The usual then , 12th May 2015, and now charts;

Roughly a year ago we were toying with the idea that we were looking at a series of 4-5 at the top, indicating that the end was, at the very least, near. We advised that one should bail.

In retrospect we suspect, but still are not sure, that this may be a diagonal, almost always a 5th wave and therefore near the end. The difference is not entirely academic as the diagonal or wedge has a clear minimum target of $40 and we are not even there yet.

In any event, if you live in the Newmarket/Aurora area and are talking to your neighbour, you can tell him that you sold the stock at $68 following this blog and have saved 1/3 of your money since then. If he asks you if the blog is expensive, just tell him it is for free, at least for now.

Magna has had declining oil and a rising US$ going for it. It has more cash than debt and its payout ratio is below 20%. There is nothing not to like, even the HQ in Aurora look more like a replica of Versailles than your typical auto company factory box. But it is in a cyclical business. Ultimately we do expect it to go below $40, perhaps as far as $20.

And then there is that sure kiss of death;

A number of brokerages have recently commented on MG. TD Securities upgraded Magna International from a “hold” rating to a “buy” rating and dropped their target price for the stock from C$59.00 to C$57.00 in a report on Friday, November 6th. RBC Capital lifted their target price on Magna International from C$88.00 to C$91.00 and gave the stock an “outperform” rating in a report on Friday, January 15th.

Did they forget the silly mantra of the industry, “you cannot time the market”?

Magna is up tenfold or something like that since the lows of “the Great Recession”. That is pretty impressive and quite surprising as this company is primarily in the business of making cars. That business definitely did not look that hot at the time.

   The chart is intriguing in that there is overlap at the top which suggests either a wedge or a series of 4-5’s. We think the latter is applicable even if the exact count is a little problematic. In any event it looks like there is no more than $5 left to the upside, if that. Also the RSI and especially the MACD do not seem to be promising anything more either. Time to bail.

Back in January of this year we warned about double-topping (and , of course the EW patterns) by way of this chart:

This was the 21st and must be just about dead on the day it peaked. The text wholeheartedly suggested you get out of the stock. Always when you double top and definitely if there are 7 years in between you should step aside or use a trailing stop. If on top of that you happen to be sitting on the Fibo number of 61.8 (the high was $61.65) the decision should be al that easier. Fast forward to today;

We hit a low of $31.91, that is down 48.24 % and we should go still lower!

The chart at the top was from Jan 24, this year. The larger chart below that is the updated one as of last Friday’s close.

Magna’s probability of getting hammered were just excellent. Apart from the completion of a nice 5 wave up sequence over 30 or so years, the stock had shown near perfect EW patterns. Other “hints” were that the stock might double top, almost always a good time to stand aside, particularly if that is at a level that coincides with a Fibonacci value (61.65 compared to Fibo. 61.8). At the time the expectation was that F (Ford) would get creamed, from $19 to perhaps $7); when your clients have a tough time, you have a tough time. In the mean time the founder and major shareholder F.Stronach, who had lost a bundle horsing around with race-tracks, tries his hand at joining forces with a Russian oligarch, in a deal that seemed to , disproportionally , favor the oligarchs . Fortunately, that fell through after the differences became overwhelming. Then, as if to put the icing on the cake, with a little help of M. Harris , a former Ontario premier on the board , he decides to change the dual share structure and with it reduce his ownership (otherwise known as insider selling). The resulting payout totaling nearly a billion was the most egregious “bonus” ever received by management in Canadian corporate history. The premier , who had a reputation as a penny pincher was not pinched either, receiving director fees worth multiples of what he had earned in his entire political career. This will always be seen as some sort of high point in Canadian capitalism, fittingly coming from a company who’s main claim to fame was labor-arbitrage, that is fighting unions , a business model that has lost much of its edge in recent years! 

Getting back to the chart, Friday’s low ($32.98) took the stock down roughly 50%(46.5% to be precise) from the highs. The optimists might be seduced by the fact that c=a at that point so there is a perfect a-b-c correction that may now stop at the 50% level, which also happens to be the level of 4 of previous degree (not shown). I very much doubt it. The proper EW target is below $15. If 50% is not convincing, another 50% may be.