ATG Athens revisited

June 25, 2015June 25, 2015 Hamilton

Athens is worth another look. Earlier this year we thought that, given the clear a-b-c corrective move from the 471 low, this index had to go down and make a new low. It was at around 800 so it did go down but just a little.

Corrections can take a lot of different forms but the most common is an a-b-c down, a zig-zag. These are 5-3-5 structures and get to there target relatively fast. Often the stock or index has not gone down enough so the exercise is repeated creating a double zig-zag. This can even be repeated a third time, but not more than that. In this particular case the index comes from a little over 6500 and goes to 471. That is roughly 93%. Moreover, the two zig-zags are clearly visible and are perfectly vector equal. It all strongly suggests that the correction is complete. Further support can be derived from the simple observation that between 471 and zero there really is not enough room for another zig-zag. The 3-wave structure from the lows if that is what it is, of course, argues against this.But that may only be the a wave and now we are in the b with a c to follow perhaps to , say, 2400. In any event when all is said and done we would favour buying this index.

Fundamentally a stock index represents REAL , not nominal , assets. Therefore it is not entirely clear why the value of those real assets should drop any further. Even a default of the Greek government would impact bondholders a lot more and these we understand are 80+% concentrated in the ECB and IMF. On top of that Greece has only two industries, tourism and shipping. Tourism would get a tremendous boost from drachmas instead of euros and shipping is done mostly in US$$. So even though there will be an initial currency hit, on a slightly longer term basis this might be a real good buy.

P/E ratio

June 24, 2015June 24, 2015 Hamilton

You can find this Chart of the Day at; <a href="http://www.chartoftheday.com/">Chart of the Day</a>. This is semi-log scale so the highs do not look so high. The average seems to be somewhere around 16 to 17 so we are presently running about 25-30% above that. The P/E ratio is, of course, a function of both the P and the E, so if the ratio is extraordinary high or low the extreme can be caused just as easily by an over- undervalued market as by stellar or appalling earnings. But this website adds a nice perspective; https://cyclesman.com/a-look-at-the-1966-to-1974-bear-market-and-why-we-may-now-be-facing-a-very-similar-setup I certainly did not know this but according to the author of this website there is a tendency for the P/E ratio to equal the dividend yield at the lows. Applying this to the “great recession” low of 2009 it is pretty clear that the P/E stayed above , say, 17 or so but the yield was well below 3%. The conclusion is that that therefore was not a major low! It is still to come according to the author who makes a pretty convincing case based on cycles.

FCX, Freeport-McMoran update

June 24, 2015June 24, 2015 Hamilton

We have had a bearish outlook on copper and with it FCX for quite some time, see our blog of Dec. 2012 (Copper FCX) shown in part, above left. Today we do not agree with the count then presented but we do with the target of about $10. The drop from the second top in 2011 is a C wave given the very distinct B-wave before that. C waves ALWAYS subdivide in 5 waves so the A-triangle B-C on the left is simple not possible. With a slight adjustment we nevertheless get approximately the same result. Presently we must be in wave 5 which probable will become extended and definitely needs at least one more leg down. The $10 target fits with a number of different parameters the most compelling is that C will equal A and that the stock will hit its long term boundary line. By the way, that corresponds with copper at about $2.20 according to the old blog.

TRQ update and Copper, the stuff

June 24, 2015 Hamilton

The usual, then Feb. 2014, and now charts;

Turquoise Hill Resources – formerly Ivanhoe – had completed a full correction, an A-B-C, with all the requisite subdivisions , in particular a 5th wave wedge in the C leg, which confidently suggested this was a buy. It was. The low was at $3.17 and the high after that at $5.80 and we defined the break-out point at about $4. In short you could have easily made 30+% This massive mine is now owned by Rio Tinto (51%) and represents a significant part of the Mongolian economy. A collaborative approach to operating this asset is now in everybody’s interest. Consequently more upside is in the cards. In EW terms $10, the base of the wedge or wave 4 of C, is a reasonable goal.

Copper itself may not fare quite as well. It has not returned to the lows of 2008/9, not even close as this long-term chart clearly shows;

or in more detail;

Starting with the top chart, this is from the LME where they do things in pounds per ton, it is obvious that we are still well above the yellow 50+ year channel. So, if we were ever to regress to the mean, there is still serious downside potential, perhaps towards $2 or even $1.50 a pound. EW targets would be even lower than that, more like $1.25.

If nothing else, the long-term chart of copper shows how extraordinary this, give or take, ten year period from 2004 to the present has actually been. Linear extrapolation no longer has any predictive value.

Share this:

Share this:

Share this:

Share this: