Month: May 2015

L, Loews

Hamilton

l may 2 2015 bl may 2 2015 s

Here is another example of an expanding diagonal. This is probable wave 1 of C, so there is a lot more to go (however, it could be just a first a-b-c shown in red). Before anything else the stock should find its way back up to about $45 , usually in rather violent bursts. These patterns occur when the market takes the stock too far, too fast.  The market action can best be compared to a busload of elderly tourists visiting the Grand Canyon. Curiosity will keep them tiptoeing ever closer to the edge un till one falls over the side causing a frantic retracement. These patterns are highly accurate in terms of their predictive value!

KORS, Michael Kors

Hamilton

kors may 2 2015 bkors may 5 2015 s

Two years ago, almost, this stock looked pretty overvalued at about $70 but then it did its own Mnt. Everest thing and climbed on to an even $100. Then it happened and we did not pay attention. Here we are a perfect Fibonacci $38 down from the peak and we have the same situation as with the previous blog of YUM , except here the stock is in a down trend instead of an up trend and the diagonal is a contracting rather than an expanding one. Waves 1 and 5 are also equal, both at about $15. This time we expect the stock to go up to about $78, for a gain of roughly $16 or 25%. Given that the wedge wave 5 took 4 to 5 months, one should expect a violent move up that takes 1/2 that time or less, perhaps even a few days only!

    A 63 out-of-the-money call option is quoted at $2 to $2.30. A little further out-of-the-money drops the price quite fast, but you get what you pay for. Again talk to your broker and do not let him tell you that options are a tool of the devil and way too dangerous. Change brokers!

YUM! Brands, back to the drawing board.

Hamilton

yum may 2 2015 b

yum may 2 2015 s

So yesterday this looked like a short, but as if to annoy us and prove us wrong, the stock shoots up almost $6, or 7%. So just to make sure we are not completely offside on this stock, we took another, in depth, look. This EW stuff is like doing a puzzle of a blue sky, you cannot see a thing for the longest time and then. all of a sudden everything rapidly falls in place. This is a two+ year expanding diagonal triangle, 5th wave that completes this entire bull run. What is more, we are 99% sure of this.

First of all, looking at the Bigchart, you will notice that wave 5 travels the exact same distance as wave one. This is a perfectly normal phenomenon when wave three is extended.  Next, the whole thing adheres nicely to the channel even though the possibility of a quick $5 throw-over to the uppermost trend line cannot be entirely excluded.

   Looking at the shorter term chart the wedge is clearly visible and defined by no less than 8 touch points. We are using a semi-log scale as it shows better. This wedge is different than the “normal” one in that the amplitude of the moves increases rather than decreases.  In the end it resembles a horn. The main characteristic of these wedges is that they are ending patterns. Typically the stock reverses on a dime and drops, rather violently, back to at least the base of this structure. In plain English, this stock will trade at $57.50 or less sometime into the near future – typically in half the time or less that it took to go up, so roughly in six months to a year.

    Also take note of the very accurate predictive value of the RSI and MACD, individually or combined. The red vertical lines are occurring at an ever increasing frequency and are basically done. This should be traded with options;

YUM options

These are the puts as per Bigcharts as of yesterdays close. The October option is 5 1/2 month away from expiry, sufficiently long to do the trick but not too long to make it unreasonable expensive. If you buy, for instance, the 90 strike – just a little out of the money – the ask is $5.70 and in our scenario the value of the option should rise to roughly $30, that is 5X! Interestingly there is a gap at about $82 and it would not be surprising if the stock drops so rapidly that it leaves behind an island. As always, talk to your broker.

Fundamentally speaking YUM! owns about 7000 restaurant outlets in China, mostly KFC. This is their largest revenue source. So Yum is actually a great China play. in disguise.