Month: October 2012

POT, update

Hamilton

pot b oct 2012pot s oct 2012

Nothing has changed. The company reported earnings that were down by 21% and guided down again. Of course sales to China and India were not up to snuff.

We continue to believe that this stock is heading (a lot) lower. From the Big chart it is clear that the Chinese (and Indians) fasted from 1996 to 2004, the stock did not budge. Then it starts to move slowly and then faster and faster in a parabolic fashion normal for bubbles. Bubbles almost always retrace entirely, in that regard our $10 target is perhaps too high.

BHP, the worlds largest miner is looking to get into this business that has , for years now been run as an oligopoly. Their Jansen  project, the world’s biggest, is progressing slowly but relentlessly. It will take another $12 bln. or so to get it done but then it will be the biggest mine on the block. The natives are worried that these foreigners might not play by the good old supply management rules. This at a time when pressure is already mounting due to oversupply.

The best times for Potash may have been when it came out of obscurity as a collection of provincial crown corporations to enter into the limelight of the agricultural theatre (07,08). Everything thereafter is downhill.

According to Profitimes this is what a “classic” bubble looks like;

bubble from Profitimes

CP, Canadian Pacific and CNR

Hamilton

See our previous blog of July 2nd. We got CNR just about right, a month too early and a couple of dollars too low , but it has already dropped quite nicely. Not so with CP which is at least $10 higher than we expected so here is the update;

cp oct 24 2012

Enthusiasm for Mr. Hunter Harrison’s talents is unlimited. The 67 year old rainmaker is quickly solidifying his reputation gained at CNR as a train-maker. Profits were up 20% with the top line up 8%, most gains stem from cost cutting. Accordingly the operating ratio went down from 75.8 to 74.1 , all though some detractors point out that the storms that played havoc last year did not occur this time. The stock has doubled in a year and we think that is enough for the moment, actually way too much. With a p/e close to 25 (CNR is more like 14) the stock is grossly overvalued.

In EW terms the stock appears to have completed, or will complete, a text-book flat in which the A-B-C has three legs approximately the same size. The subdivision are nicely balanced and symmetric. Next stop is $35/$30 if this scenario proves to be correct. Sell on the open or use a tight stop-loss.

BTU, Peabody Energy update.

Hamilton

btu oct 2011btu oct 24 2012

The then (a year ago)& now as usual. The stock did precisely as expected , peaking the next day at $47.27 but the stock only dropped to just under $19, shy of the target that we would have had derived from the big chart (see below) Given that the RSI and MACD are already very high we suspect that the sequence may not yet be complete. It is possible that we are presently about to complete a wave 4 with 5 still to go.

btu oct 24 2012 b

Teck seems to be following the same pattern, they are of course also in the coal business;

tck.b oct 24 2012

DD, E. I. DuPont de Nemours & Co.

Hamilton

dd oct 24 2012 b

This Yahoo chart goes back to 1962, not far enough to make a reliable guess at what the count might be. In black we show the possibility that the drop from $75 to $20 was, in fact, a completed A-B-C correction reducing the value of this stock by about 75%, bearish enough to be a bear market by any standard. In purple we show the other alternative which is a little more in synch with the rest of the market. It is 5 waves down for wave A in a zig-zag, followed by a B-wave of about 60% and C having started with waves 1 and 2 (and another 1-2 in the more detailed chart). The two counts are, by the way, not necessarily mutually exclusive if instead of a zig-zag one looks for a double zig-zag. For the moment we prefer the purple scenario if for no other reason that it suits this  aristocratically named stock a little better.

dd oct 24 2012 mdd 24 oct 2012 s

Wave 3 has just started and should become a bit more decisive soon.