No further comment required, this is one out of dozens.
Clorox is more interesting. The stock has, or is about to, top for a third time. If it is not already done , $75 is the maximum level that it can reach, that is only another $5 at the most. What makes this call very credible is the expanding diagonal which almost certainly is a c wave out of an a-b-c fourth wave. The only question left is it 4 of 5 or 4 of the entire sequence up. It is a matter of degree but the maximum is $75.
Emerging markets have done well the last few years. It used to be that this was an excellent place to put your money if you wanted to loose it, but that has changed drastically. The emerging markets have younger populations and have lots of growth to catch up on. This while the western world is increasingly getting over-weight and is rapidly becoming senile. The growth is there and the problems are here, so to speak, but the stress level between the two keeps increasing as do the disparities.
As we all know from the Volcker era, it is simple impossible to control the money supply , interest rates and exchange rates (and unemployment, for that matter) at the same time within a single jurisdiction. National boundaries have essentially been erased by all manner of pegs and what have you, so that now the World, or practically 2/3 of it, forms one single monetary jurisdiction. Japan has pegged the Yen for more than 20 years to the dollar, the Chinese have been doing it for at least ten years, Russia in some quarters does not accept anything but dollars, no roubels please. Essentially this is the same problem that Europe is trying to cope with, except that 2/3 of the world is even larger.
EW has only 13 different patterns, some are easier to recognize than others. The horizontal triangle, contracting or expanding, is one of the clearest of the patterns. Also it has the advantage of telling you where you are (at least within a single degree). It has to be either a B-wave or a 4th wave. This sort of “anchors” the analysis to a certainty. In this case a B-wave is almost a sure thing. The c-leg could then equal the a-leg, which would lead to the double –top level of about $60, but, as often as not, is only 62% of a and that is in the past. This is very much a similar situation as that of St. Jude Medical, except that few people own it whereas a lot of people own the emerging markets, thanks to what is nowadays referred to as an eclectic approach, freely translated to mean “go where you have never been before”.
This stock’s name brings back fond memories of someone I used to work with/for who was anything but a saint, but I digress. The above chart has the most bullish count that I could come up with, and try as I might to always be as objective as possible, I do not believe it is correct. EW is a very factual approach but, as there are many possibilities and ambiguities there always remains a large element of subjectivity, after all it is not a science but more of an art.
The above bullish interpretation is based on a clear 5-wave pattern up, with the different degrees represented by the 3 channels. The stock could rise to about $65 over the next year or so to complete the entire exercise and then it should drop to $30/$25 (4th wave and 62%). So even if this was correct your upside is already smaller than the downside. So why is this the wrong count? See detailed chart below;
I suspect that the bullish count is incorrect because of the shape of the rise from the ‘09 lows. The drop into that low is an absolutely perfect zig-zag, just as clean and distinct as that of GE , but over a much longer time-frame. Even though that could be it , I suspect that it is only part of a much more complex correction. This notion is supported by the fact that the stock failed to double top and is dropping away from that point fast. Further more a much larger “flat” appears to be in the making where again the individual legs are equal.
So when do we know for sure? If the bullish count applies, this 5th wave up can take the form of a simple 5-waves up or that of a “wedge” (diagonal triangle). Overlap at $42.50, give or take, would negate the simple 5-wave possibility. It would NOT negate the wedge as overlap may occur and is indeed normal. Well under $42 would negate that possibility!.
How should one deal with this uncertainty? Rather than hope for the saints to help you out (they will not), remember that 30% of making money is guessing right, the remaining 100% is applying discipline . Keep holding it if you own it but put in a stop at $42 or just below. If you do not own it do not short it now, more often than not you have a better entry and less aggravation and more certainty when shorting after a wave 2 high (particularly when using options).
Back in January, when the stock was around $6, this looked like a speculative buy for a target of around $11. “Speculative” to me means that there is a very low level of confidence in the EW count , and on top of that all smaller pharma companies are inherently unstable by the nature of their business. Anyway, this one did not work. Here are the charts again;
Typically after the C – wave wedge is complete the stock shoots up rapidly back to the starting point. This did not happen. Instead it kept going down.
One way to “explain” all of this is to change the count in such a way that the correction from the top after the initial, fairly clear ,5-waves up, to an a-b-c X a-b-c (a double zig-zag). It still signifies an A-B-C correction, except the structure is different. It would require one more low at about $3 and up from there.
Alternatively the original count could still be correct and once this decline in a wave 2 is over the climb up will continue. This view is contradicted by the fact that the rise should have been very rapid which it is not.