast. Recently an unbelievable thing did happen and that is when BOTH VRX and CEPH went up after announcing a takeover. Not at all a common occurrence, usually , that is almost always,  the acquiring company goes down (paying too much, dilution etc.) and the target company goes up ( you just have to pay a premium). When strange things happen you need to wonder why and lacking a reasonable answer the exit is the best place to go.

    CEPH claims that the $5.6 bln is not adequate. Maybe it is , maybe it isn’t but in the meantime ugly things are being said. Also this stock is just a few dollars under the plateau that it could not exceed after trying at least six times over twelve years. I would sell it too.

HSIC Henry Schein Inc.

Hamilton

As predicted this stock would either drop right away or at around $75. It did but came right back. Here are the charts.

HSIC2011 HSIC20112

This medical instrument maker is either doing a vanilla 5th wave, or a b-wave. Does not matter at this point, it has reached $71 already and may make it to around $75 where the upper trend-line is. From there the stock should fall a lot.