SLE Sara Lee Corp. – the joy of eating.

Hamilton

Speaking of Malthus it occurred to me that there may well be companies that would benefit from qualitative food shortages. SLE is a well diversified food processing company that operates in more than 40 countries and sells just about everything under the sun and should be one that benefits. Here is the long term chart;

sle aug 2010 2

Note that from the TOP ( I assume) at a little over $31, the stock drops for well over a decade to around $7, that is roughly 77%, normally sufficient to qualify the move as a major correction! Without getting carried away by the niceties of EW, I will assume that that is it and from here the stock is in the next major bull phase. ( the simple fact that wave C travelled the same distance as A supports this view). By the way, even if we were not in a new bull market but still in a bear market , a reasonable target would still be $25 before you go lower. So assuming all this is correct what lies ahead for the shorter term ?

sle aug 2010

Short term the stock doubles from the low of just under $7 to $15.25 recently. I have put a count on this but fully acknowledge that it is just a wild guess. Even so wave 1 up of the new bull should just about be complete so the stock should drop by about 50% or even more. Then, at around $11 it should be a screaming buy. The stock can be shorted but not without a stop-loss at around $16.50, the upper trend line. The risk obviously is that wave 1 is not yet complete ( which conflicts with my overall market view) and that a move to the upper trend-line comes before the drop. Perhaps the right approach is to sell at $16.50 or buy at $11 or so. The upside is very good but as usual, no guarantees, talk to your broker first and hopefully he/she will know who Sara Lee is.

OTC Open Text

Hamilton

As per our recommendation ( June 14)  to buy back the short at around $39, I assume one does not have a position either short or long, so what could be next? Looking at the big picture it is highly unlikely that the stock hit rock bottom. At the very least $25 would be a reasonable target. See charts below;

otc aug 2010 otc aug 2010 2

Presently the stock is up on a doubling of earnings and perhaps also on sympathy with the take over of McAfee etc. The spot to look at shorting it again would be at about $46/$47 where the correction will retrace about 61%. This is a risky trade , but the potential is to a drop towards $15.

S&P (SPX) update

Hamilton

Just a quick update. If the bearish interpretation is correct then we should soon experience a rather dramatic drop in the S&P and many other indexes. Here is the chart;

S&P Aug 2010

dateline

The pattern is the same everywhere with just a few modifications, the exception being the DAX that made a new high. Basically there is a wave1 followed by a 62% correction wave 2(could be counted in two different ways but the end result is the same) and then a smaller wave 1 which we are in the process of correcting. This correction may ,or may not be complete, the usual 62% level is at roughly 1110, where a small c also more or less equals the a inside a a-b-c correction for minor wave 2. Next we should get a wave 3 down but as waves 2 often resemble the preceding wave 2 of higher degree, the process may take a little longer even though the level of 1110 should more or less do it.

POT (AGU)

Hamilton

We have not commented much on POT, other than to say that it is a rather high Beta-stock and very sensitive to China’s wellbeing. However, we did recommend selling AGU at about $72, after which it dropped to about $52. After that both stocks went off the radar screen and now that 3/4 of a year has gone by we have this bid for POT; so, if you happen to own it the question now is how high can it go? By the way AGU has not yet returned to the $72 price level! Here is the POT chart. (looks a lot like MFC !)

POT aug 2010

It is worth remembering that this stock was at $246 in 2008 and then dropped to $61, or about 74%. The subsequent rebound, after a swift move up, has been anemic for the last year and a half and it took the 40 billion offer to get prices  to $152 or $22 above the bid. So,using EW what is a logical value? $154 is a 50% and $175 a 62% retracement, chances are the stock will trade within that range, probable at the lower end where C=A. A 4th and 5th wave are still needed to complete the pattern (the gap having occurred in the 3d wave of C.

Theoretically, using a discount rate of 0% and assuming that Malthus was right after all, albeit off by a mere 210 years and invoking the famous ceteris paribus by assuming the mathematical impossibility that China will continue to grow at 10% forever, the stock is worth an infinite amount, which is what the market seems to be banking on. The rumor is that another suitor is lurking in the bush even though it is not readily apparent who that might be as there are few companies that have the clout to take so much hay on their fork (China itself , maybe??). Buy on rumor and sell on fact,  at $160 +