AA, Alcan update

February 22, 2014February 22, 2014 Hamilton

Back on July 9th we already liked the stock but thought it might still be missing the always elusive 5th wave. Well the timing was perfect even if the count, perhaps, was not. Now with the benefit of hindsight we have to assume that the 5th wave failed to make a new low (by about a dollar), or that the entire correction was already over and a new bull had started (that is a wave 1 followed by an irregular a-b-c wave 2). Either way the next up leg should be pretty robust. They are still selling beer, building planes and yachts and now even entire cars and the cost of electricity has gone up, so why not aluminum. A buy.

XOM ,RDS.a and CVX, the big integrated oil companies

February 22, 2014February 22, 2014 Hamilton

All three yield about 3% and have p/es of about 10x to 13x. Royal Dutch is the only one to have a perfectly clear B-wave, but then it also consumes an inordinate amount of time (4 years) doing nothing. Exxon sports a clear wedge (as the c in the B-wave) which is equally bearish. It also does that Mnt. Everest thing by climbing to just over $100 and falling back from exhaustion. Chevron is the only one of the three that (arguable) has a 5th wave going into the recent top. 5th waves are normally completely retraced (and then some) during the next retracement. What all three have in common, at least using EW rules, is that they are about to lose 1/2 of their value.

Interestingly, only Royal Dutch resembles the actual movements in the value of crude oil. Of course these are integrated oil companies so there is no compelling reason why they would track the stuff all that closely. But other than Fed. policy there is also no compelling reason why the American oil giants should outperform. BP, by the way, is still trading at about 40% below its peak. It resembles RDS.a but at much lower relative values. It yield about 5% and trades at a p/e of 7x. On a relative basis it might actually be a buy. It is the only one that may have completed an A-B-C correction (or a more complex A?) as can be seen on the semi-log scale chart below;

PCL, Plum Creek Lumber

February 21, 2014February 21, 2014 Hamilton

We show Plum Creek again (see blog of a year ago!) as the pattern is fairly common. There are dozens and dozens of stocks that have done exactly what P&G and this stock have done and that alone adds confidence to the call. We point out that there are no clear alternatives. There is already overlap and consequently it is highly unlikely that this could still develop into a 5th wave. If it does it would have to be a diagonal and looking at the shape to date that is almost impossible. Again, it is possible to click on the charts and then move them around for a better comparison.

P&G, Proctor & Gamble update

February 21, 2014February 21, 2014 Hamilton

On the balance of probabilities this is a completed A down, irregular B up and C has just started. Normally the C should take the stock below the low of A, that is $45. The surprise here was that the A leg took slightly more than a year and the B leg slightly less than 5 years. Otherwise there are no surprises and if this stock continues to perform in accordance with EW rules the low should occur sometime in 2016. Time will tell.

Here is the last leg C up in more detail;

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