Month: January 2011

Shanghai and Hang Seng index.

Hamilton

To get some idea of how this China Wirtschaftswunder is actually affecting their own stock exchanges a quick look at the Shanghai and Hang Seng (Hong Kong)makes you wonder where the disconnect is;

Shanghai Hang Seng

The Shanghai on the left looks pretty dismal, worse almost than any other market. (see previous blog). The Hang Seng looks remarkably similar to Copper and TCK.B. An a-b-c correction from the lows fits best and the pattern either was completed or has one more little leg up. Ergo we think it is time to get out of TCK.B Seebelow previous comments on Shanghai from exactly a year ago.

Shanghai DJ Index Jan10 2010

Copper and FCX , Freeport

Hamilton

To test,so to speak, the plausibility of TCK.B being close to an exit point, looking at Copper (the stuff) and FCX (presently the largest copper miner operating from Indonesia). Here are the charts;

copper 2011 fcx 2011

Copper and TCK.B are pretty well identical, suggesting that it is still possible for TCK.B to go a little higher, perhaps 10% or so. FCX is clearly the winner in this competition. The C=A and the stock is double topping having clearly risen in a 3-wave fashion, that is, corrective. Also the RSI and MACD are turning over so this one suggest we are well done right now.

TCK.A, Teck/Cominco.

Hamilton

2 years ago we opined that the stock had not yet completed 5 waves down and therefore could go lower. (see old blog). Even though that assessment proved to be correct,it did not help very much as we forgot to look at it again for too long a period of time. Today at almost $65, or $12.5 above the levels attained at the triple top in 2007/2008 we would sell the stock.

Fundamentally, if you agree that buying low and selling high is the way to go about investing , the question how high is high must have presented itself. Could this be high? Like a phoenix this thing rose out of the ashes and here it is well above the old highs, mostly due to the China’s insatiable appetite for iron ore, copper and what not. So the stock could be vulnerable should China’s Wirtschaftswunder come to an end, that is level off.

Apart from that the charts suggest 2 alternative possibilities, here they are;

tck 2011 1 tck 2011 2

Apart from clearly showing that this stock, should it regress back to the mean, is overvalued by at least $20. More importantly, in my view, there are now two possibilities in EW terms. The first , on the left, is that the orthodox top in this formation occurred sometime in 2007/8. As there are actually 3 tops at about the same level (not shown well in these charts, anyone could have been the top. It matters little except that the drop into the lows is consequently clearly not a 5-wave move; perhaps an a-b-c. On the right we assume that the whole upward cycle was not yet complete and needed a 5th wave. That both possibilities can be reconciled with the structure of the up move is pretty clear from the detailed chart below;

tck 2011 3

This leg can clearly be counted as either a 5th wave (with 5 subdivisions) or a large B wave (with 3 subdivisions) that rises above the orthodox top. At this moment one cannot say with absolute certainty that this stock cannot go up another $10 or so , but what can be said with a good deal of certainty is that the next big move will be down to $3, or $32 or anywhere in between, depending on which chart you believe. Time to say thank you and move on.

See also Copper, above.

F again and the Volt

Hamilton

Ford has been one of our best calls and also one of the most controversial. From $1 to almost $19 is quite a performance, more than we expected as we had $17 as the very maximum for this first round. This market seems to be “irrationally bullish” once again , to use the phrase that Greenspan coined  a decade and more ago, the one time he was sincere. It seems to always and everywhere push stock prices beyond what one would reasonable expect Here is the chart.

F 2011 jan

Here is a count that may or may not be correct, but at least it seems to be perfectly valid. The $17 is, by the way, derived from the big-chart (not shown) where it denotes the level of the previous degree wave 4, the normal initial target. Notice that all 3 upward waves in this chart, 1,3 and 5 are essentially the same size in terms of vertical distance and also pretty close in terms of time spent. (Vector equal, in other words). We know from the pragmatic findings of EW that wave 3 cannot ever be the smallest, which, if your pencil is sharp enough, means that wave 5 cannot go any further.

According to the founder’s grandson who now chairs the company, there are many unknowns in the future with respect to building cars, the green ambitions that Ford has, government aid to introduce green policies and the acceptance by the public of the Volt.  We know that the rational consumer, the guy with the slide-rule and a brain , that most economic theory is predicated on does not exist in reality. But just for fun lets see how far people have to depart from this guy to fall in love with the Volt. You can buy this thing for $41000. You can also buy a Corolla or even a Ford Focus for about $18000 (just to mention two), never mind that car that soon will be imported from India for $6000 or so or the Hyundai that is already available at $10000. After you add HST to the difference in price of about $22000 , the Corolla is $25000 cheaper upfront. It does about 15 km/liter so at today’s price of gas, about $1/liter, you could travel 375000 km before you break even. If you add in the effects of time-value of money, maintenance cost for a very complicated car against a very basic one, insurance etc.etc. the difference becomes much larger. Ergo, I would expect acceptance to be very low, something like that of the Prius which is far from an economic success.

We would step aside if not already done so.