LIF.UN , Lab. Iron Ore. When things are to good to be true, they often are.

Hamilton

lif.un 2011 lif.un 2011 2

Back in October of last year I thought this was a sell at about $55. At that time you had a three-wave move up and you had reached the level of the B wave in the previous down-leg, a very common occurrence. I was dead wrong ; the stock just kept on going like the energizer bunny. Now that things have gone this far it is clear that an “irregular” B-wave has formed ; irregular meaning not normal. What is not normal is that the B-wave did not stop at the previous top but kept on going , almost as if things are too good to be true. Well they are, and that is why we would sell, now.

The move into the high of early 2008 is a near perfect 5-wave move ( this is clearer using semi-log scale!). The fourth wave in this structure is a triangle. As is to be expected, the thing peaks precisely perpendicularly above the apex and then drops, again as is to be expected, back to a level that equates to the lowest point of the triangle. The drop is an a-b-c which could be an entire correction or just the A wave of such a correction. Given that it took less than a single year to erase an 8/9 years advance, the suspicion should be that the correction is only partially done. Ergo, this could be a B-wave. Given the circumstances under which this low occurred – a smaller investment-dealer/mutual fund operation was long this stuff but due to margin calls from their house bank was forced to sell indiscriminately – explains the initial rebound. The China story probable took care of the rest.   Here we are at $75, through the upper parallel trend-line and at the highest possible trend-line. A very nice a-b-c has developed and both the RIS and MACD are , once again, pointing downward.

(Irregular) B-waves are usually driven not by fundamentals but by a story,  a theme , or simple momentum trading. Loewen, the funeral home operator had a beautiful B-wave that took the stock right back to its highs before diving into the ground under the weight of the Mississipi legal system. You can just feel that that these prices are too good to be true. Step aside.

CNR

Hamilton

CNR cnr 2

From under $9 to about $70 in a little over 10 years is somewhere in the order of 24% per annum (rule of 72, 3x from 9 to 18, 18 to 36 and 36 to 70). Quite remarkable for such a pedestrian thing as a railway and that in an economy that is supposedly depressed. We are hitting the upper parallel trend-line after a 5-wave move up, that is high and time to sell.

The shorter–term chart does not count well and what is shown may well be wrong. Other, more complicated counts may fit but they go beyond my pay level. Suffice it to say that there is a very nice wedge running into the top. More detail below;

cnr 3

These wedges only occur in 5th waves which may mean that the top is already behind us. The Dow Jones Transportation index provides little confirmation;

DJT 2011

This one may go higher yet, but it is only a couple of hundred points from the old top, quite amazing with fuel costs where they are but that would make the trains relatively more attractive, which explains why CNR has outperformed, but enough is enough.

EEM and XEM, emerging markets

Hamilton

When investors become more risk tolerant they invariable stray further away from home and rapidly forget the history of these markets. Here are the EEM (US) and XEM (Can,)

 eem 2011 xem 2011

Notice that we are at spitting distance to the double top line, after having completed either 5 or 3-waves up. On the Canadian version, the chart is shorter as this one has not been around that long, the rise from the low is a TEXT-BOOK 3-wave move up, perfectly symmetrical in that the C=A and the c=a in the B-leg itself. Time to move aside IMO.