Year: 2009

S&P , TSE etc etc the 3 possibilities.

Hamilton

Just to explain where we might be. The assumption is that we are in some sort of super-cycle degree move. It is possible that this is actually not the case in which case an argument could be made that the A-B-C is done. Notice that B went slightly above and below A in this 9 year pattern and that may just be all there is to it. The DAX has not even gone low enough. Maybe but there are some pretty strong arguments against this view. C is often MUCH larger than A. Also other exchanges do not rhyme with this. Therefore the assumption is that wave C has only completed wave 1 of C as shown, allowing for a big drop to come.S&P May22

This rhymes with the TSE.

TSE May 22

Note that this index, like the NYSE and the Dax and many others has NOT EVEN made it to the 4-wave of previous degree. Now there is nothing to say that it must do that but in al probability if it has not yet it will. So about 6000 or lower is still very realistic even though this could have been an A-B-C where the A and B are very small and the C the %-wave down that we have witnessed. It did go down about 50% and it does contain oil etc. to make it a little different.

A third and last possibility is that we are making a very big triangle. It would have to be irregular as 5-waves do not fit in a triangle. Unfortunately nothing is certain, however considering that this is a 300 year degree correction a return to the 26 year 1000 top on the DOW would be perfectly normal!

CM May 18

Hamilton

cmMay 18

The Commerce Bank CIBC has a nice chart that provides a good insight into what may happen in the Canadian market. The drop from 105 to 35 would certainly qualify as a “bear market” by anyone’s standards, moreover it is pretty well what one would have initially expected given that the “box” of 50 to 62 % down has a lower boundary of about $40 (which under one count might actually be the “orthodox” low , as opposed to the actual low at about $35). It has a nice 5-wave down structure, no overlap and perhaps a 5th wave that is a wedge or diagonal clearly defining the imminent end to the move. Waves 5 and 3 are about the same size but 3 is definitely not the shortest!

   There is one little problem, 5-waves never stand alone, meaning they either attach to an A-B- preceding it (not the case here , presumable , given the 40 or so dollar difference in the value of the preceding  tops), or there is at least ANOTHER 5-wave move following, albeit after a reasonable intermission. The down-trend prevailed for about 17 months, very roughly, so a reasonable intermission could consume the better part of 6 to 10 months. Under one count 6 months have already gone by, under another only 2; either way another 3/6 months of corrective action is not an unreasonable expectation. All this suggests that we may be in a B wave of a larger corrective structure, the point to buy again is at about a 50% retracement or roughly $50 (even a new low at , or marginally beyond the old one is possible but in our present bullish environment not all that likely!The B-wave can develop as a triangle, usually for the simple purpose of consuming more time

   As to how high the correction could ultimately go?; if the wedge is indeed a wedge $78 ( alternatively, if the wedge is smaller, $67) is your target; if the $40 is the orthodox low  $40 + 61.8x (105-40)= $80 would be the upper boundary of the new “box”. Wave 4 of previous degree, a common retracement level is also at $78. Time wise it could be done by Sept. give or take a month. Interestingly the Royal does NOT have this potential, its best level would be around $51/52 so this opens the opportunity to put on the long CM/short RY trade again, for a potential gain of about $15 or so, nothing to sneeze at.

   Once all is said and done the end of the bear market would be when this B wave is complete and followed by a C to make the whole experience an A-B-C. Suppose, for the sake of argument, that wave C has the same percentage drop as wave A, that is about 62%, and also suppose we do go to the cluster at about $78 in B, than ultimately we would end at about $29. This compares to the low in ‘98 of $24  which low might be considered a 4th wave of previous degree in this larger context and a common retracement target. Notice that this outlook does not rhyme with the TSE overall, but the the banks as a group never did.

TSE May 16. Last entry before going dormant.

Hamilton

E-Wave is all about probabilities. Anyone can count to 3 or 5 so that part is not that difficult were it not that the market always throws in the proverbial monkey wrench. The DAX and the S&P both had near perfect double tops but the NYSE (NYA) and the TSE went way beyond the 2000 highs. The TSE proper has a triple top before it starts to drop and then has a double  bottom (Dec. and March) so it is difficult to , with any degree of certainty, establish where things begin, end and what the intervening pattern is. All one can do is look at what the alternatives are and where the greatest common denominator is found. In other words, try to find the highest probability. Here is the chart again.

TSE May 16

This is a rather bearish outlook and one would hope it is wrong. Still it has the highest probability. The pattern is fairly clearly one of 5-waves down (which never stands alone!) so there should be more to come. Time wise , depending where you start, the time spent going down is essentially equal to the time of the retracement (markets love symmetry). The initial 6 month drop took the index down by roughly 50% (but not to the 2003 lows!). The retracement, which certainly could go higher to 50/61% , or even higher, has so far done about 38% in 6 months, most or all of that in the past 9 weeks. In doing so the market traded above its 200-day moving average and pretty well exactly into the high point of wave 4 (a very common retracement level). Also the RSI was above 70 about equal to the high in June and the same goes for the MACD ( I look at these only to support an EW view). In the mean time stocks like RY went from 62 to just under 26 (50%) and back up to 46 (78%) exactly at times that that bank’s own analysts were either bearish or bullish precisely at the wrong time. The insurers like MFC and SLF have more than doubled from there respective lows and are dropping.

There could always be more bullish scenarios to explain what is going on, but for the moment none stand out as probable. To the 473 viewers last month, thank you for watching. I can be reached at hamilton.jansen@cibc.ca . My phone is not working yet but 905 762 2426 will get you through. This is at CIBC Wood Gundy, in Thornhill. Look forward to hearing from you all.