Month: July 2015

CNQ, Canadian Natural Resources

Hamilton

cnq july 11 2015

Using CNQ we would like to summarize a few of the points in the previous two blogs.

1. Do not blindly trust charts. Unless you can get your hands on very detailed, long-term, tick charts there is always a trade-off between the length and the quality of the resolution. In this case point a is well below point c. Moreover the high of point a, shown to be above $50, is in reality only at $47.13. This is not just lost information but false information.

2. There cannot be a triangle here. Because of the above the top boundary line (in purple) has an upward slope. So does the bottom one. In true triangles the two boundary lines MUST have opposite slopes, ergo this is not a triangle.

3. Your arm, from your shoulder to your finger tips, has 21 degrees of freedom, a stock only two and those are up or down. Even then they are limited by boundaries at least within the context of time. Here the beige line with numerous touch points represents such a boundary. Break it and you are in free fall.  Presently that point is just under $32.

4.There is this generally accepted principle that things will return to normal after exciting times. That is what is meant by regressing to the mean in statistics. Obviously you would need to know what is normal and what is not. That is relatively easy as it is inherently simple a matter of time. Here what is normal is represented by the grey channel which goes back to 1985 and much further before that. What is abnormal is what has happened since the stock broke out in and around 2004 to 2008, four years after which it is trying to get back in . Expect a return to the channel ultimately, often even all the way to the other side.

5. In EW terms what we have here is a large “flat”. This terminology is, for a change, straight-forward as that is what it means, flat or nearly so. The structure is typically a 3-3-5, the A is 3, the B is 3 and the C should develop as a 5. The flat is shown schematically in green. Not infrequently the A and C legs are vector equal and often enough all three are equal as is the case here, more or less.

6. This pattern is not exclusive to CNQ. It is universal and everywhere, most importantly in China as can be seen from my recent, June 26th, take on Shanghai and the more recent , July 10th, copy by EW International in their latest piece. This is the 6th time that they copy me, and I am flattered again.

Shanghai Composite Index june 26 2015Shanghai july 10 2015

7. So in conclusion you should sell, not necessarily tomorrow but certainly on a stop if $32 is breached. This is what it might look like.

cnq july 11 2015 s

SU, Suncor update.

Hamilton

su july 11 2015

Notice that this stock lacks the symmetry that was so obvious with the XEG. Moreover, if there is a triangle over the past 6 to 7 years, it could already be complete or require just a minor move up to around $45. Alternatively we could be looking at a failed c of B and we are already well into the downtrend, that is in wave 3 of C (see previous SU  blog).

     Regardless of EW, it must be pretty evident to any reader that does a little iThinking every now and then, that a break of the fat beige line, that is some 20 years old and has 7 or 8 points on it, spells disaster. That is roughly at $30!

P.S. The problem with long-term charts is that you often lose the resolution as the data points go from minute to minute, to hourly, daily, weekly, monthly etc. Extreme values are shaved off and are not recorded. The second high point in 2014 is actually about $2.65 higher than the one in 2011 so there can be no triangle and the B waive did not fail. This makes the bearish case more imminent. See below;

su july 11 2015 s

XEG , the big picture

Hamilton

xeg july 11 2015 bxeg jul 11 2015

The way to analyse a stock, ETF, or whatever by way of EW, is best done by looking at the BIG picture first and then drilling down into the detail. In some situations that does not apply. For instance if a particular minute pattern stands out and sort of “anchors” the blue sky of the puzzle around it. When you do that with the XEG the immediate bull case becomes so much more credible.

    This iShare ETF is managed by Blackrock, they do iThinking. When I iThink I often get into trouble. This ETF is capped, usually that means that each participating stock in the ETF is either equally weighted, or, at the very least, is given a weight that is less than its capitalization would warrant. Here are the first 10 out of 52 holdings according to the website;

xeg holdings

Maybe I did not drill down deep enough but if the top ten constitute 65+% of the total I am not sure how the capping is done. In any event the symmetry in the charts as measured over the past 4+ years is absolutely striking. It suggest the entire move, that is the two down legs plus the intervening up leg Sleeping half-moon are all part and parcel of one single move which appears to be complete. The implication could be that starting from the top we have a failed double zig-zag down. Alternatively we could be making a huge triangle (see red insert) and are now  in wave C of that formation. Both are positive for the near-term. Long-term the triangle is negative. SU, Suncor, the largest constituent in this ETF still looks awful ( see next and previous blogs).

OIL futures

Hamilton

oil july 10 2015

This is our best guess for oil futures. There are a few competing possibilities but this seems to be the most probable one. This is the September contract so be careful to not make direct comparisons with earlier contracts. The further out the more expensive the contract.