In two months the stock went down by about 13%. This is either the start of a large down trend or, at the very least, a simple a-b-c correction. Either way we should get to $45 – the base of this wedge – before anything else. If nothing else this raises the question why Canadian banks are doing so well, perhaps a last gasp?
We did do well recommending this stock at about $12.50, but sold too early (as always) and still made a gain of about 40%. That could have been 300% but that is water under the bridge and we did mention that the possibility of much higher prices existed.
Today we are approaching the 62% retracement level on the “good” news that the company might fire another 11 to 16,000 employees. Presumable these employees were just twiddling their thumbs all day without any contribution to the bottom line.
The EW pattern is decidedly ambiguous. For the moment we will assume that the high back in 2010 was the real top and that , from there, the stock traced out an initial 5-wave sequence down followed by an a-b-c back up. There are potentially a few dollars left to go but we are inclined to sell now. Both the RSI and the MACD are, and have been for a long time, pointing down.
These two charts are both of the Dow Jones Transportation Average, a.k.a. the rails. It consists of 20 companies in the rail, trucking , air transportation and parcel delivery business. Marine transportation is barely represented. As you can see at first blush, Janet Yellen is perfectly right to claim that there is no bubble or anything remotely indicating that markets might be overvalued. Looking at the arithmetic chart on the left, you can see that the DJT climbed almost 6000 points in the last 5 years. That is 500 points more than its entire one hundred and ten years existence!! Also, on both arithmetic and semi-log scale charts, the DJT is now well above its channel of the past 25 years!! However, long term maybe not;
The chart does not go to today but we are presently about where the X is at around 8000. Another 3 to 4000 points up is entirely consistent with the present 110 year old channel. All we will need is a constant flow of fed comments every two days or so for the next two or three years.
Here is little encore for the CAC 40. We like this chart because it encompasses precisely what we though – on the basis of EW – the markets would do. The “diagonal” at different degrees from the lows of 2011 is clearly visible. However the exact subdivisions may differ from the 5-wave sequence shown. It does have to be 5 waves but there may be a small triangle in the fourth wave position that would allow more time before completion. Notice, however, that we are closing in on the 62% retracement level which has always been the preferred level. It is worth while here to point out that from the beginning of 2010 to now, 4 years and 5 months , 30 trillion of worldwide QE, lower corporate taxes and a lot of direct propping up has accomplished a gain of less than 500 points or roughly 10 %. Perhaps it is because the French go to the École nationale d’administration , not Harvard and their central banker, unknown to most, never bothered to become an alumni of Goldman Sachs. Vive la difference!
The AEX, Amsterdam, is no different;
It has the exact same structure and is also at the 62% retracement level.