Month: May 2013

JPM update

Hamilton

jpm may 20 2013

We did not expect this stock to trade above $45 or so because, among other things, there appeared to be a very distinct B-wave triangle (not shown). The stock failed to drop and consequently a different scenario is playing itself out. In fact there are two such scenarios. The most bullish one would have the ups and downs over the past 13 years form a single triangle wave 4 which calls for a top potentially as high as $70. The problem with this scenario is that it will probable take too long. The other scenario, which is much more in line with the market overall, also sports a triangle but a much smaller one that is a wave B within a much larger degree wave B (in blue). If C equals A in this configuration the stock would peak at just over $60, which, coincidentally would equate to the levels reached in 2000 and would form a “double top”. The entire structure from 2000 onwards would then become wave 4. Time wise this process could be complete in a matter of months, perhaps even weeks if the present central banks orgy continues to propel the market into the next bubble. There was, of course, a time that JP Morgan was itself viewed as the central bank, which may explain why it has benefitted proportionately so much more than the few other too-big-to-bail/fail financial institutions in the US. The thrust, or wave c of B requires another 4-5 as far as we can tell. To play it safe we would, if we owned the stock, start selling at around $55 or at the very least put in a close stop-loss order. Ultimately the target would be around $20 if this is indeed going to be a wave 4.

RUT, Russell 2000 p.s.

Hamilton

rut may 18 log 2013

Further to the previous blog of the Russell 2000, we have added a semi-log chart simple because it shows the relative proportions of each leg much better and as a result makes the notion of an expanding triangle all the more palatable  and/or convincing. For comparison purposes we have added the DAX below, also on a semi-log scale. As mentioned before, the Dax is a total return index and therefore should not be compared directly with indices that are not also constructed on a total return basis. Nevertheless it is interesting that the DAX sports the exact same diagonal but instead of expanding it contracts. (the time scales are different!).

dax log 18 may 2013

RUT,Russell 2000 update

Hamilton

rut may 15 2013Rut may 15 2013 s

See our previous blogs on the Russell 2000. This is a small cap index that is reconstituted every year in order to stay “representative”. We show this structure not because we are confident that it is correct, but simple because it does suggest that we are at or near a peak of sorts. Theoretically we fully understand that the sky is literally the limit for any asset if you reduce interest rates to zero permanently. But this is reducing the argument to absurd levels as practically it is impossible to reduce interest rates forever to zero, if not would not everyone have used this all the time long before Bernanke (and Greenspan) adopted it as the official state policy. The Roman Empire would still exist and Britain would still rule the waves.

What we have in the above charts is a very clear example of an expanding diagonal triangle. That is a mouthful but what it means is that we are at the end of the ride as these structures are 5th waves. They follow the 3-3-3-3-3 format and have overlap which is normally not encountered in impuls waves. They usually retrace right back to their base, in this case 300. Normally the upper trend-line is reached, or briefly exceeded in a throw-over. The very nice characteristic about this chart is that there is absolutely no ambiguity whatsoever the way there is with the Dow or S&P. Presently we are ten ticks away from an even 1000 (up 3X+ in 4 years!.) The p/e is supposedly about 18 which is high. The chart is moving up at a rate of about 50 ticks a month, with the line at about 1050 this should be done in a month or so at the most. Also if the 2000 tech bubble was a bubble, and the 2007 bubble was a bubble what would you call 2013. And yes we are perfectly aware that one can only recognize a bubble after the fact, that is if you work at the Fed.

SFF, Seafield adopts its own “poison pill”

Hamilton

From the website today;

The Board has adopted the Rights Plan in recognition that take-over bids may not always result in shareholders receiving equal treatment or fair and full value for their common shares. The Rights Plan is not intended to block take-over bids.  The Rights Plan grants shareholders rights  (“Rights”) pursuant to the terms of the Rights Plan. On the occurrence of certain triggering events, which include the acquisition by a person or a group of 20% or more of the outstanding common shares of the Company in a transaction not approved by the Board, the Rights will entitle the holders (other than the acquiring person or group) to acquire common shares of the Company at a significant discount to the market price. The Rights are not triggered by purchases of common shares made pursuant to a “permitted bid” (as defined in the Rights Plan) or where the application of the Rights Plan is waived in accordance with its terms.

The Rights Plan is not being adopted in response to any formal proposal to acquire control of the Company.

 

Obviously there is someone sniffing around. The stock has traded for some time now between 4 and 5 cents and we reiterate our buy recommendation for a trade only and with play money only. Moreover above 10 cents there are sellers galore so it would be something like buy at 4 and sell at 9 cents. The rights plan is effective immediately but will have to be confirmed at the next general shareholders meeting set for June 25th. Volume over the past few weeks is in the order of 10 mln. shares, not enough to reach the roughly 40 mln. to reach the 20% level. However certain parties may already own large blocks and there is also the possibility of exercising ( out-of-the-money!) options to make the point. We will see. In any event a further drawdown of the loan facility should be just around the corner.