Month: June 2015

P/E ratio

Hamilton

S&P 500 PE ratio - Google Chrome_2015-06-24_12-00-55

You can find this Chart of the Day at; <a href="http://www.chartoftheday.com/">Chart of the Day</a>. This is semi-log scale so the highs do not look so high. The average seems to be somewhere around 16 to 17 so we are presently running about 25-30% above that. The P/E ratio is, of course, a function of both the P and the E, so if the ratio is extraordinary high or low the extreme can be caused just as easily by an over- undervalued market as by stellar or appalling earnings. But this website adds a nice perspective; https://cyclesman.com/a-look-at-the-1966-to-1974-bear-market-and-why-we-may-now-be-facing-a-very-similar-setup   I certainly did not know this but according to the author of this website there is a tendency for the P/E ratio to equal the dividend yield at the lows. Applying this to the “great recession” low of 2009 it is pretty clear that the P/E stayed above , say, 17 or so but the yield was well below 3%. The conclusion is that that therefore was not a major low! It is still to come according to the author who makes a pretty convincing case based on cycles.

FCX, Freeport-McMoran update

Hamilton

FCX dec 2012FCX june 23 2015

We have had a bearish outlook on copper and with it FCX for quite some time, see our blog of Dec. 2012 (Copper FCX) shown in part, above left. Today we do not agree with the count then presented but we do with the target of about $10. The drop from the second top in 2011 is a C wave given the very distinct B-wave before that. C waves ALWAYS subdivide in 5 waves so the A-triangle B-C on the left is simple not possible. With a slight adjustment we nevertheless get approximately the same result. Presently we must be in wave 5 which probable will become extended and definitely needs at least one more leg down. The $10 target fits with a number of different parameters the most compelling is that C will equal A and that the stock will hit its long term boundary line. By the way, that corresponds with copper at about $2.20 according to the old blog.

TRQ update and Copper, the stuff

Hamilton

The usual, then Feb. 2014, and now charts;

TRQ feb 2014 bTRQ june 23 2015

Turquoise Hill Resources – formerly Ivanhoe – had completed a full correction, an A-B-C, with all the requisite subdivisions , in particular a 5th wave wedge in the C leg, which confidently suggested this was a buy. It was. The low was at $3.17 and the high after that at $5.80 and we defined the break-out point at about $4. In short you could have easily made 30+% This massive mine is now owned by Rio Tinto (51%) and represents a significant part of the Mongolian economy. A collaborative approach to operating this asset is now in everybody’s interest. Consequently more upside is in the cards. In EW terms $10, the base of the wedge or wave 4 of C, is a reasonable goal.

Copper itself may not fare quite as well. It has not returned to the lows of 2008/9, not even close as this long-term chart clearly shows;

Copper 1957-2015 Data Chart

or in more detail;

Copper Kitco june 23 2015

Starting with the top chart, this is from the LME where they do things in pounds per ton, it is obvious that we are still well above the yellow 50+ year channel. So, if we were ever to regress to the mean, there is still serious downside potential, perhaps towards $2 or even $1.50 a pound. EW targets would be even lower than that, more like $1.25.

If nothing else, the long-term chart of copper shows how extraordinary this, give or take, ten year period from 2004 to the present has actually been. Linear extrapolation no longer has any predictive value.

BAA, Banro update

Hamilton

baa jun 23 l 2015baa jun 23 2015

Banro looks just like the others, VALE, BTU, WLT and so on, however if you change the scale to semi-log you get a much better, and in this case, positive result. Previous blogs are incorrect as I did not go back far enough in time. Here a clear A-B-C emerges which is a completed correction. Typically they go out of business at the low point of C, however if they manage to find their composure, there is a reasonable probability that a new bull has started. This thing went from $17.00 to 13 cents so if you ever liked it you must like it at these levels. From the lows we broke out of the channel and quickly tripled the price, this looks like wave 1. Wave 2 should take back 15 to 20 cents and then wave 3 should start.