OIL (West Texas Futures)

March 17, 2013March 17, 2013 Hamilton

from; http://quotes.post1.org/historical-crude-oil-price-chart/

The way most of us approach the markets is that we first formulate a preconceived idea, from our gut, wet finger, or financial gossip, whatever, and then proceed to justify that position by rationalizations or other, supposedly very scientific, methods. EW is always happy to accommodate almost any idea. That does not render it completely useless, but it does mean that a high degree of care is required.

Here we have the West Texas oil futures. The chart looks like it is on a semi-log scale. There appears to be a triangle forming roughly around the $90 level and roughly in the middle of the chart. So far it has consumed two full years and probable is not yet complete as the e-leg is a tad short. If, for the sake of argument , we assume that this is indeed a triangle, then we know that these can only exist in either a wave B in a counter-trend move, or in wave 4 of a 5 wave sequence (this is empirically determined, not deducted from some theory). In the latter case wave 5 should take the futures to the level where they double top. Much higher is very unlikely as wave 3 would become the shortest. Given also that the move from the lows of $34 to about $110+ is a very distinct a-b-c itself, we do not for a moment believe that it is a wave 4 triangle. Therefore it is probable a B wave triangle as in the X of an a-b-c X a-b-c. This could take the stuff well beyond the double top level, after which it would collapse as otherwise it would not be a B-wave to begin with.

The third possibility is that there is no triangle at all, just a series of two 1-2s. Often the “look” is pretty well identical but the outcome definitely is not. In this scenario the B-wave is complete at the $110+ level and we have been working our way down for the past two years, however with little real progress. That could change if $80, give or take, breaks.

The way to play this then is very much along the lines of Mark Twain’s advise when he said that there are two times when you should not dabble in the market, when you don’t have the money and when you do. Here you should pass between $80 and $95 and only play outside that range, long or short, time will tell. Just do not get caught with too many oil stocks if the stuff does come down, as I believe it might.

Focus List Fund , RBC a.k.a FTC461

March 16, 2013March 16, 2013 Hamilton

See previous blogs on the Focus List. If you read the text in the latest edition of Strategy, the return is an admirable 14.9% compounded for the past 28 odd years, compared to 8.9% for the S&P TSX over the same period. One must be careful not to interpret this too superficially. The devil, as usual, is in the details. In this case the footnote;

We, of course, do not know what the MER (2.34%?) or transaction costs etc. etc. really amount to, as to some extend it depends if you go front-end, back-end, corporate or in a discretionary account. Even if you are a big boy or girl - if you are not you would not get this Strategy report – you might be paying an effective 2.5%, which would reduce your return to 12.4%. According to my HP calculator that would get you $263,910, a slight difference of $217,184. Concerning the TSX, this is properly represented, and actually existed in the real world unlike the Focus list that was an exercise in dry swimming for a good part of this time ;

According to the Globe & Mail’s chart the TSX gained 6.22% over that period. But indexes are normally not calculated on a total return basis as mutual funds are. So an adjustment for dividends should be added, and that gets us close enough to the 8.9%. Now we all know that if you want to make a point with charts you must choose the proper scale of both the y and x axis and if you want to start at zero. TD Waterhouse does this as follows;

The purple annotations are mine. The rebound rally in wave 2 of C lasted at least a year and a half longer than expected, but otherwise we stick to the count. As we close in on ten years of no returns other than for the house, we can only advise those holding this dog to be patient and grin and bear it.

CLO, Claymore Oilsands Sector ETF

March 15, 2013 Hamilton

This ETF may be telling us something about the oilsands that we do not yet fully understand. The value is a lot closer to the lows of the past 5 years than the highs. The possibility of stranded costs is becoming more real. Below is what stranded looks like, this is of course the Aral sea;

SNE, Sony update and a little Nikkei

March 15, 2013March 15, 2013 Hamilton

Sony, that other tech. wunder child, might be a better bet at $10+. It could have completed the sequence and it comes from a much higher level. The drop is more than 92%.

This is from our Aug. 24, 2012 blog , in which we recommended HPQ but also as a by the way, mentioned Sony as possible a better bet. Today the stock is up another 11% in Yen terms;

6758 is Sony on the Nikkei or Tokyo exchange. The good news does not show yet on the ADRs as the day has not even started yet, but the stock should get to $17.50 easily. We would sell for a gain of $7.50 or 75% in a little over 1/2 year. The good news today was that Mr. Kuroda, the freshly appointed governor of the Bank of Japan was confirmed by the politicians. Apparently he is made of the same cloth as Bernanke but is more aggressively Keynesian, if that is even possible. The man has yet to take office. Interestingly the Japanese do not (yet) have a balance of payments problems, and are, once again the single largest holders of US treasury securities. So from that perspective they can afford to engage in the beggar-thy-neighbour policies as they have in the past half year or so.Interestingly they can do this without reproach from the Americans as, essentially they are doing the exact same thing as the Fed. is, and almost on the same scale. In terms of Central Bank independence though,just the pretence still remains. Rest assured that their popularity is diminishing rapidly from a rather low starting point in Asia but, no doubt, also in Germany and elsewhere.

As correct as we were on Sony, we were equally wrong on the Nikkei itself. We simple never expected Japan to drop the pretence of financial probity so easily and with so much gusto. Here is the Nikkei and the yen, The first is up 50% from the lows – 8000 to 12000 – and the second is down about 25% from 127 to 102. BOJ is making a bundle, soon more than 1/2 trillion $$ (at the expense of the natives)

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