IMN, Inmet Mining, FCX , Freeport, IVN, Ivanhoe and Copper.

October 29, 2011 Hamilton

The common thread between these four items is, of course, copper the metal. What I will try to do is come up with an average so to speak as there are a number of conflicting elements here. First IMN, several times in the past we called for a drop to around $47.5 or so long before it was even close. The basis for this was an apparent triangle forming. Here are the then and now charts;

Triangles are always either waves 4 or B. Well before we got here I had to conclude that the triangle was probable wrong, but I maintained the target (see previous blogs). The stock dropped nicely to $40, in hindsight the proper target as it represents the pause area on the way up. Of course the $40 level would have been a buy but i was not paying attention. Since then, Oct.4 the stock has bounced an incredible $22.50, well over 50%. This causes overlap for a number of counts that are not shown and leaves us with a simple A-B-C. These can be repeated 3x so this is not necessarily bullish long-term.

I got FCX wrong thinking that it could drop further. It did not. Just like Inmet and the others the stock rebounded from that same pause level;

Freeport does much the same as Inmet but clearly there definitely is no triangle. This leaves a 1-2-3 and now 4, or a 1-2, 1-2 , 3 , and now 4, or a simple A-B-C. Overlap occurs at $45 for the first two counts. It looks like the stock wants to go to $48 (causing overlap). The rebound looks like an a-b-c but the c wave already has two gaps in it. If this happens the A-B-C interpretation will prevail as the most credible.

Copper, the metal has behaved in a similar fashion except that it was relatively stronger than the stocks,it did not fall as much;

On the left the Oct 4 expectation, proven to be wrong immediately as that day was the low. Overlap will occur at about 3.85 and 4.11 respectively. Copper is up 25% from the lows, obviously lagging the stocks by a wide margin. Here again the count is anything but clear even if all possibilities are still open.

Ivanhoe has a virtually identical pattern , dropping precisely to the pause level of $13 which I thought of as an extreme. Where it differs is that it has two tops which makes things rather messy. Starting from the February top the patterns are pretty much the same. I am fundamentally bullish on IVN but the rebound from the lows of Oct 4 looks decidedly corrective just like all the other ones. Overlap occurs at first $23 and then $24, but neither excludes a continuation of the bear if this turns out to be an A-B-C X A-B-C Y A-B-C. Therefore stop-loss levels should be used un till this clears up. The stock is already up from $13 to almost $21, more than 50%.

CNR, Canadian National Railway.

October 29, 2011October 29, 2011 Hamilton

This is North America’s Railway, with 32000 km of track it covers the continent from north to south and east to west. Interestingly, CNR was created as a Crown Corporation in 1918 when the then bankrupt Canadian Northern Railway, together with a few others, were consolidated and bailed out by the Government (sound familiar?). It was privatized again in 1995. It has in the meantime made numerous acquisitions in the US consolidating its position as the dominating transportation (it does trucking, warehousing etc.) company around the Great Lakes. It is headquartered in Montreal. Here is the chart from January of this year;

The idea then was that the stock had essentially reached its limit. We were wrong;

The stock did not stop at the trend-line and or the Fibo relationship suggested in the previous blog. Instead it decided to do a “throw-over”, an intrinsically unpredictable event, and add another $6 or so. Then it briefly cratered only to rise again and make new highs. Notice, however, that the count from half a year or more ago and today is not changed at all. This is one of the clearest 5-wave sequences I have ever seen. There may be some questions about the minute details of the start , but the big picture is perfectly clear! Sometime in the not too distant future this stock will trade at $40.

From the detailed chart it is evident that the stock cannot reach the upper trend line for quite some time now. Also it is completely out of phase with the likes of CP (see last weeks blog). The chart looks like that of a momentum stock which basically means that people keep buying in the assumption that a greater fool will show up. That stops when it stops. Also, I suspect that the success of this stock is nothing more than the result of a China play, almost exclusively driven by commodities (see FFH’s Prem Watsa’s views on that matter).

Looking at the Dow Jones Transport index, historically known as the “rails”, we do not see this exuberance. If we project that performance on CNR the stock should be trading at around $55, about $25 lower than it is. Even accounting for CNR’s “first class” status, that is a big difference. What is more worrisome is that the DJT index has “triple-topped”, and the last leg up is best viewed as a B-wave and not a 5th wave. This does not bode well at all for that index and for CNR, which in the main, despite it’s premium, still correlates relatively well with the DJT. Time will tell, but if you want the answer, you have to ask the question.

TRP., update

October 28, 2011 Hamilton

Trans Canada Pipe just does not want to budge. Since June or so it hangs around this level but it has developed a fairly clear B-wave and should collapse once complete. Here are the charts;

The single 5-wave sequence down, followed by an irregular B-wave up , reaching for a new and false high, is a very common pattern and promises a fairly swift collapse once the B is done. It needs only a minor 5th. We will see.

PHG, that other investment philosophy.

October 28, 2011October 28, 2011 Hamilton

This was then. The philosophy was that any time this stock moved 10 blocks (about $20), it would retrace at least $10. This had happened 6 times already. You could be early as you do not know if it is going to be 9,10 or 11 blocks so in the worst case you would only net $6 (if you bought 2 blocks too early). As it happens we hit the nail dead on at between $16 and $17. Ergo we now look for it to rise to $26 to $27. Here is where we are;

We are at $22, and would be quite happy with $24, for almost a 50% gain. Nervous people should exit earlier.

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