Month: October 2012

FFH, Fairfax Financial update

Hamilton

The usual then, Sept. 2011 and now charts;

ffh sept 20 2011ffh oct 27 2012

You can click on these charts to enlarge them and push them around for a better comparison. This stock is run by a pretty savvy fellow known for his bearish predilections and his willingness to act on them. That may , in part, explain why the stock is out of phase with the rest of the world and certainly most insurance companies. The range during the great recession from, say , $200 to $400 is but a fraction of the rollercoaster back when we had the tech bubble burst.  Our call, in Sept. of 2011, for a drop in wave C down was obviously premature, in fact the stock managed to go essentially nowhere for another whole year and then some. With the benefit of hindsight and examples set by other stocks (see HON, and the US indices), one has to conclude that the diagonal, that is wedge, was incomplete and counted incorrectly. This is what all these QEs do , they drag out the inevitable much further than one would normally expect.  The C was probable over at the start of this year, followed by a minor degree 1-2 etc.

Ultimately wedges should retrace to there base which in this case is $100.

HON, Honeywell Intern. update

Hamilton

hon oct 27 2012Hon oct 27 2012 s

Twice we recommended selling this stock. The first time it worked out quite nicely but not so the second time (see previous blogs). Where did we go wrong? The first time around we assumed that the A-B-C rebound was complete in 2011, not unreasonable since it sort of double topped there in any event. It did drop about $20 or some 30% but then came right back up. With the benefit of hindsight we now assume that the C part of the rebound was not yet complete and now has taken the form of a diagonal (wedge) just as in  the DOW , S&P and even the Nasdaq). If correct we had a small throw-over in the 5th wave of this structure and it should now be complete. A sell for sure.

CUA.V , CuOro update.

Hamilton

cua oct 25 2012

Two days ago the company announced that they are abandoning their Barranco de Loba project, the quality of this ore body apparently was below expectations. There will be some write-offs as a result but on the other side the company will not have to put down another $600.000 to exercise the option that they hold.  This project was where the gold might be. At 3967 hectares it is much larger in surface area than the 1287 hectares of the Santa Elena copper project.

What is worrisome is that the stock dropped to a low of 42 cents on relatively high volume. There are clearly motivated sellers coming out of the woodwork. Nevertheless the stock may be getting close to a low.

MS , Morgan Stanley, update.

Hamilton

ms oct 25 2012

See previous blogs as well. When you look at this Yahoo chart (which because it is monthly, does not always show the extremes properly!) you might be forgiven in believing that the entire correction was complete, in the same way as that might be the case with GE. After all the A-B-C is perfectly formed with all three legs equal. Also the loss from $110 to $6 certainly qualifies as a bear market correction. But the waves are there to fool just about everybody so we are considering the possibility that the C-leg is not yet over. Once or twice now we were very bullish on the stock but missed buying it by a few dollars only to see it almost double. So here is a slightly different take;

ms oct 25 2012 mms oct 25 2012 s

For the sake of the argument we assume that the great recession drop, wave C, was not yet complete. It could simple be 3 waves still requiring a 5th, or alternatively the big B wave was not a b-wave but an X-wave instead, as in a double zig-zag down from the 2000 high. In any event if we are not already in a new bull market the most probable interpretation is that we are working on a triangle. This idea is supported by the fact that if it is not a triangle waves 2 and 4 are both zig-zags and therefore do not alternate ( they do not have to but it is most common). Also a triangle is the pattern par excellence for killing time by breaking the channel and moving sideways. Time will tell but in all cases a buy at around $9/$6 would appear to be a safe bet, if it ever gets there.