Month: June 2012

Procter & Gamble

Hamilton

PG

Procter & Gamble is cutting its outlook, and its stock buy-back plan. These guys are the world’s marketers par excellence. What is not clear is whether or not that is a compliment. In 1973 I applied for a job at their European headquarters which were then in Geneva. They spared me the agony if becoming a salesman by rejecting my application, making it clear that salesmanship was not, by a long shot, my trump card. Instead I should have borrowed a truckload of money and bought the stock which would have earned me more than actually working a lifetime.

Today the stock should be sold! There is little doubt that there is a 5-wave sequence up from the lows (this is even clearer on a semi-log chart, see below). The first target would be the channel  line at about $53, next is $45 and then $40. The best target overall is at $29 (4th of p.d. and 62%). All of this even in an ongoing bull market in the event that we are presently in a 4th wave of a higher degree than shown. Colgate-Palmolive may at long last go in the same direction having topped $100.

PG semi-logPG CL

For those so inclined, there appears to be a pairs trade here. Sell Colgate and buy P&G, 2 to 3; the spread has never been larger. However if the starting point of the chart is brought forward the spread is reduced significantly.

cl pg

STD, now SAN, Santander ADRs update

Hamilton

SAN

The assumption that Santander traced out a large diagonal (see previous blogs) remains plausible but there are a few caveats. The “wedge”has a failure built into it which is never a good thing. This does not show up in the more time-compressed previous chart. Fundamentally it is nice that the banks got a 100 bln. Euro support package but most estimates are for at least 350 to 400 bln in order to solve the problem. Is round two going to come with the same lenient terms? Is the subordination of other creditors going to undermine the situation? From an EW perspective we would have liked to see a drop to $4 or below. When something does not happen it is often simple delayed. After all we could be in wave 4 and 5 is still to come. Continue to hold but with a tight stop and exit at the trend-line, say at about $7.

BNS update

Hamilton

bns june 20

From the recent lows BNS has traced out a near perfect counter-trend rally, three wave affaire, an a – triangle b – c . The c part may not yet be completely done. Wave 4 of 3 of 1 of C (no wonder lots of people are turned off by EW, but it is what it is) is at $53.5 and c=a at $54 and 62% slightly above that. If the stock could manage another dollar up today we would sell. If it doesn’t we would still sell. Next on the menu is the dreaded wave 3 of 3, usually the longest and strongest of the lot. See also previous blogs. Even though the Canadian banks are not trading in lock-step with each other all the time, essentially the same approach should apply to all of them.

By the way, looking at  RY an argument could be made that we are only in wave 4 of 1. Do not think so.Yesterday’s more than $2 rise suggest some degree of exhaustive desperation. We should know in the next month. Here is that chart;

ry june 20

USB, US Bancorp

Hamilton

usb

US Bancorp is developing a “flat”. A structure that follows the 3 –3 –5  formula and is, essentially, a sideways move. We may, or may not, have completed the middle leg B which itself, is an a-b-c. Often the c leg is equal to the the a leg. Equally often it stops at about 62% of a. It looks like that may be the case here (even if a further rise to , say, $38/40 cannot be excluded completely). The C leg may have started a few weeks ago or it may start after one more brief high that would be achieved by adding just a single dollar.

    In our opinion it is nothing short of amazing that this stock is trading within $5 of its all time high in 2007 (and 1998). A buyer at these level is either brain damaged or suffering from Pavlovian conditioning to Fed easing. Despite interest rates already at rock bottom, they find consolation in the thought that another “twist” or QE3 will somehow extend this crazy process into the heavens. Below we have it one more time and we would be out, period.

usb y

.PS. 1998 was the year the Fed eased to accommodate the market after the demise of Long Term Capital Management –when genius failed, according to the book’s title- at a cost of a mere $4.6 bln. Their bet was that lesser credit bonds would converge with the better credits, which , in the end they did were it not with a little delay as a result of the Russian disintegration. Ironically it is precisely that convergence ( i.e. when Greek bonds trade at the same level as German bonds) that is now causing a lot of problems.

For purist E-Wavers I should point out that the above count is NOT the accepted one in Gainsville. They prefer the top in 1998 and in 2007 wave 1 of C started and now wave 2 is complete. For those that prefer to play fast and loose with the rules, one could also claim that the flat started in 1998 and ended in 2009 and was, in fact a 4th wave. That would imply that the rise from the March 2009 lows was/is a fifth wave. The target to the downside is , at least initially, about the same.