TSE, DAX, FTSE and S&P

Hamilton

Stock markets are behaving in rather strange ways lately, volatility is rather high with  about 14 days with more than 90% up or down days over the last two months. Normally there are only 2 such days in an entire year. Only a month ago we had the flash crash and I understand that something like 70% of all trades in the S&P are now of the “frequent trading “ variety which essentially means that they are computer driven and almost always geared to momentum that is to say, mindless  monkey do as monkey sees type of stuff. Very frustrating for both bears and bulls. Furthermore just a few days ago we were at levels fist reached back in September or October last year , meaning that we accomplished nothing for almost an entire year.

    From an EW point of view things are not that much better. In both the S&P and the FTSE a clear 5 wave down can be seen followed by an equally clear counter-trend a-b-c. This very strongly suggests that the large down-leg anticipated has actually started. The TSE does not show the 5-waves down but the start could have been a “diagonal” type 2 (the only impulsive structure that allows overlap). The DAX, to be bearish, must have been a 1-2, 1-2 sequence but the percentage of the retracements is approaching levels that make this scenario less likely by the minute.

For the moment stand aside until things get clearer. Here are the charts;

tsx june 17 2010 DAX june 17 2010

S&P June 17 2010 ftse june 17 2010

Euro/US$

Hamilton

Euro US$ june 2010

FX and logic do not go together all that well, which may explain why a good number of the participants used to be of English extraction and, more often than not, from the wrong side of the proverbial track.  Logic, intelligence and that sort of stuff just does not enter the picture. Technical considerations, on the other hand, are basically the only workable tools and do, in fact have a reasonable reliability.

Looking at the above chart 116 or so would be , if nothing else, an interesting point to keep an eye on. When everybody knew that the US$ was going straight down, it went equally fast the other way. Perhaps now that everyone knows that the Euro is on a path to extinction it too may surprise us all by going the other way.

OTC, Open Text

Hamilton

OTC june 2010

If you shorted this one at around $51 or so, as suggested some time ago, I would go for the bird in the hand being worth more than two in the bush and get out (buy back) at around $39 where the trend-line runs. The stock could go a lot lower but that is not perfectly clear at this time.

MFC, Manulife

Hamilton

These fellows had read that their were no 10-year periods this century that the markets were actually down (or something like that) so they did what they normally do and that is write insurance only to very quickly find out that death is a highly predictable thing but stock markets are not. This made the company a natural bear product as in when the stock market goes down, they go down even faster courtesy of the relatively large amount of insured variable annuities they took on through their very popular Income Plus product. Not surprisingly (see previous blogs) the stock dropped from $42 to just under $10, or 76% in a relatively short period of time. Since then it regained about 1/2 of that drop to around $26 only to lose about 60% of that gain, despite the fact that the market overall did nothing comparable! So what could be next? Here is the chart;

mfc june 2010

The initial drop from $42 to $9+ is not a single 5-wave move (in the chart only the C-wave is shown) but more likely an A-B-C. Ergo it is possible that the entire correction is over and that we are now in the next bull leg, having completed a first wave up and the correction of that wave. Even in the event that that is incorrect , we could still be in a much larger counter-trend that still requires a C wave up (in pink). It is difficult to count the action since last August as anything but corrective, nor is it at all clear why the stock is down 60% (since August last) whereas the market overall is is down less than 5% today and up about 10% since August. Perhaps the stock is telling us that the second leg down in the stock market is still a ways in the future. A quick look at POW (Power Corp) a different but similar type of company lends credibility to this possibility.

POW june 2010 

Note that this stock has more or less followed the same pattern as Goldman Sachs (GS), Morgan Stanley and a few others.