Month: May 2009

S&PTFS Capped Financial Subindex. Has Canada Gone Mad???

Hamilton

SPTFS May 5

To avoid the idiosyncracies of individual stocks and the skewing effect of high-cap. weighting lets look at the S&P TSX capped financial sub index. As shown earlier we approached the financials as grossly overvalued (in the US they accounted for 70% of earnings,  both in Can. and the US their weight in the respected indexes had grown from 10 to 30% etc. etc. ). In Canada perhaps because of the home-bias, the lack of choices and the oligopolistic nature of the business and, lets not forget, the almost incessant lobbying against foreigners. So at 220 where would one expect this to go? Answer, Gartmans’ box, even the lower end of it, a Fibonacci  50 to61.8%. On 220 that gets you to 110 to 84 ( in reality the base should be taken out so these ratios apply only to the last gain) The actual low occurred at about 90 at which time an analyst at a large Canadian  investment firm  suggested these banks should cut their dividends ( a very popular idea if ever there was one), in order to solidify their , presumable , fragile capital positions. Once the low is recognized where would one expect this to go. Same simple formula,  about 50 to 61% back up , which on 130 is anywhere between 65-79 or 155 to 169. (Remember this is all consistent , even with a rabid bear market!) So here we are near 150. It took 16 months to go down an 2 to go back up. Now the same investment –dealer, the same analyst is getting excited about bank stocks. Just in case  this leaves you wondering, there is the added caveat that “this (opinion) is not reflective for bank earnings near term”. Got it? In the mean time the RSI is above 70% which has not occurred for years, the MACD similarly is at previously uncharted levels and going down now for several weeks.

  A prudent , thinking, investor would have sold at the top ( in practice  earlier ) , would have bought in March and sell now! Above all  avoid analysts . By the way for RY the numbers are, top at $62, down to below $26 (close to 61% if adjusted for the base level) and a potential high between $ 44 and $48, being 50 and 61% , presently trading at $44+

CCO May 5

Hamilton

Cameco is the largest uranium miner in the world. It is a little water logged but that problem will pass. For the moment nuclear energy is the only big scale realistic solution for the energy problems of the world so demand for its product presumable will continue and expand.  The chart supports that (long-term view). Here it is in the big picture.

CCO May 5

At first blush this is a initial first wave followed by many years of downward movement in wave 2, perhaps while the Russians were decommissioning there submarines and other rusting toys, followed by a third wave up. I assume it is all a third wave simple because the structure suggests it and there are a distinct 9 segments (5+4). That is followed by (perhaps incomplete) wave 4, which so far is a very clear a-b-c, where c is more or less equal to a. In this count wave 4 cannot overlap wave 2 and indeed it does not, 12/13 for wave 2 and 15 for wave 4. The risk in buying CCO was therefore very low at $15. Here is more detail.

CCO may 5 2

Notice that wave C is more or less equal to A. The exact termination point could be argued but either way this has the potential to go at least to $45 or even new highs  OVER TIME. At this very moment it appears a little overbought given the RSI and MACD but give it a week or so it still looks like we are in a small 3d wave up, so despite ,perhaps ,a few dollars pull –back I suspect we go on for a little while yet. The real critical point is around $31+, if it can breach that (overlap) the world opens up for higher prices. Depending where one owns this, it may, in a zero cost environment, be sensible to sell here and buy again at $32 (something I have great difficulty actually doing).

Long term, as in this count waves 2 and 4 do not alternate, thought should be given to this wave 4 becoming a multi-year triangle. We are in that scenario in wave b of an a-b-c-d-e sequence. This b should get to about $50.  DML is an alternative at a lower cost but not as robust.

UUU May 5

UUU, click to enlarge, suggests that there is still some room ahead immediately, also lower that $1 is about as bad as it can get coming from $18. There are probable others in this space.

DML May 5

Hamilton

On April 6 I recommended Denison Mines when it was about a dollar with a potential target of , perhaps , $8 being the apex of a triangle. We are not there yet but are now at $2.75, a good deal more than 30% , so we chalk it down for accounting purposes. It is still going to $8. Here is the chart again.

DML May 5

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%.