Month: July 2011

G , Goldcorp

Hamilton

ABX has not moved an inch over the past ten years or so.  Goldcorp has gained about $8 over the past 6 years, that is 17% absolute, and about 3% per annum compounded over those years (about the same as a ten year government bond!).This during a period that was generally recognized as the Great Recession and the end of the existing banking system as we had known it to that point. This is exactly what these stocks are supposed to protect you against but I know of a number of investors that were pretty well wiped out by G. Here are the charts;

G Goldcorpb

Gold itself is trading close to $1600 US, that is nice but way short of the $2600 or so to keep you inflation protected (since 1980). So the simple fact that these stocks are not moving – and Goldcorp is one of the better ones – may be telling us that inflation is not around the corner, instead we should expect serious deflation.

Had one assumed, erroneously but understandable, that the top at 3 was the top, the double top line drawn in green through that point would have warned an investor to think twice. This line is touched or crossed about ten times only to have the stock fall back below it. If that is not a good warning I do not know what is. Also over the last 3 years there have been a number of cases of overlap, see more detailed chart below;

G goldcorps

Overlap, with one exception, does not occur in bull market sequences. The exception is the “diagonal” or wedge which must be either a 5th wave or a C wave. In this case only the C wave makes any sense at all which then leads to the conclusion that the entire move up from the March ‘09 lows is a correction that is about to end. $56 is the maximum! And, of course at the present $52 level we are , once again, double topping. Time to get out.

Concerning deflation I have attempted earlier to explain that the “monetary” dogma as furthered by Keynes etc. is theoretically and pragmatically unsound and perhaps little more than rubbish, but it is mainstream and therein lies the problem.( A similar situation exists with the Efficient Market Theory, thoroughly discredited by those in the know and adored by those that are in the dark). If you think about it, the single most important input factor over the ages has been labor, not commodities, energy or any of those. The world is awash with under-employed and un–employed people. New entrants into the global workforce  are showing up everywhere by the billions. Modern production methods also make things a lot easier. You do not need a 20 year apprenticeship anymore to grind out a camshaft on your own. All you need to be able to do is read, that is enter the coordinates into the machine, throw in a blank and switch it on. The machine will do the rest to tighter tolerances than ever before, in less time and without sick days. This “transformation” is also entering into areas outside of manufacturing such as the legal , medical and brokerage businesses. So it is amazing that nobody seems to think that deflation is a real possibility.

   As a hedge, gold and gold stocks are practically useless despite the deeply entrenched myth to the contrary. In the main gold moves up when stocks move up and vice versa. This is only normal considering that they are both primarily real assets. In the event of deflation, both will go down.

KGI, Kirkland Lake Gold, update.

Hamilton

Here are the two charts, then  (May 17) and now;

kgi may 17, 2011  kgi jul 2011 2

Despite last week’s comments we would sell here. The simple reason is that the triagle can be interpreted in two ways (green and red). The green and original one was more compact and allowed for a higher thrust. Both the green and red interpretations are close to being complete. We like “the-bird-in-the-hand” approach so we are happy to take the profit $17.50-$13.90 = $3.60 or about 26%.

Fundamentally we do not like the fact that Mr. Bernanke has, at last, acknowledged that his QEs could actually have had an impact on commodity prices. With that, he has effectively painted himself in a corner.

In any case, this stock should drop back to the base of the triangle so there is no good reason to stick around.

CL update and IBM

Hamilton

cl july 2011

Colgate, as discussed before looks like it is topping in a 5th wave wedge. This it has in common with IBM;

IBM jul 2011 a 

Whereas CL has a contracting diagonal (wedge) IBM has an expanding one. IBM when we still knew what business it was in, experienced a 25 year period during which the stock traded down. That 25 year pattern could possible be a “megaphone” which would , by necessity make it a wave 4. Even then the stock is topping;

IBM july 2011 log

Typically the stock does not trade much above the upper boundary of the “megaphone”, which is about where the stock is now. A sell however you slice it.

CI , Cigna Corporation

Hamilton

CI jul 2011

I had some very prescient calls on Cigna back in Oct. 2003, but few followers (see also a previous blog). Anyway it raises one’s level of confidence but even then I keep an open mind for the most bullish possible outcome as shown in the above chart knowing full well that it is incorrect. For this I have used a semi-log scale chart as it tends to dampen the ups and downs and consequently makes the bullish situation more plausible. If we are making a 5th wave it follows that the lows of 2009 were wave 4. If this point is connected with the wave 2 low we get a line which drawn parallel over the tops defines the channel. As a rule stocks seldom move outside the channel, particularly not when it is semi-log.  This interpretation is wrong because this 5th wave is not subdividing in 5-waves. More over the preceding b-wave should have been a three wave a-b-c, instead it is (clearly) a 5 wave move. In any case, even if , for the sake of argument, we assume this is correct despite the evidence, the stock’s maximum high is at about $62. A more correct count is the following;

ci jul 2011 2

Using the proper count and an arithmetic scale that high is actually only at around $57, and a double-top occurs even earlier. The B-wave and not a 5th wave becomes pretty obvious. It should peak a few dollars higher than it is today but might already be done.

The stock is trading at a P/E of less than 10, so the bulls will argue that there is a lot of “room” left to the upside. Perhaps, but this is an insurance company and lately they have everything imaginable working against them. If there is anything amazing about this stock it is that it is up here again, for a third time.

By the way, just as with Electrolux, the stock does not agree very well with the buy-and-hold philosophy. Just taking into account the big moves over the past 10 years the stock has travelled about $170, some 333% higher than the stocks present value of $51, up about 10% over the same time.