RY so far doing as expected.

November 13, 2010 Hamilton

Last time I suggested this stock should stop its bounce at about $57 and then resume its downward trajectory to , at the very least, $44. So far so good. Here are the charts.

The stock , surprisingly, double–topped at a little over $63 , actually making a new all time high. Surprising because it had traded at just over $25 not that long ago. In any case that raises the question which top was the real one, important only to E-wavers. For the next little while (few years) it fortunately does not matter all that much.

After a 5-wave decline, another 5 wave leg MUST follow (to , at the very least, form an a-b-c correction). Furthermore, whether a new bull market started at the low or whether the bear market is not yet over, either way it is perfectly normal to have a 61.8% retracement (at about $40). A break of $52 would make this , perhaps in many eyes, farfetched scenario, all the more probable.

Emerging Markets EEM, MSEMF.

November 13, 2010November 13, 2010 Hamilton

Your neighbors grass always looks greener and the same kind of phenomenon occurs in the realm of investing. The further away from home, the more exotic the place the better it is. Part of the reason for this – apart from the lack of transparency -is that it takes a relatively small amount of additional investment to drive up the price by a disproportional amount. By the same token, the opposite also applies which is why I think it might just about be time to get to the sidelines. Here are two emerging market ETFs.

Both are close to double topping but are not quite there yet. Notice that ,where shown, both the RSI and the MACD are not confirming the latest up moves. More importantly, even if it is not perfectly clear what count fits the rise since the lows (could be an a-b-c x a-b-c correction or a 5th wave with 5 waves in it), it is fairly clear that there was an expanding triangle of approximately 10 months duration a little past the middle of the charts. These patterns occur only in 4th or b waves and are a.k.a. megaphones for pretty obvious reasons. As with all triangles the markets quite predictable return to , at least, the lowest point in the triangle or about 25+%. Not a good reason to stick around.

By the way, I have been dead wrong on this one before!

SBUX , Starbucks

November 12, 2010 Hamilton

Back at the lows in April of 2009 I recommended buying Starbucks despite my misgivings about a business model that survives on charging a king’s ransom for a cup of coffee. My target was too low as usual but the idea worked out well (see recommendation in this blog). This was essentially the buy low sell high principal at work. Today the stock looks like this;

Now that the stock is up $30 from the low of $5 I would start thinking about selling high and buying low again. No doubt this one is overdone to the upside but this is a momentum stock par excellence. Start taking small short positions and or use options. I do not believe that QE2 will induce too many people to pay up for their lattes except , perhaps, in the proverbial square miles around the trading desks of the world’s financial centers.

The Keg, KEG.un

November 12, 2010November 12, 2010 Hamilton

The Keg restaurant pays a return of slightly above 10%. At first blush his may seem very attractive given that the market overall pays less than 3% in dividends. However this is an income trust and the payouts for these structures (which must be phased out by 2011) are notoriously disconnected from their actual earnings(i.e. you may be getting your own money back)!The present payout ratio is 99.2% which is high by most standards and certainly for a capital intensive operation. The company has existed since 1971 but only went public in April of 2002. It is a franchise chain with a total market capitalization of about $130 million.

Since inception the stock has traded roughly on either side of $10. The present price of $12 is therefore not cheap. The RSI and the MACD both suggest a drop could be in the cards. More importantly the EW count that best fits the action after the lows is that of an A-B-C correction followed by a new bear cycle. Only if a new interim high can be achieved is this scenario negated. The Keg not that cheap , a decent meal for 4 will set you back $350 easily whereas the same meal at a Chalet Suisse would cost perhaps only $150. This upscale positioning is good when life is good and there are sufficient numbers of high-rollers ( compare to Harley Davidson , nobody buys one because they need one, only because they want one.) Should the market turn down again, this stock would be quite vulnerable.

For comparison purposes I have added Harley-Davidson (HOG) below;

Again click on the charts and move them around to better view the correlation.

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