Again the then, Dec. 14,2014, and now charts;

It has been almost 5 months and this stock has not (yet?) reached its ideal target at around $59 or a little lower (Big charts does not always show the daily extremes!). So what is going on, if anything?

There are a number of possibilities. First this may not be a 5 wave sequence down. Instead it may be an A-B-C correction (or partial correction). The C appears to be taking the shape of a wedge. Approximately the same result can be obtained by assuming a series of 1-2’s of different degrees to be followed by two 4-5’s at the bottom. Note that the structures from Dec. to mid Feb, and the one from mid March to now, are identical which supports that idea.

If it indeed proves to be a wedge the rebound target is raised to $74, so if you own it as per the last blog there is no need to sell. However, if you do not own it yet, wait till it gets a little closer to $59 again and then buy it. It earns a dividend of about 5.8% per annum, regardless of whether you chose to receive it in Sterling or hard Dutch Euros. Amazingly that percentage is the same for either currency but the tax treatment may not be! If this works you would have a total return of about 20%+3%=23% in six months or less. Talk to your broker.

P.S. According to latest earnings report earnings are down by 56%!

See also previous blogs of RDS.B (not A!)

This may be a little chart overload, but I need that to explain the EW count. Royal Dutch, originally was a joint venture between a Dutch oil company and an English transportation company. The Dutch were in the majority with 60% and the English with the remaining 40%. In 2005 the company became legally one entity with HQ in the Netherlands, up to that point, that is for 98 years, the stock(s) had earned an average of 14% per annum, which clearly shows how well Dutch brains and English labour work together. This model was emulated by Unilever as well, however with a different mix favouring the Brits. In any event their are still two sets of shares, the A’s and the B’s. The difference is that the A’s, that trade in Amsterdam ,are subject to a 15% dividend withhold tax and the B’s are not as they trade in London.

The top chart is from Hargreavs Lansdown, an English broker. It is priced in Sterling, that is pennies. Note that the top is much earlier than on the Bigchart or Sharpchart, both of which are in US$$, and neither truly represent either the A’s or B’s as they are ADR’s. In EW it is all about the waves but it is never clear in what currency. In Euros(not shown) the low was set way back in December and the stock is now well above that; it looks like it has hardly moved the last year. In any event if we sort of average out the different possibilities we either already have a complete set of 5 waves down, or we could have one more drop to $58 at worst. Given the present proximity to that low and the potential of a bounce to $70/$74 and a dividend yield of >6%,( almost four times that of a 10-year gilt) – which is expected to stay even after the takeover – it should be bought now. This is the largest company on both the AEX and the FTSE and one of the last real blue chips. You can tell just by looking at the head office in The Hague.

Did Shell pay too much? I have no idea but BG was trading at about 1/2 of its most recent highs whereas RDS.B, the shares that will be used in the take-over, is more in the 3/4 range. Since this is a roughly 70% stock and 30% cash deal it could be argued that Shell is paying with an inflated currency. It is a little bit like buying the same credit bond with the same maturity but a higher yield, essentially you cannot go wrong.

Just a quick encore on Royal Dutch, this time using the b shares (the difference between b and a has to do with withhold taxes on dividends). This is the longest chart I could find. In most if not all 5-wave sequences there is normally one wave that is extended. That is longer than it “should” be. Here we assume it is wave 3 of 3, but we are not sure where it ends, that is it could be bigger than you think hence the alternate count. What it does is push the top from 2007 to 2014. That does not change the target as it matters little as in both cases the target is the 4th of previous degree or, alternatively the 4th of 3 (see the two horizontal lines). What does matter, however is how you get there. If a C wave in the very large flat it has to be 5-waves straight down, but if the top was in 2014 a large A-B-C may only just be starting and you could get the pause or intermission somewhere around here (instead of a wave 2 of C).