TKR, Timken and SKF

July 31, 2011 Hamilton

Just for comparison purposes I took a peak at that other ball bearing manufacturer on this side of the pond, Timken. Here are both TKR and SKF. Click on them to enlarge and you can move them around as well.

The timeframes are not exactly the same, the SKF one is about 3 years shorter, but by shifting them around you can better compare them anyway.

Both have been on a roll , so to speak : Timken a little more robust than SKF. Both look like they will get a thorough thrashing soon. An old Mercedes-Benz diesel that I once had , used Timken bearings in the rear axel, not SKF’s which I found rather surprising. It was second hand so perhaps it was not original equipment. In any case both stocks are clearly listening to the same drummer.

Nasdaq ($NDX)

July 31, 2011July 31, 2011 Hamilton

As my rumblings re. the QQQ may not have had the clarity that I had hoped, here is essentially a repeat using the Nasdaq Index by way of the NDX. First the big picture;

This shows the Nasdaq from the lows in November of 2008 to the present. The idea here is that we are looking at an A-B-C corrective (or counter-trend) rally. A (vector ) equality is by no means a requirement but it certainly adds credibility to any conclusion. What we do not know is which low was the real one in E-terms, Nov. ‘08 or, as in most of the universe, March ‘09. We also do not know is there actually was a triangle as a B-wave in the middle or something smaller and more abrupt. Consequently there are two tops for A and two starting points for B. Stockcharts allows for an easy transfer of an arrow as a vector. As a result the above chart has all 8 possibilities for C being vector equal to A (two for each color, blue, brown, green and purple) The light green colored elliptical area more or less contains all 8 outcomes. The conclusion must therefore be that, provided that we are looking for vector equality, the Nasdaq must go higher. Again equality is nice but not at all required.

Furthermore, given the length already travelled and the tendency towards alternation, it makes a lot of sense to assume that the messy action for the past six months is a (irregular) flat or a triangle, both of which are sideways moves. This is shown in detail below;

In the above chart there are 4 completed waves, all of which could be 3-wave structure. The first most definitely is, the second likely is, but the third is touch and go. The fourth is most likely not a 3-wave structure. Supposing the all were subdivided in 3-waves than a fifth wave e would be required to complete the (expanding) triangle pattern. Only then can the “thrust” up take place. This possibility seems totally at odds with the deficit nonsense now going on in the US, at least in the timing. The other choice is that the flat was in fact complete at point e, and that we are already in the 5th wave up. It may even be complete as is. If not we are in 4 of 5 with 5 starting any moment (see blue arrow) or again forming a small triangle to kill time and then completing the 5th of 5 (second blue arrow). This should not stretch the process more than a week or so.

The ultimate high should not be much more than 200 points higher than the present level. Wave 3 of 5 is about 200 points in length, with 1 a lot shorter. Usually, though not always, 5 would then be shorter than 3 so the top would then occur somewhere below 2560. That level corresponds well with the lower range of the green ellipse .

It is good to keep in mind that there are other possibilities not discussed here, and also that the top may already be in. Symmetry is not an EW attribute , the Nasdaq obviously does not represent the markets at large and both the RSI and the MACD already look as sick as a dog. Time will tell.

UN, Unilever

July 31, 2011July 31, 2011 Hamilton

Unilever is a little like the United Nations, it has operations in just as many countries and it’s businesses vary from margarine to detergents, cosmetics and toothpastes. Its employees are truly multi-national coming from all corners of the world. Unlike the UN, it is not run by a bunch of political hacks that can hardly be distinguished from common crooks. It is therefore a truly global institution in a , for the most part, non-cyclical business. If there are still blue-chips this one certainly fits the bill. It is also one of the few, Shell being the other, world concerns that have endured despite a dual cultural and linguistic history. Here are the charts;

(see also a previous blog!, that fairly accurately predicted events to date) This stock has a p/e in the high 15 and earns about 1.3%. The lines drawn are not channel lines, they simple serve the purpose of illustrating between what points most of the trading on this stock occurs. Forget about EW and intuitively I should think that it is rather evident that you might want to buy this stock near the lower line which it has touched at least 9x, only once , very briefly, going through it by a miniscule margin. When the stock gets above the upper line, a relatively rare occurrence , only 3 x so far, it never stays there very long and then invariable drops right back al the way to the bottom line. The stock is presently well above the line and no sane person should hold the stock! Unless, of course, the perception is that there is no where else to go.

