Month: March 2011

F, GM, TM (Toyota)

Hamilton

 

tm32011

First Toyota. The big chart should bring tears to the eyes of the true EW(avers), in that it follows all the pragmatic little rules and guidelines perfectly, so far. My drawing is simplified just to get the message across better, but in reality wave 3 tops one block lower as wave 4 is most likely an irregular zig-zag. The top line should go through the top of wave 1. The result is that wave 5 is equal to 1 and 3 combined, there is alternation between 2 and 4 and the 3d of 3 is extended. All picture perfect.

Typically correction take a stock to the level of the 4th wave of previous degree, roughly $40. Furthermore, again this is typical, the stock loses at least 62% of its value, about $50. It has done neither of these,yet. It will , if it keeps behaving.

f32011

Ford has pretty well also done what it should having completed a first wave up, right into the level of the 4th wave and at about the 50% retracement level. From there it has dropped in, what appears to be, a very nice 5 wave down for A. If you are courageous the next B wave up should be good for $3/4 to the upside, but after that the stock should go down in the c wave  to at least $10 (but possible $7).

GM peaked after its public offering at the beginning of the year. Since then it has dropped below the issue price. There is little chart to go by but what little there is does not look promising.

ACWI (Morgan Stanley World Index iShares), STOXX50

Hamilton

Rather than show 10 or so different stock exchange performances – the AEX as one of the worst and the DAX as one of the best – it is easier to look at the World Index as all indexes have the same pattern even though they differ a lot in absolute performance. A look at the Dow Jones European index more or less  confirms the view all though it contains only European companies;

ACWI

The point here is to look at the pattern, nothing more. If it can be viewed as a B-wave correction from the lows, it follows that either the corrective process will become a lot more complex (for instance in a huge triangle or flat lasting a number of years more), or we go straight down to complete the correction. If it can be viewed as a 5-wave move, or one that may still become a 5-wave move, things would look a lot more positive.

In my opinion this is a B-wave, plain and simple. Moreover it is either complete already or has at best another month or so to go.  First of all C is vector equal to A, and, with just a minor change in the count all three, A,B and C are equal in length. C is a rather precise 62 % of a in terms of distance. Wave C could be viewed as a “wedge”, a structure that only occurs in 5th or C-waves. The retracement is well above the more normal 50 to 62% at about 76%, but that is fine even if it is unreasonable to assume such a level in advance. Both RSI and MACD are non confirming. The B wave in this structure is a very nicely formed “megaphone”, or in EW lingo an expanding triangle. These occur only in the 4th wave or in the B wave position. Ergo, even if this whole thing proves to be a 5-wave affaire, after the fact, in all probability we still need to do a wave 2 down first (to 37, or about 20%), so initially the assumption of this being a B wave will serve you well even if it is incorrect.

Just to compare it is worth looking at the DJ Stoxx50 index, similar to the world index but covering Europe only;

stoxx march5

Remember that by clicking on the chart it becomes larger AND you can move it around to put the charts side by side for a better comparison. Clearly the two are essentially identical, the only real difference is that the Stoxx is less robust  having barely gained anything over an entire year. Of course Europe has benefitted less from Bernanke’s largesse and also has suffered not just as a result of the  well circumscribed financial implosion, but also had to deal with a “constitutional” near death situation.

In my opinion this is a B-wave so we should start to go down, if not right now, very soon. I have added the TSE for completeness. It lacks the clear megaphone and has outperformed the other two (commodities) but otherwise it too is identical as are at least another dozen indices.

tsemarch2011

On Aug 3, 2011, I unfortunately rejected this possibility, primarily because of the time factor, here is that chart. The A wave is drawn incorrectly but otherwise it was dead on, but no banana! Keep in mind that the chart below is on a semi-log scale, the one above is not.

tse aug 2010 2

TSX, update.

Hamilton

Here is the TSX again, just as a reminder where we are in the big picture. tsx march 2011

According to Bloomberg/Businessweek the S&P, based on one measure of volatility, hasn’t risen this much amid price swings this narrow since 1971. We had ourselves observed earlier that the TSX had never in it’s entire history, had an absolute move this size, and that was a hundred points ago.

This alone should be a warning that things may just be a little ahead of themselves. The Fed. has been behind much of this by way of QE2 and more importantly coercing the market .Their word has been gobbled up like gospel, but in the end they are powerless to change market forces. So, where are we now on the TSX? Here is the same chart of a few weeks ago updated to today. I am , of course, surprised that we got above the 12000 level, but now that we are here it is good to see where this might go. The purple circle in the above chart represents a “cluster” of different measurements that could ultimately determine where this is going, that is if the whole thing is not already turning today. The cluster consists of:

       1.The parallel trend-line through the top of wave 3, where we are now at about 14200.   

       2.The double-top on a monthly basis, about 14500.

       3. The all time high at around 15150.

       4. The point where c equals a in an a-b-c B-wave, about 15100.

       5. The point where S = R= Q (light blue) at around 15200

       6. The parallel trend-line through the top of wave 5, also at 15200

       7. The next higher point would be where waves 5 and B are vector equal at 16500 if straight up. More logical would be to have some time go by which would lower that point (move along the red circle). This is highly unlikely as the intersection of the red circle with either parallel trend-line is at least 2 years away! To make a long story short, this market realistically has 7% max. to the upside. Time to buy HXD.

Without all the clutter, here is the DOW as well.

DOW march 2011

Notice that of the , give or take, 70 years that is covered by this chart all of 1 1/2 were spent at levels higher than we are today.

RY , again

Hamilton

ry march 2011

It was not surprising that RY would have a little jump to about $59 as anticipated on the 18th of Feb. However, we got a little more than expected, all the way up to $60 +. This makes the outlook a little more precarious but unless we make a new high , this does  still seem to be the correct EW interpretation, but the target of $44 should be raised accordingly to about $47 or so.