CMI

CMI, Cummings (if at first etc.etc.)

Hamilton

My love for diesel engines goes back quite a way. I served in the Dutch navy where I was to become a “stoker”,an officer in charge of the ships engine room which were mostly powered either by steam turbines or diesels.  In most of North America the average person hates diesels, they stink, make a lot of noise, are slow to react and, should you spill a little while fueling the car, you smell like a skunk for a few days. Furthermore one of the few attempts to put these things in a normal passenger vehicle by Buick was a complete engineering disaster. Europe, with a slightly lower standard of living and higher fuel taxes, could not afford to share these sentiments as it needed the much higher fuel efficiency. Almost 1/2 of all vehicles there are powered by diesels. Given that, it must be quite surprising to see the Cummings stock at highs well above those established before the 2d great depression meltdown. After all vehicle production dropped from 16/17 million to 10 million and is now barely above 11 million, all this with fuel prices at the pump at least doubling but without the slightest increase in diesels popularity.

Two months ago I opined that the stock was too high at $85 or so. In the mean time it went even further and got to $96. Here are the charts, then and now.

cmi sept 20 2010 cmi nov 2010

Clearly the stock just charged on despite a dropping RSI and MACD. Now it is approaching , for a second time, the upper channel line and soon will be flirting with that magic number $100, that is,  if it even gets there. In the bigger picture there is more reason to be concerned;

 cmi nov 2010 bc cmi nov 2010 log

The left, normal, chart shows how well this stock has done and in how short a time frame. There is no other time period in which the stock has gained so much, period. Also it has gone well beyond what ANY trend-line would suggest would be resistance, not even a slight hesitation. More interesting is that when looked at on a log scale there is a very distinct rising wedge that has formed over the past 20 odd years ( waves 4 and 2 overlap which may only happen is this particular structure). These tend to be retraced entirely implying a stock value of near zero sometime in the future. Barring that a return to the 4th wave of previous degree at $20 is perfectly normal. For some reason the round number of $100 seems to be very hard to resist,but I would not expect it to reach that, but to play it safe you may want to wait for that and only then short the stock. The stock pays a dividend just over 1% and has a P/E just under 20. Alternatively a put option might do the trick. CAT and DE fall more or less in the same category. Also remember that;

"There are two times in a man’s life when he should not speculate; when he can’t afford it, and when he can." – Mark Twain

CMI , Cummings, Diesel engines.

Hamilton

 cmi sep 20 2010 cmi sept 20 2010

Who would have thought that the diesel engine, first invented by Rudolph Diesel back in 1892, would become the subject of the “new normal” stock market poster child stocks like CMI, but also CAT, which is a few dollars away from double topping.

From here anything can , of course , happen but, applying the “buy low, sell high” philosophy it is patently obvious that this is not the time to buy, ergo it must be time to sell. A few other reasons to do this are that the stocks P/E is at a lofty 22, the MACD and RSI have turned down and are not conforming and , last but not least, CAT is close to a double top. Afew dollars to the upside is still possible so you may just want to wait a few days (the upper trend-line is around $93) but you do risk missing the proverbial boat.

CAT May 5

Hamilton

On Feb . 18 I opined that cat should drop to about $26 and then rise back to $47 or so. Similar comments were made with regard to DE and Canadian Western Bank, the one that finances all things yellow that smell of diesel. Here is the chart for CAT.

CAT May 5

The analysis was fairly easy as the down-turn from 90 was entirely anticipated and the following 5-waves clear as a bell. The stock went a little deeper than expected hitting about $22. Anyway had you bought at the 26 level you would be ahead by about 14 or almost 50%. I would sell here, leaving some on the table for the next guy. CWB not quite as spectacular but did almost do our usual 30% (11 to 14). DE went from a low of $25 to about $45 and should be exited as well. CMI might still go a little further, no entry level was ever given, only timing, it too is up at least 30%.

JP6326 (a.k.a. Kubota)

Hamilton

Kubota is the maker of farm tractors and implements, mostly diesel powered and “small scale”. They are by far the best in their field, so if you are thinking of buying a  Deere, a Cat. or anything powered by Cummings you should  have a peek at how JP6326 has actually done BEFORE you buy into the “runs like a deer” slogan. Here is the chart:

image

Now it does not take a lot to recognize that this might be a “double top”, quite amazing actually considering it took 17 years. Anyway it does not bode well so it behooves one to be doubly on guard before buying John Deere, especially when it is actually made in  Dijon, France or the engine is a Yamaha. Here it is:

de feb23

Now that that does not work it is perhaps a good time to look at Cat after all that is infrastructure if ever there was such a thing or Cummings (CMI). Here is that chart (left) and Cat (right):

cummings

              Cat feb 23

There is a lesson here, rather than doing the same thing three times over and expecting a different result, THINK GLOBAL, or put in a different way, there are very few things under the sun that have not happened sometime before, somewhere. Targets for these stocks are at the lines drawn, for Kubota it is at about 250 Yen. For Cat it is about $15 and DE about the same For full disclosure , I own one, not the stock, the thing itself. I do not have a will but its durability might just induce me to stop procrastinating.