Month: August 2011

SPX (SPY), S&P500

Hamilton

spx (spy) aug 30 2011

We can forget about the triangle idea. Instead we either had a failed 5th and an a-b-c from there or the entire thing from the lows of Aug 8 is an a-b-c. 124 would be a rough target. I guess we missed all the good news.

1 Confidence in the US dropped to 44

2 It did something similar in Germany earlier this week and also in England today.

3 There is a legal question with regard to the legitimacy of bond purchases in the ECB (to be resolved Sept.7) that , together with the political untenable position of Mrs. Merkel assures, that the trillion or so euros needed to bail out the system will not be forthcoming.

4 Irene’s damage is minimal compared to the hyped billings but it is still 10 bln.  or so more than before.

5 Home prices in the US fall another 4.5%

6 The new head of the IMF insists that the banks need to get more capital, now. Mr Trichet is equally optimistic with his remarks that the system is shakier than ever.

7 The Fed just confessed that they are impotent, leaving only the administration to work things out.

And so on and so forth.  What is there not to like? Maybe it is just month end.

CL, ColgatePalmolive.

Hamilton

In our view this stock is the ultimate barometer for what might happen in the US. The end point has been a little elusive, a few months ago at around $89 or so it looked pretty well complete. Then it went for a $10 quick round-trip, causing overlap that made it look like it was done, only to shoot back up to new highs. Here is the July chart again;

cl july 2011

Since then the action was fast and furious;

cl

So since that July high this stock has travelled the better part of $20. At $90 to $91 I have to assume that we are topping.

Three banks ? GS , DB , RY.

Hamilton

Goldman Sachs, Deutsche Bank and our own Royal Bank. Of course it is debatable whether or not GS is in fact a bank or just a bank of convenience, but all three are very prominent in their respective communities and are both very visible and influential . The RY is actually the largest at a cap. of 72 bln and pays the best dividend yield at 4.41% and has a p/e of 13+.  For GS the numbers are 57 bln. , 1.25% yield and a p/e of 8.5 . Deutsche is the smallest at 37 bln, pays 2.76% and trades at a p/e of 10.2. Here are the three charts.

3banks ry 3banks gs  3banks db

       Royal Bank                                 Goldman Sachs                          Deutsche Bank

From 2002 to 2007 they all roughly triple in value. Then they all crash right back to that starting point or a little below. Then we get the rebound with RY having the most powerful advance of all , even making  new highs. GS and DB start dropping immediately but the Royal actually makes a second high (does not show properly on this chart, but the second high is $0.30 or so higher). Then all three start breaking down. Together they look like this.

3banks tohether

Santander, STD, the Spanish big boy I have left out, it gets too messy otherwise, but it fits in between Deutsche and Goldman. There are some conclusions that might be drawn from these charts. First it does not matter much what regulations were put on the books or taken off. It clearly helps to have political clout something presumable GS excels in but the others are not that far behind , I am sure. So the moral of the story is they are all going lower, given the pattern, and that suggests that RY is royally overvalued.

GMP , GMP Capital Inc.

Hamilton

This is another one of Canada’s independent investment-dealer boutiques. It has about 400 employees and a market cap. of about 1/2 bln. These companies are extremely inventive and creative but there have been times in the past that that just was not enough. Without the big bank umbrellas and their nickel and diming one’s existence can become quite binary in very short order. Here are the charts;

gmp b gmp s

As always, click on the chart to enlarge. From a high around $38 in 2006 it started its fall rapidly and then moved sideways for a while only to join the rest of the world by diving to about $4, for a total of about 90%. The rebound from that point followed the , more or less, standard pattern  except that GMP was significantly weaker! It did not make to the , roughly, $20/21 level that one might have hoped for. This is normally a warning that things could deteriorate faster than usual. Two EW counts are possible but both are immediately bearish. The stock has now dropped below the B level of the rise from the Dec. 2008 lows and appears to have gapped recently. If the gap is in the middle, as is often the case, $2 is not out of the question, and that would be a loss of again almost 90%.