We are not entirely sure that this can actually be a 5th wave expanding diagonal but we sure do prefer that to Jaws of this or that. We have sharpened the pencil to the point where today we can say that ,also on a semi-log scale, the Russell 2000 has reached the upper trend line. As always, a slight throw-over should be anticipated, but having said that, any sensible person should get out here and not risk giving back a good part, or most likely all, of this move from 350 to 1150.
We were dead wrong on this index, expecting the rebound to end approximately at the 50% retracement mark sometime in early 2011. The call would have been very profitable initially but nevertheless wrong. It took another 3 years for the (larger) B-wave to complete, if that is where it is now. That was a 30% down and 50% up move that accomplished little more than add a few marginal points. This index contains the top 50 companies from 12 different Euro countries. Included are names like Daimler (Mercedes), BMW, Bayer, Repsol, LVMH, Enel, Ing Group, BNP and many more. The question that begs an answer is why has this index barely managed to retrace 50% when the S&P, DOW, Russell etc. have all done more than 100%. Even the Nasdaq at close to 4000 has managed a greater rebound at about 80% from the 2003 lows. Perhaps it is indeed Fed. intervention. If so when tapering starts or the artificiality of the situation is removed and things are allowed to return to normal, de markets will be in serious trouble.
This will be the 49th blog on the Royal. Some have been very prescient, others a little less so, but all in all you would have done very well following our advice. The stock passed the 1bln. Canadian dollar milestone the other day which seems to be a rather opportune moment in time to do another one.
Canadian Banks are beholding to, and in bed with, the different levels of government to a degree that both sides would prefer we do not know. The “bailouts” in Canada were in many ways proportional to those in the US., specifically the guarantees of the CMHC are proportional, if not larger, than those provided by Fannie, Freddie etc. except that these were provided after the Great Recession. But we will look only at the EW, not the fundamentals. The wedge, that for a while was a distinct possibility is dead. We have gone too far for that to be right after exceeding $65 or so. The next stop is the trend line, where we are now, give or take a dollar or two. Two possibilities present themselves. The , by far, most plausible is that of a large B-wave from the lows of ‘09. The wave structure, even the minute one of the c of B as shown in the smaller chart, is near perfect having all the required subdivisions, alternation and so on. A second, much less credible possibility is that of a simple 5th wave (in blue). The resolution will be about the same in both cases, that is a sharp drop towards a level below the low of the A wave ($25), or a drop in a large degree wave 2 towards the 4th wave of previous degree (also at $25). Take your pick.
We have pointed out earlier that this stock can be traded more or less exclusively on the value of the RSI. It too points towards a sell.
The usual then and now charts;
Then was the 6th of Sept. 2013, about six weeks ago. In the text the target is mentioned as being $6.95, which just happens to be today’s low. I think this is it.