From an EW point of view there is every reason to assume that in the next downdraft the bottom line will NOT hold. There is a “flat” forming with waves A and B complete , or nearly so. C may well have started already and targets +/- $17. The only question now is , is the wedge complete? See below;

Wedges are very accurate patterns but the also have a tendency to fool you by going one level further, but probable the peak is in. In any case the RSI and MACD are warning that a turn is due.

As the previous blog was not coded it cannot be found, so I have repeated those charts below;

SKF AB, Swedish Ball-bearing Factory.

July 31, 2011July 31, 2011 Hamilton

Do not confuse this one with the other SKF, the Pro Shares Ultra-short Financials ETF. Your results would be dramatically different over the past 3 years.

SKF is the worlds most renowned maker of ball bearings. They trade here only as ADRs . Moreover, since we live in a throw-away society and nobody takes anything apart anymore , nobody has actually seen or heard of them. As Sweden has this preoccupation with “neutrality”, understandable if you live next door to the Russian bear, their products have probable been banned by law in the US for anything remotely related to defense , which is to say, about half the US economy. But chances are that if you tinker with your Volvo you will find dozens of them. Any European car for that matter will do.

Here is the chart;

Like Colgate-Palmolive (CL) this stock is a prime example of why the stock markets are, or soon, will be in trouble. EW is always about probabilities and never yields absolute certainties, but it can provide much better results that listening to your broker who is swept off his feet by the latest irrelevant news item and barely knows the difference between double-entry bookkeeping and cooking the books.

There is a lot in this chart and a lot of ambiguity at the detail level. For instance the top could be the first top (in green) or the second (in purple). The low, in this case in Nov. of ‘08, could just as well have been in March of ‘09., if one assumes a “failure”. etc. etc.

In the big picture things are quite clear, and there are a good number of hints that add credibility. If this is a large B-wave it should not exceed the length of the preceding down leg by more than roughly 30% (about 9 blocks against 12),; it is a little beyond that but not dramatically so. The triangle, which itself can be counted in two different ways, sits pretty well in the middle and, using the above mentioned “failure” as an excuse, the time taken for each leg is roughly equal, making the A and C legs almost vector equal.

If the last up-leg was NOT a B-wave, it can easily be counted as a 5th wave (in purple lettering). The triangle, if there is one, would then have to be wave 4, the 5th of 5 would be about equal to 1 and 3 of 5 combined, a normal relationship. Whether there is a B-wave, or a 5th wave, does not alter the fact that the stock first climbed to the lower trend-line, clearly attracted by it as a moth to light, only to be rejected once the line (light blue) was hit.

To sum it up, even though there are some unclear elements in the details, the big picture is perfectly clear and it is quite bearish. A drop now to $19, the apex is a minimum. $16 would be normal – even in a new bull market – representing a decline of about 62%. After that it gets real ugly; C waves of this huge multi-year “flat” (the green lettering) typically drop below the origin of the corresponding A wave, $6 or below. There is a nice H&S pattern that is downright ugly as well

All of the above could still be wrong, we might be in 4 of 5 and go up another $5 above the high to meet the upper trend-line at about $37. A prudent person should not take that chance and should be happy with a move from $6 to $32. Some might be consoled by the thought that Sweden cannot again be caught in the next big financial downdraft, it already had its asset bubble and banking collapse back in 1991, which, by the way, resembles almost in every detail what has happened in the US and the World. Sweden is a small country (population wise) and its “Riksbank” has been around since 1656 (257 years , or 14 Greenspans longer than the Fed.), so it was better positioned to extract itself from that predicament by grabbing the bull by the horns, so to speak. If it comes from outside rather than from internal problems, things could be a lot harder to deal with.

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