Month: September 2012

WPT update

Hamilton

wpt sept 25 2012

This is log-scale, works better with such wild gyrations. If you did buy this as suggested you should also be stopped out with a loss of one or two dollars. You could do it again but we prefer to wait a little while before we repeat a mistake even if this might be an excellent time to do it again. The RSI and MACD suggest that it is. We will wait for it to get to around $20 to try it again, that is if it ever does. For the moment the last leg down seems to be missing a 4 and 5. Further more the $20 level corresponds with the low of a triangle and the base of a wedge.

XHB iShares Homebuilders

Hamilton

xhb sept 2012xhb sept 2012 content

So you listen to this guy on TV that KBH, the Homebuilders ETF (iShares) is a screaming buy, and to make the point a chart is shown of the performance over the last year, up a whopping 100% or so. A good reason NOT to buy. Next you figure homebuilders like Lennar, Pulte etc.etc. should be a good buy because you have heard ad nauseum that the housing market  is bottoming and just about ready to take off again. This may or may not be the case. Either way is is good to realize that this “homebuilder” ETF consists of only 27.63% of home builders proper. The bulk consists of companies like Corning, Lowes, Whirpool and so on, hardly a pure play if that is what you were expecting.

Looking at the chart above, it is clear that the rebound has taken the XHB to the 50% retracement level AND to the 4th wave of previous degree, both pretty well standard behaviour and more likely time to sell rather than buy. Also the pattern is that of a text-book  a-b-c with all 3 legs roughly the same as vectors, the signature of a counter-trend correction. Furthermore, looking at the details of the last moves it is clear that this last leg unfolded in a nice channel;

kbh s sept 2012

and can, without too much imagination, be counted as a 5-wave move which all c waves should be. We agree that this was a screaming buy a year ago but definitely not today. Both the RSI and the MACD are confirming this view. The moral of the story is that one should not believe every Tom , Dick and Harry “expert” that comes on TV and certainly not when you are desperate to find something to believe in and are as gullible as a 3 year old.

India (IFN) and China (CHN)

Hamilton

A year and a half ago we posted this blog;

india and China feb 2011

The question then was how can the World stock markets keep going up if China, the second largest economy is going down, with Japan , the third largest, still down about 75%. Here are the updated charts;

ifn sep 2012chn sep 2012

Clearly both indices are fallowing the anticipated path quite well, having dropped another , give or take , 20 percent over the last year and a half. For those that prefer the pure Shanghai composite index things are actually worse;

Shanghai Composite Index,

Not unlike the Nikkei, this one is down about 67% and moving lower. Clearly of the 16 years on display here the “anomaly” to use a mining phrase, occurred in 2007 with the index climbing more than sixfold. To hope that China is the one country that will pull us out of our present low-growth era is a leap of faith at best.

SUN, Sunoco and ETP (correction from previous blog!)

Hamilton

In the previous blog there is a discussion about a merger between Suncor and ETP, no such merger is contemplated. I simple misunderstood the ticker symbol . My apologies. The merger in question is between Suncor and ETP, Energy Transfer Partners L.P.  Here are the charts;

Energy Transfer Partners L.Psunoco

The two companies are not the same size. Sunoco at about  4.9 bln. capitalization is about 1/2 the size of ETP at 10.33 bln. Both stocks have traced out similar but not identical charts. Still the range is quite comparable, roughly between $70 and $20 and both sport the same pattern, a first major leg down followed by a (B-wave) a leg up. In EW terms this is bearish as typically two major legs down are required to complete a bear market. Since both stocks are presently sitting pretty well in the middle of the range, both should be sold.

All mergers can be compared to the situation in which the pig and the hen decide to start a joint venture selling ham & eggs for breakfast. One of them invariable dies, not necessarily the smallest one either. (think DS and RBC, DS being the winner by any measure). Still in most cases the junior partner has to yield, and size matters.

The interesting thing about this couple is that one is incorporated and the other is not.  It is a Limited Partnership. How the two are to be merged is a bit of a miracle that will take a little bit of legal tinkering. The two companies appear to be active in complementary fields of the energy space. This can be a plus as it broadens the base, it also means that synergies are harder to obtain and that managerial skills are spread to thin.

We would sell rather than figure out the minute details.