JCP, update

September 8, 2013September 8, 2013 Hamilton

Our call for JC Penney to move up rapidly is, of course, also based on the “diagonal” pattern. As always it is an ending pattern, in this case a wave 5 of the leg down from $42.5. The base is at $30. This particular diagonal is also near perfect. There may ,or may not, be a triangle within the diagonal but other than changing the positions of the various a-b-c’s, it is not , material to the conclusion. We are up about $2 from the lows. A break now of the upper trend line will propel this stock much higher. If not it will happen anyway but just a bit later. Notice, by the way, that the RSI can be very helpful in determining where the individual legs start and end. Often the low in the RSI precedes the the low point of that particular leg so it gives an advance warning of a coming turn. In this instance it might be possible to argue that the “diagonal” is not just the 5th wave of this structure, but that it actually starts at the $42,5 level as per the chart below;

The reason we reject this possibility, at least for starters, is that it does not look as good and also because we have to weigh all the possibilities, that is the potential gain against the risk of missing the boat entirely. A break now of the trend line will , for all intents and purposes , negate this possibility.

10 year US Treasury note, TLT

September 8, 2013September 8, 2013 Hamilton

Above is another very good example of the “diagonal contracting triangle” or wedge. The charts are the then and now depictions of the US 10 year note in yield terms. Then was 18 of Sept. 2012 and now is the 8th of Sept 2013, so they are basically a year apart. The wedge is very visible and the confidence of rates going up, despite the newly launched QE infinity and all the other hoepla from the Fed, was accordingly very high. Now a year later we are at 3% coming from 1.38% a double already and we have yet to reach the initial (minimum) target of 4% which represents the “base” of the wedge. See previous blogs under 10 year or interest rates.

The same wedge can be observed on the TLT, the long bond ETF. This chart is on a price basis, not yield. Consequently the wedge goes up rather than down. Interestingly one of the main reasons for the QE’s was to make mortgages cheap to help the housing market. How well that worked is painfully obvious from the chart. A 30 point drop on the price of the long bond is about equivalent to a 25% loss on your investment and we are not even close to the initial target of about 87.

HXD update

September 7, 2013September 7, 2013 Hamilton

I would prefer not to talk about this particular stock were it not that it appears to provide a great entry point soon. The chart on the left is just to make clear where we are today and the scale of what might still be possible. This particular instrument is, of course, the inverse 2x leveraged Horizons Betapro TSX index ETF. It is presently tracing out a very clear and articulate “contracting diagonal triangle” a.k.a. a wedge. All five legs in this structure are sub dividable in threes. There is overlap between 2 and 4. There is alternation between 2 and 4. By the time it is complete it will be less than a single dollar lower than it was about three years ago, typical of the coming end of the drop from >$40. Using a more detailed chart (see below), I make the low $6.95, but remember that the price does not have to go right to the line and may well stop before ever getting there.

The RSI typically drops below the oversold 30 level at , or just before, reaching such extremes. The minimum target for this trade is at $12.50 but the ultimate potential is for it to go much higher. On a scale of 1 to 10 in terms of confidence in this trade, I would put it at 9.5. You can enlarge the chart by clicking on it and increasing your own confidence level. Also I have added an example of a similar structure that occurred with BBVA, Banco Bilbao Viscaya, the one in purple . In that case the low was actually made slightly below the lower trendline and there was no alternation (welcome but not required). The stock did double almost immediately, see that blog. There are dozens of other examples, YUM being the most recent one.

SFF, Seafield Resources update.

September 7, 2013 Hamilton

Fully diluted there are approximately 250 mln. shares outstanding for this company. At the most recent stock price of 3 cents, that makes the total capitalization that the market puts on this stock $7.5 mln. Relative to the amount of money that has been drilled away, roughly >$30 mln. , there is very little to show for all that geological activity. In the meantime the $16 mln. credit facility, not updated on the website, should by now have dwindled to a mere $6 mln. or so; pocket change for this kind of an operation that, should it want to move to a production phase, will require well in excess of $100 mln. just to get started. We would put the chances of a pleasant outcome near zero.

But the stock has done a clean a-b-c X a-b-c, double zig-zag, give or take a cent. On May 24, the company announced a re-pricing of existing employee options and the granting of an additional batch to a recently hired employee. This was approved at the board meeting on June 25th. Most options now have a strike price of 10 cents. There are about 15 mln. employee options in total (and a lot more for the credit facility!). Presently, if you are optimistic, if only briefly, you could buy the stock at 3 or, maybe, 2 cents and view it as an immediately vested, non expiring option with a premium of 3 or 2 cents. In fact you would be getting a much superior deal than the Seafield employees themselves despite the premium paid. This is evident if, for the sake of argument, the stock miraculously rebounds to, say, 16 cents. You would gain 14 cents and the employee just 6. If the stock does not rebound you lose 2 cents and the employee his job. Which begs the question why the employees are not on the bid all the time at these levels.

Share this:

Share this:

Share this:

Share this: