The 585 Sept puts are now trading at about $2.55 to $3.30 with the Sox trading at $631 to $634 where there is a 62% retracement of the initial drop.
Month: August 2014
HD, Home Depot
Home Depot is big on DIY projects. Back in June 20, 2007 the company decided to buy-back 22.5 bln. of it’s own stock. The stock was trading at about $40 at the time and the buy-back represented about 1/3 of the total float. This time the company promises to buy-back 17 bln. which is about 12/13% of the present float. This is at a time that the company is doing quite well thanks in part to hurricane Sandy. Nowadays markets always applaud buy-backs as a sort of tax-free dividend. There are still places in the world where the practice is illegal and certainly in all cases one would have to wonder how dim a view management has on the company’s prospects to reduce the availability of capital. Perhaps borrowed money is now cheaper than equity and this behaviour is warranted, but that still leaves the timing. On that score this DIY economic tinkering is the writing on the wall.
SOX update
We were not looking when the previous option trade expired, if it already has. So here is another one. Try to buy the 585 Sept. put at $4. The c wave of this a-b-c which is a minimum structure should take the SOX down to about $560, the low point of the triangle. The option should have an intrinsic value of $25 plus some time left in it if this scenario pans out.
There is a very good opportunity for some drama this week. We have the Fed. fest in Jackson, Jackson Hole, Wyoming attended by both Yellen and Draghi plus a whole host of other academics that are pretending to understand the World. Forget about Ukraine, Isreal , Syria, the US interior and all those other hot spots. The real action will be in the wind swept plains of Wyoming and one slight or misstep could create untold havoc to the economies of the world. But don’t forget Mark Twain’s wise word, something like this “There are two times in a man’s life that he should not speculate, when he does not have the money and when he does”. When it comes to options I always add that you should only do the winning trades and leave the others alone. Good luck.
As a reminder, we show the “big picture” once again below;
TIH, Toromont update and FTT, Finning.
The usual then – June 3 ,2011 – and now charts;
Toromont was trading at about $32 when we recommended the immediate sell of this stock about three years ago. The target was just a tad under $15 and in reality it got close to $14. The labelling was never entirely clear but the B-wave definitely was even though, today we could argue that it was not a B but a 5th wave wedge similar to the one at the top of wave 3.
This was a pretty accurate prediction that would have netted 50% on the way down and, if bought at $15 another 50% minimum on the way up, or perhaps even more, see detailed chart below;
Remember that when you do hit a target that it invariable pays to go the other way. In this case the drop was 62% from the peak so that became very compelling. Then you stay with the trade un till at a minimum there is an a-b-c rebound. Even today you do not yet have that! So why does nobody really listen? Here are some answers;
Many people believe that EW is a theory, comparable to something like EMT- Efficient Market Theory. Well, it is not. The reasoning underlying it is entirely inductive and pragmatic, no silly hypothesis at all. It is also not deterministic per se. Nevertheless many view it as some sort of voodoo economics which, in practice, is hard to accept as invariable EW will tell you to buy when things are going awry, and tell you to sell when things are going well. That is counter-intuitive so no one does it.
Things are going swell so, perhaps, it is again time to sell. To be more comfortable we like to look at similar stocks, in this case Finning would be a good choice. What is good for the goose is good for the gander. Here it is;
The A-B-C “looks” great on this one, particularly since it has more than double topped. It may yet go to about $37 where it would re-enter the channel which we would not expect. Time to sell the lot. DE and CAT, though not clear, do also suggest that they are near highs.