BCE, GE, the blue chips

Hamilton

Both BCE in Canada and GE in the States were, once upon a time considered to be “blue chips”, which, freely translated meant that these stocks were more or less impervious to down cycles , too big to fail, and dividend paying, in short excellent investments for widows and orphans and all those other investors that did not want to play roulette. Here are the charts.

bce jan 20112 ge jan 2011

BCE dropped from $50 to $18 or , give or take, 62% and GE did an even better job by dropping from $60 to $6 or 90%. BCE was always considered a grossly mismanaged company and GE, in contrast, the learning school for the latest sophisticated techniques in advanced management. One blew up by falling asleep and the other by not sticking to its knitting, by aggressively becoming a bank. The moral to be drawn from this is that there are no blue chips, period.

  Both these stocks may have completed an entire correction lasting about 10 years, which would imply that they are now in new bull markets. This view is more compelling with GE than BCE! All the more so if one looks at what they make. One is in phone services where the costs are gravitating to zero and the other makes jet-engines, dish-washers and a million other things. I would put my money on GE.

bcejan 2011

Short – term BCE may try to get back to the $40 level (top of B of C ) where it briefly was just prior to the debacle with Teachers et al trying to take it private. I have NEVER seen a chart that is so trend persistent – for  over two years this thing has been on track without any pull-back. The RSI and MACD  are already turning and this cannot go on for ever. It is about $3/4 from its target. Get out or use a tight stop, $34 where the lower line runs or even higher. Even if this is a NEW bull market, typically first waves up are retraced by 60% or more.

G and G Warrants (G, G.wt.g)

Hamilton

A few weeks ago I suggested that ABX and Goldcorp were an outright sell given the pattern that they had then completed. The targets then (and now) were/are $36 and $35 resp. We are 3/4 along the way so what now? Here are the charts.

g jan 28 2011 G war 2011

To see the previous blog go to the index at the top of the website, or enter the code.! So we dropped from $49 to $39, pretty drastic already but not yet at the target (lets use $36 to have a little margin). Will it actually get there? Do not know for sure but it is the target so no harm in waiting for it. Note the RSI is already at a one year extreme and so is the MACD. But the count does not appear complete.

Looking at the warrants, I have no idea what the strike or expiration date is, but for these purposes that is not immediately relevant, it is clear that they dropped from $6 to $2 in the last leg down. That is more than 60% against 20% for the stock itself, or about 3x as fast.

Suppose the stock does go to $36, it would then probable rebound about half of what it lost, about $6 to $7 (to about $42/43). The warrant will drop to about $1 and rebound to $3, a much better return – with a lot less risk! Do sell when that happens as this warrant has an awful time-decay.

CP, Canadian Pacific Rail

Hamilton

This stock was split out of the larger CP conglomerate, the rails , hotels and shipping group started their own lives in 2001. Consequently there is no chart preceding that time for the individual components. Here is what we have.

cp 2011 cp20112

On the left, a model, text-book EW, clear as a bell and consequently more “predictive”. This is an EWaver’s dream come true. We have an initial 5 wave sequence up into the top during which the stock roughly goes from $20 to $90, a bull market by most accounts. Then the stock gets decimated in a clear A-B-C, losing 2/3 of its value. Then comes the correction of that drop and so far we may have all of it or only half. One would expect 62% for starters and perhaps to the B wave level , $6 higher. Given the very clear wedge, the equal vertical distance between C and A and the rolling over of both the RSI and MACD this should be good enough.

One could wait another 6 months and hope the stock reaches $75, and, of course, it is always possible that this analysis is wrong (we may, for instance,  be at the start of a new bull market and we are looking at a series of 1-2s that will soon explode to the upside). Perhaps, but not likely.

See previous  (Sept, 2010) blog below;

 cp sept 21 2010 2 CP sept 21 2010

DOW , TSE and DAX (skip this if you do not care for EW!)

Hamilton

DOW 2011 2 DOW 2011

EW has many drawbacks. You can take it too seriously and than you can be perfectly right but 20 years too early which does not put food on the table. Also these markets seem to be moving a lot more , even relatively, than they used to. Looking at the DOW, it has travelled about 19,000 points in the last ten years. It took the Dow more than a hundred years to get to 1000 and it basically stayed there for 26 years! Counting the waves is an art and the results are often controversial and restated years later. For instance, at one point in time it was thought that the 1987 crash might have been the elusive end of the 5th wave. Clearly it was not. Internally there was dissent in Gainsville , Prechter’s home town when one of the top gurus did not believe that the “tech crash” was the big one. Problem is this stuff can be addictive so you keep trying.

The chart on the left shows the drop in the Dow and the rise back up. The initial drop appears to be 5 waves but in my opinion it can be counted just as easily as a 3 wave a-b-c. Typically 5 waves announce a zig-zag (after a relatively small rebound say 50%, you go down again) whereas the 3-wave structure calls for a flat (where you return close to the top and only then go down again). As a result my guess is that the purple scenario counts best at this time given the size  and the duration of this retracement. The TSE and the Dax, below, best fit that specific count.

TSE 2011 3 Dax 2011

The TSE strongly suggest that the latest top, that is the one in 2008 was THE top, and not the one in 2000 (which is the case for instance for GE). The Dax is less explicit about this issue (it is a semi-log chart!) as the two tops are at about the same level. In fact that chart might even suggest a triangle, but that does not fit with the others as it would imply a different degree. This is the case with the black and red scenarios which assume that we are already in a new bull market- there are numerous reasons why this is highly unlikely.

Make a long story short we will stick with the purple count. Click to enlarge.