Month: May 2009

Ford, May 9 and pattern recognition.

Hamilton

Lets have another look at Ford, just to make sure we got it right. Here is BigChart for the last few years.

Ford May 9

This particular pattern is a “diagonal”in EW terminology; in plain English it is an expanding wedge. It occurs always in a 5th wave position (or C in a correction). What it tells you is that things have gone too far and too fast and hence one should expect a violent (relatively speaking) reversal, invariable back to where the pattern started or further. All legs within the pattern must be 3’s (sometimes hard to tell as there are irregular corrections which make things look as if they are 5’s) Below is the “model”once again.

diagonal015

Notice that all the waves are pretty well identical except for wave 4 which is irregular in Ford’s case and not in the model. Otherwise everything is as it should be. This would allow a rise to about $7 before a serious pull-back should occur, but that is fiddling in the margin. Keep your eye firmly on $9.60+ as a minimum.

One other thing that supports Ford this time is the “guideline of alternation”, it is not a must but more often than not things reverse themselves the second time around. During the 1930 Ford lost money and GM and Chrysler did not. Ford dropped from #1 to #3 , GM and Chrysler went to #1 and #2 positions respectively. Ford was pedantic and clung to outdated ways of doing business, a description that now better fits GM. By the way, from 1929 to 1932 vehicle production in North America dropped from 5.4 mln. to 1.4 mln., down by about 75% This time around the numbers are 16 mln. to 10 mln. give or take, which is slightly more than 30%. So Ford may not be a hold forever, on the other hand, it could go to about $15 just to retrace the entire 5th wave down, also very common.

RIM May 8

Hamilton

We had a good run with RIM and then decided to leave it alone, something I warmly recommend, from time to time, particularly with high beta stocks like RIM. You do not have to play, or play all the time.                                                                                                             Long term RIM has potential since , under one count, it still needs a fifth wave to complete a multi-year ascend. Here is the picture.

RIM May 8

Under this count all of the action from’03 to ‘08 was wave 3 (notice that it stayed above wave 1). Ergo it is possible that we still need a fifth to say $160 to finish the whole cycle. This is at least plausible as RIM was a late comer to the tech party anyway. Now in more detail;

RIM May 8 2

The red depicts the BAD scenario, the green the GOOD scenario. When will we know? One thing would be if we closed the second gap and reattached the island to the mainland, BAD. Alternatively we could close the first gap , GOOD. Keeping an eye on it, but must confess this is a stock I do not understand all too well. The problem in a nutshell is that we have 2 lows, making it unclear if the move down was an a-b-c or a 5-wave structure, time will tell. Fundamentally I can easily envisage either outcome, particularly once you start throwing money at sport clubs.

MAL May 8

Hamilton

If you still own it , I would give serious thought to selling MAL and keeping an eye on it for potential lower re-entry. At this point you are up 6x your money. the 4 and 5 still to come as per last comments turned out to be bigger than I anticipated. Here it is.

MAL May 8

By the way, this may only be the end of 3!, not at all sure, another good reason to step aside.

RY /CM spread trade. May 8 time to close position!

Hamilton

First recommended on April 14, sell 1.2 shares of RY @ $41 for a credit of $49.2 and buy CM at $51 for a debit of $51, all per share of course. Total outlay required $51000 for a 1000 share position. The short finances the long but margin is nevertheless required on both. Earlier I suggested that if this makes you nervous, to sell out the position at an about 2% gain. Today I would strongly recommend exiting the position as the CM is reaching its FIBO limit in the next few days. Right now you would lose  1200 x (44.60-41) or $4320 by buying back the RY short and  gaining  1000x (61.20-51) or $10.200, for a net gain of $5880 from the sale of CM, equal to an absolute gain of 11.53% in less than a month,all this without exposure to the banks.