Month: May 2012

POT, Potash

Hamilton

Back in Feb. of 2011 we argued that POT was within $5  of peaking when it was at $182 pre split (3 to 1). In post split terms that would imply a high of just over $62 (nice Fibo #!). We have not commented on it since. Here is today’s chart;

pot may 2012

According to the company’s CEO and also the premier of Saskatchewan where the company mines and which province used to own this business as a “crown” corporation, the stock was worth more, a lot more in fact than the take-over bid of US $130 per share made by BHP at the time, which today is about C$45. In the frenzy following BHP’s unsolicited bid the stock managed to go right up to the target. Then the deal was officially killed for unexplained reasons having to do with Canada’s interests and here we are , roughly $20 or 30% lower. In our view the damage has only just started as the stock could literally be quartered on its way to $10, the 4th wave of previous degree, our original long-term target.

WPT, Westport Innovations update

Hamilton

11 days ago we opined that this stock was ready to bounce AND should not trade below $22.50 because of overlap.  We were looking for about an $8 bounce to about $31 as a first target. Here is the chart again;

wpt may 22 2012

The high today, just two working days after the low of $22.76 on May the 17th, was $29.50 at this time, almost $7 higher. We would not exit the trade just yet. The very minimum bounce should have an a-b-c structure, this is probable just the a part. The b could go to $26 and then c would take it up to perhaps as high as $32. Rebounds, even in ongoing bear markets, typically retrace at least 38% of the preceding loss, in this case $27, so that amounts to, possible, $10.26 which would target about $33.There is, of course, an outside chance that we are in a real bull market for this stock. It is too early to bet on that.

BNS, Bank of Nova Scotia.

Hamilton

The “earnings season” for the Canadian Banks is starting again this week. Not that there really is a season as these venerable institutions are hunting for your nickels and dimes, and a lot more, all year round. They can do this without fear as no one shoots back, so strong is the oligopolistic armour that they have cultivated over the years. As it happens BNS is the most daring of the lot with relatively the most “international” footprint. It also has followed the EW patterns most closely and therefore we will use it as a proxy for the whole. Here are the charts again;

bns may 2012 lbns may 2012 s

On the left the big picture. The stock climbs 10-fold in an equal or smaller number of years. This is of course perfectly normal, after all how else can you retire at 55? That cheap money might have a little to do with it is a thought that only a cynic would entertain, and that they too received a $114 billion – relatively more than in the US -  in a liquidity boost has been completely forgotten. Anyway, what might one expect next? The EW pattern is fairly clear. The recent top at $61 (nice Fibo #), is either the top or the top of a wave B (purple and black in the chart).  The difference is not material at this time. The direction should be down as indicated by the first 5-wave sequence in that direction, this can be counted in different minor ways but the end result is plain to see. The a-b-c wave 2 rebound was entirely predictable (see previous blogs). We are presently at the end of minor 3 of 1 of 3. For BNS that probable means that the earnings are OK enough to create a minor wave 4 bounce. A minimum target would be around $42, but  in the face of headwinds from rising interest rates, Volcker rules and lack of growth opportunities $25 or so would be quite reasonable.

Note; Cheap money does not necessarily help banks earn larger margins, that is more a function of how rates change and how fast. Where cheap rates help the banks is through the general effect of increasing all asset values which then provide better collateral and larger loan amounts. When this reverses the problem starts.

LOW, Lowes Companies Inc.

Hamilton

LOW big may 21 2012LOW s may 21 2012

We commented on this stock back in June of last year. The purple line indicates our expectations then. Initially it did as expected by dropping to about $19 (see that blog) but then it shoots to the moon and, of course, that was not our expectation. There are a number of good (?) reasons why this might have happened.  An obvious one, at least in today’s reverse thinking, was that the housing market was so bad that people stayed at home and renovated instead. Others thought that the quality of management had led to greater efficiencies and that Lowes had regained its position ahead of Home Depot. A quick look at the HD chart does not support that view, as HD may even have done relatively a little better (see chart below).

HD may 21 2012

In our view much of the vertical increase in these stocks is entirely due to the Fed’s actions, in this case QE2 that started in Oct. The Fed’s action more often than not increase the volatility in the market, ultimately to no one’s benefit. We would get out of both these stocks rather than hope that QE3 will have a similar impact once again.