Month: August 2012

XFN , capped financials ETF

Hamilton

Every quarter Canadians wait breathlessly for another round of “earnings season” for the banks and , in a broader sense, the financials. Every miniscule move, up or down , is met with a barrage of analysis that is essentially a waste of time as the banks will always be able to extract what is needed to continue to perform. The only exception is when they are blind sighted and do not see “IT” coming. The next such event, they come up like clockwork every so many years, should be just around the corner. We use the XFN as it provides a nice cross section of the industry (but RY or BNS are pretty well identical);

xfn vb aug 2012XFN aug 2012 s

In the big picture we are still looking for a very large A-B-C and are constantly amazed how high the counter trends manage to take it back up. But the pattern is sufficiently clear (so clear that we anticipated a few of these moves!). It is a series of 1-2’s and given the action in the RSI and MACD wave 3 down could start literally any moment now. Of course we have no idea what “it” might be this time but it would not be all that hard to point to certain developments that could upset the apple cart seriously.

IBM

Hamilton

IBM aug 27 2012

Back in Jan. 7th 2012, half a year or more ago, we confidently predicted that IBM would not trade above $195. The actual high was $210,69, so we were wrong again. The argument then was that for most stocks the 3d wave is by far the strongest and longest, even if that is not an absolute requirement. Many exceptions exist but for the most part they occur with commodity related stocks, not with the IBM’s of this world and therefore it is reasonable to assume that a 5th wave will NOT be longer than a 3d wave. This still may be a correct assumption as it all depends on where you start the 5th wave. We had originally assumed that there was a triangle from 1999 to 2006. In retrospect it would seem more appropriate to assume a large flat all the way to 2008/9. This has the effect of pushing the starting point a little higher and making the 5th wave channel bound within a very narrow range. The speed at which the stock travels from one side of the channel to the other is the same for the 96 to 99 move and the 09 to 12 more recent one, both being about $100 in 3 years.  The very clear periodicity we pointed to earlier still applies when using the mid point of the B-wave (2006). Roughly every 6+ years this stock changes direction and loses at least half its value. The $210 high was probable such a turning point.

For most of the past century this company was probable best known to outsiders for its dress code. Dark blue or grey 3 piece suit, white and only white shirt and an unobtrusive tie. Now few people have any idea what they stand for or do. Even the, very heavy, electronic typewriter that seemed to grace just about every office has disappeared from the face of the earth.

JNJ, Johnson & Johnson update

Hamilton

As with CL it is possible to count the EW sequence for JNJ with a series of 4-5’s. The end result is still equally bearish;

jnj jul 2012

This is what we had, see  July 28th blog. Here is the other possibility;

jnj aug 27 2012

Instead of a single multi year “wedge” 5th wave, two 4-5’s can be inserted assuming that a similar series of 1-2’s occurred back in the eighties. Both counts call for substantially lower levels soon.

CL , Colgate Palmolive update

Hamilton

cl aug 2012 s

Timing is everything. This one we got wrong. This is what we have been expecting for quite a while now (see previous blogs). The whole thing would have ended with a wedge and a price of about $92. Clearly that is not how things turned out. It would have been unrealistic at the time to assume that this whole thing from the lows could actually take 4 to 5 years and another $18. However, in our defense, we did point this out as an alternative(see blog of Aug. 31, 2011) as in the (updated ) chart below.

cl aug b 2012

Rather than a single wedge wave 5, this count anticipated a series of 4-5’s. The target (depending on the time) somewhere in the order of $100+. We are beyond that by about $9 which could simple be a usual “throw-over”. Comparing CL with the S&P500 clearly demonstrates the unusual “blue chip” behaviour of this stock;

cl and S&P

This comparison covers the past 5 years, 2007 to the present. The S&P has done virtually nothing on balance over that period, down marginally by 4.61%. Colgate, on the other hand is up by 56.78% for an outperformance of 61.39% (nice Fibo #). Looking at it in comparison to one of its main competitor Unilever NV (UN),produces similar though smaller results;

cl and un

Unilever shows an increase of 14.53%, but if you go back a little further in 2007 the stock is actually down by about 6%. Cl, as before is up 56.78% . Cl has a p/e near 21 and UN closer to 18. The stock is again a sell, and this time there is no clear alternative in sight.