Month: July 2011

UTX, United Technologies Corp.

Hamilton

Today’s Toronto Star, had an article in it by Bill Carrigan, a very well respected and independent analyst. He starts the article by recounting a conversation during which he was asked what he was trying to do (while thumbing through some charts). He responded that “he wished to know if the price of the company we are discussing is going up or down, and when it is likely to stop doing that” . After digressing a little here and there he settles on UTX, presumable as an example. Here are the charts;

utx1 utx2

I use a 30/40 year chart rather than a 10 year one, the last 10 years having been so unique in many ways that they cannot be viewed as representative of, what one might call “normal”, for lack of a better word. Also, in this case I would use both arithmetic and semi-log scale charts. The reason for this is that the semi-log scale has a smoothing effect as all things are proportional making the Himalayas look like dunes and adding considerable credibility on whatever count one would apply. Left is arithmetic, and right semi-log! Another advantage is that the channels are narrower and clearer.

The price of this stock has been going up (to answer the first question). So much so in fact that I wonder if it was worth eight years at  the University of Amsterdam to get my masters in economics. Just buying this stock in 1972, with a lot of borrowed money, would have given the same result with much less effort.

The second question is more interesting, after all predicting the past is not that difficult. Looking at the log chart’s ( click on it to enlarge ) channel, the upper trend-line would suggest a possible price high of $110 tops. On the arithmetic chart that level has already been reached or exceeded. Before you get there you have to go through $100, that is you have to surmount  what I have called the Mnt. Everest syndrome – just $9 above the high reached so far. This stock has a beta of exactly one and 81% of the stock is held by institutions making it very likely that the stock will behave as the rest of the herd and very unlikely that it would simple slice through this level. Analyst calls are rather muted, see below;

UTX3

From an EW perspective two alternative counts readily present themselves (purple and blue). At this juncture it does not matter much which one is the correct one as , at this stage a drop to $40 or to $30 (respective 4th waves of previous degree) is almost immaterial.

To sum things up, it would seem to me that if you are lucky you may gain another $19 at the outside – for a momentum player that would be just fine but would require a tight stop –, if you are not so lucky you may lose about $55. The odds are against you.

Fundamentally the stock yields just under 2%, has gross revenues of 55 bln. and a profit margin of about 8%. The book value is $24.17 so it trades at 3 to 4 X book. The P/E is close to 40. The market cap. is 83 bln. Boeing BA, by comparison is at 56 bln.and trades at a P/E of 16 and pays a higher dividend, here are the charts.

ba a Ba l

Relatively speaking, BA has more room. Still both these companies are in the Aerospace industry and much of that is defense , which , given the deficits is not likely to grow.

AA , Alcoa

Hamilton

Either they are going to build planes with balsa and sell beer in tin, or there is something odd with this stock. Here is the chart;

AA july 2011

It is unlikely that the stock would go below the recent $4 low and accordingly I would prefer to contemplate a bullish outcome. However that does not mean that the stock cannot go sideways for a long time. With a P/E at 23 there certainly is still room for a drop, albeit probable not below $4. However if you look at it on a semi-log scale anything still looks plausible.

aa july arith aa jul log

The semi-log scale is on the right. Clearly there still is “room” on the downside, making the notion that the move from the low is simple a 4th wave all the more plausible. Use a stop at $14 or so. By the way we did recommend the stock below $5, see below.

AA old

ELUXY, Electrolux – How the Fed has changed investing to gambling!

Hamilton

ELUXY

This chart is of Electrolux, not a very familiar name on this side of the pond but very well known in Europe. In terms of household items these guys are big, on a par with Philips, Siemens , Kitchenaid and so on, very respectable and given the nature of it’s business, that is retail, more susceptible to society’s mood swings than most. Add to that the Fed. and their counterparts in other jurisdictions and you have an ideal brew that muddies the water and , at the same time, creates marvelous opportunities for some of the trading houses that are better informed than the rest of us (and use EW extensively taking care not to mention it).

Particularly for the period from about ‘97 onward during which the “maestro” was invincible, to now and perhaps a little longer, this stock started to swing like a yo-yo with an ever increasing amplitude. I count at least 10 moves larger than 50% over this 14 year period. Many moves are much larger! If you are inclined towards the buy-and-hold approach, you would have earned only the dividend for the past 12 years. If you had been able to call the major turning points you would have earned well over 3844%  (50% compounded 9x)plus the dividends. You must buy and sell.

For those that are agnostic about the applicability of EW while putting their faith in the Fed,, I would point out that every single little move in this chart follows EW rules and guidelines to a tee. Next stop is a new low!

By the way, if head & shoulders are your game the end result is equally dismal (I think, as I am not too familiar with that concept).

IMN, Inmet Mining(from two days ago)

Hamilton

Last time we suggested the stock was a buy as 5 –waves down were complete. Then a sell as an a-b-c was complete. From there the stock had a yellow light, i.e. who knows. In the meantime a very nice triangle has developed, see below;

IMN June 2011

Provided the stock stays below $72.50 (about where we sold) this triangle can only be a B-wave triangle and consequently the next leg should be C down to around $45. or 30%. We could still be in c of the triangle which then cannot exceed $74, not likely but possible. This would simple make the whole exercise more drawn out.

PS Today’s high was $71.46