JNPR, Juniper Networks.

December 25, 2011 Hamilton

Most Canadians look the other way when they see a stock with “Networks” in it. The irregular B-wave from the lows of early 2009 caught my eye and I could not resist. This stock should ultimately make a new low, below $12 or so at the very least as that is what the B-wave means. Using the very fallible theory of the gap-in-the-middle , a target of $10 is obtained. That is another 50%. Superficially it looks like we are in a wave 4, which may or may not resolve itself as a triangle. If it does that, it would probable revolve around $23 and then drop down in the thrust. If the 5th wave thrust equals wave 1, or the mouth of the triangle it should drop to about $13. The slightest extension will get right into the target of $10. We will see.

CCL Carnival Corporation

December 25, 2011December 25, 2011 Hamilton

Started in 1972 this company has worked it’s way up in the world of cruise line operators. In fact it has almost succeeded in monopolizing the business entirely. It owns quite a few “brands” that are easily recognizable even if you have never set foot on one of these boats in your life. The most prominent ones are Cunard of the “Queens” fame as well as the Titanic and HAL, Holland America line. At over 1000 feet and 130,000 tons these vessels are among the biggest ever built. Buying one of these will set you back a little over 3/4 of a billion once everything is said and done. These ships are equipped with stabilizers so you barely notice that you are at sea, so much so that you might as well go to Las Vegas and have one drink too many to experience the same dream.

This is a capital intensive business. The liners have to sail close to capacity (3.500 passengers) just to break even. Nothing is left to chance as every possible activity , no matter how seemingly innocent, is engineered to add to the bottom line. But Murphy’s Law presumable also applies to the cruise business and when it does this stock will be extremely vulnerable. A reasonable target would be around $7 or so but that could easily be exceeded. Royal Caribbean Cruises Ltd. (RCL) is another example, perhaps an even better one given the greater swings that it has displayed in the recent past. A nice example, by the way, of a triple top! The wave count is identical.

Baltic Dry Index. FRO, Frontline XEM, Excel Maritime

December 24, 2011December 24, 2011 Hamilton

The Baltic Dry Index is constructed in such a way that it gives one an immediate idea of what it costs to move (dry) goods by sea. It is compiled in London and apart from historical connections with the Baltic, has nothing to do with that specific area as it is a world wide barometer. Charts are hard to get and it does not express the value of certain stocks like the Dow Jones Transport index, which recently made an all time high. This index provides a measure of the costs to move freight, or, from the other perspective, what shippers can charge.The Philadelphia Exchange has a similar index SHX, shown below.

The charts are very similar and they both indicate that charter rates have dropped by almost 4/5 over the past three years. The rates for VLCC’s, Very Large Crude Carriers, have reportedly dropped even more dramatically to under the cost of operating the vessels. This essentially explains the situation below;

The fleet has grown much larger and the amount of oil gas stayed about the same. Worse yet there are a good number of these VLCC under construction so capacity will grow even further by about 14%;

But it is not just oil transportation that is suffering as a quick look at EXM (Excel Maritime Carriers) makes abundantly clear. This company’s motto is, like Atlas, “We carry the World” and it certainly looks very painful.

Bank of America almost went under in the late sixties early seventies as a result of bad loans to the shipping industry. Not only does the income dry up fast but the value of the ships themselves can drop even faster. The moral of the story is that one has to be very careful when investing in capital intensive industries that have questionable growth prospects. Things can and do change fast not only as a result of Schumpeter’s creative destruction but also simple as the result of cyclical over capacity. Think airlines, pipelines, perhaps infrastructure in the wrong place (China) etc. etc.

PMG, Petrominerales

December 23, 2011December 23, 2011 Hamilton

A small oil and gas company operating in places like Columbia and Peru. Used to be part of Paramount Energy , I believe, but was spun out as a separate entity. It trades on Toronto and on the Columbian exchange a.k.a the Bolsa de Valores de Columbia, which may, one day, be an advantage given how well we here in Canada are able to integrate our 13 regulatory bodies and two languages. Here are the charts;

Needless to say I have never looked at this stock before, but then using EW you really do not need to have. Only the waves count!

Clearly there could be a 5-wave structure up from the lows in early 2009. That would coincide with most of the rest of the world so that is not to big of a stretch. Furthermore, as we are now overlapping the preceding bump, that must have been wave 3 and, all though there is no history prior to mid 2007 one must assume that a complete 5-wave sequence ended at the $41 high. If that is the case that would be wave 1 up and this drop should be wave 2. Standard first target, all other things being equal, is the 62% retracement level at $16 where we were a few days ago. In detail:

Typically a correction is an a-b-c, three wave affair. Often the waves c and a are vector equal due to some mysterious law of nature that just loves symmetry. With a little imagination that is exactly what we have here. Last , but certainly not least, the RSI with not one but two drops below the 30% line is clearly announcing a change in mood. The MACD is not far behind. An initial target, by the way would be at $32, but even $21 for starters would be nice.

By all means use a stop, say at $16. This is Columbia so who knows.

Happy Holidays!! and “yeni yiliniz kutlu olsun”.

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