Month: December 2010

AMGN

Hamilton

amgn 2010 amgn 2010 2

Big Pharma has been giving mixed signals. Amgen is a good example as it has , arguable, spent the last two years going absolutely nowhere with higher lows and lower highs, suggesting the possibility of a triangle. These only occur as waves 4 in a 5-wave sequence, or as waves B in an A-B-C. The short-term chart on the left seems to favor the notion that the triangle is a B wave and consequently an explosive thrust up should start any moment (perhaps today with the announcement of a new prostate cancer drug). The longer-term chart on the right leaves more possibilities, one of which suggest that this might in fact be a 4th wave of C in a multi year corrective move that is not yet complete. A breakout either way will clarify the situation.

By comparison I have added charts of PFE , BAX  and MRK.

PFE 2010 pfe 2010 2

Pfizer, see previous comments, overall favors the bull case having already lost 80% of its value. Today’s dividend announcement may push the stock through the upper trend-line.

BAX 2010 BAX 2010 2

BAX also favors the upside, that is at least to the level of the b-wave in the last A-B-C correction. MRK, see previous comments, is presently sitting in the middle of nowhere

In conclusion, a buy with a tight stop would be the way  to go on AMGN.

EMC Corp. ( a compelling short,at least for the next few months)

Hamilton

The “diagonal triangle” a.k.a. “pennant” or  rising flag, is a fairly common pattern that indicates an upcoming reversal as it invariable occurs in the 5th, or last, wave in a 5-wave sequence, or in a C of an A-B-C. At the very least the market should take the stock back to the base of the pattern and , in the event that it was a C in an A-B-C, usually a lot lower than that. EMC Corp. , a tech stock that was named, I suppose, after Einstein’s famous E=MC2 formula, is providing us with a text-book example of one of these patterns, right now!

emc 20101

Nothing in this business is ever straight-forward as there are numerous valid ways of counting this wedge. In red is the smallest, green is a little bigger, blue bigger than that and then purple. Given all this ambiguity one might , justifiable ,  comment that perhaps there is one even large than all of these. However, since the apex is just a few months away, at the most, and the angle at which this pattern rises – about 50 cents a month – is so low that even in that event the stock is not likely to runaway from you by much more than a single dollar at the very most. Against that you are virtually assured of at least $5 to the downside making this, essentially a 5 to 1 proposition. By the way, both the MACD and the RSI are not confirming the recent highs! Also, looking at the big picture, we get;

EMC 2010 2 emc 20104

From the big chart there is no specific target that is compelling , one way or another. But from the intermediate chart an argument could be made (in contrast to the above) that the stock completed , ( or is about to complete ) , a 5-wave move from the most recent lows of $8. The present level to about $23 would complete the pattern.

These wedge patterns are extremely reliable and work  as scripted most of the time. That , combined with a 5 to 1 reward ratio, makes this a very attractive trade!

S, Sprint Nextel

Hamilton

On BNN they had this hedge-fund guy, Einhorn, talk about some of his favorites, one of which was Sprint so I thought I would look at it from an EW perspective. It confirms the possibility that this stock may go up. This is in the same category as Starbucks which I do not understand either but it sure worked well! Here are the charts, starting with the short-term.

Sprint 3 2010

From a low of $1+ back in November 2008, out of synch with the market overall, it quickly regained  it’s composure by rising almost 6-fold after which it went comatose for nearly 2 years. As the saying goes, do not sell a dull market; this may well be a (wave b)triangle within an a-b-c correction from the lows. If so an explosive wave c is yet to come once the triangle’s waves d and e are completed. The stock should not trade below it’s most recent low and the “thrust”, if equal to wave a, should take the stock to $8/$9. Once there the $10 wave 4 retracement level is within spitting distance! Long-term this is all very plausible as can be seen from the long-term charts, arithmetic and log-scale;

Sprint 1 2010 Sprint 2 2010

The log-scale best illustrates the a-b-c corrective nature of the drop from $80 to $1. There is no need for this stock to drop further simple because there is no room left to do that. So the question is will this stock disappear entirely or will it rebound, or more importantly, will it rebound enough? As the stock has not completed an a-b-c yet from the lows a rebound is extremely likely, at least to the 4th wave of previous degree, in this case wave 4 of C at about $10. If it materializes that would constitute a gain of 150% or so.