ACWI

WJA, Westjet and AC, Air Canada

Hamilton

wja july 29 2015 bwja july 29 2015 s

There is very little in this chart that is clear. However it would appear that the last leg up is one of those diagonals or wedges. The are always in either 5th wave or c wave positions. The immediate expectation then is for a drop to the base of that pattern which, at around $19, is not that far away. When using EW you do not have to get it all, as long as you have one pattern that is recognizable without a doubt you can sort of construct the whole picture. It helps in those circumstances to get confirmation from another stock that is in a similar business etc.etc. Air Canada fits that bill:

ac july 29 2015 bac july 29 2015 s

The timeframes are not the same but at least here you see that the diagonal or wedge is as perfect as it can get. This implies that we are at a fairly major top and that there is still considerable downside, at least for AC, ahead.

Airlines do not own the infrastructure they operate in. They do not own their planes as these are often leased on an operational basis so that the capital costs can be amortized by those that are in a better position to use the deduction. Sometimes they even “wet” lease the planes. Fuel costs are entirely out of their control all though , at times , hedging might be appropriate. In short you control very few of the inputs and consequently, and history shows this, it is not unusual for management to get carried away with some expansion programme that soon kills the whole thing. Life expectancy in this business is fairly short, these are speculative investments at best. AC , of course, fell some 90% as it flirted with bankruptcy as a result of the great recession. The diagonal in that case may actually be part of a B wave which would spell disaster. See also our prescient blog of June 4, 2015.

ACWI, see the blog of March 5. Then & now 3X.

Hamilton

On the left then, on the right now;

ACWI acwi oct 2011

ACWI are iShares, the high was $49, it peaked at $49.83

$stox50 $stox50 oct 2011

The Stox50 high was 2698 on March 4, it peaked at 2741 a few days earlier.

tsx march 4 2011 tsx 25 oct 2011

The high was 14280 on March 4, the actual high was 14315. The blog is available under ACWI. Does it matter? Not really, everyone knows that EW is nonsense anyway. Better to listen to your broker. Unfortunately Stockcharts is not free if you want to go back more than 3 years, consequently I cannot line-up the charts the way i would like to.

ACWI (Morgan Stanley World Index iShares), STOXX50

Hamilton

Rather than show 10 or so different stock exchange performances – the AEX as one of the worst and the DAX as one of the best – it is easier to look at the World Index as all indexes have the same pattern even though they differ a lot in absolute performance. A look at the Dow Jones European index more or less  confirms the view all though it contains only European companies;

ACWI

The point here is to look at the pattern, nothing more. If it can be viewed as a B-wave correction from the lows, it follows that either the corrective process will become a lot more complex (for instance in a huge triangle or flat lasting a number of years more), or we go straight down to complete the correction. If it can be viewed as a 5-wave move, or one that may still become a 5-wave move, things would look a lot more positive.

In my opinion this is a B-wave, plain and simple. Moreover it is either complete already or has at best another month or so to go.  First of all C is vector equal to A, and, with just a minor change in the count all three, A,B and C are equal in length. C is a rather precise 62 % of a in terms of distance. Wave C could be viewed as a “wedge”, a structure that only occurs in 5th or C-waves. The retracement is well above the more normal 50 to 62% at about 76%, but that is fine even if it is unreasonable to assume such a level in advance. Both RSI and MACD are non confirming. The B wave in this structure is a very nicely formed “megaphone”, or in EW lingo an expanding triangle. These occur only in the 4th wave or in the B wave position. Ergo, even if this whole thing proves to be a 5-wave affaire, after the fact, in all probability we still need to do a wave 2 down first (to 37, or about 20%), so initially the assumption of this being a B wave will serve you well even if it is incorrect.

Just to compare it is worth looking at the DJ Stoxx50 index, similar to the world index but covering Europe only;

stoxx march5

Remember that by clicking on the chart it becomes larger AND you can move it around to put the charts side by side for a better comparison. Clearly the two are essentially identical, the only real difference is that the Stoxx is less robust  having barely gained anything over an entire year. Of course Europe has benefitted less from Bernanke’s largesse and also has suffered not just as a result of the  well circumscribed financial implosion, but also had to deal with a “constitutional” near death situation.

In my opinion this is a B-wave so we should start to go down, if not right now, very soon. I have added the TSE for completeness. It lacks the clear megaphone and has outperformed the other two (commodities) but otherwise it too is identical as are at least another dozen indices.

tsemarch2011

On Aug 3, 2011, I unfortunately rejected this possibility, primarily because of the time factor, here is that chart. The A wave is drawn incorrectly but otherwise it was dead on, but no banana! Keep in mind that the chart below is on a semi-log scale, the one above is not.

tse aug 2010 2