Month: February 2016

BCE, Bell the phone company.

Hamilton

From this morning’s news;

Japan’s benchmark Nikkei 225 soared 7.2 per cent to close at 16,022.58, rebounding from last week’s slump to post its second biggest one-day gain in three years.

Stocks rallied after government data showed Japan’s economy shrank 1.4 per cent on an annualized basis last quarter because of weak consumer demand and slower exports. It’s a setback for Prime Minister Shinzo Abe’s economic revival program, which aims to stoke inflation through massive monetary easing. However, the latest report also gives the government more reason to open the stimulus taps wider to restore growth, economists said.

Clearly bad news is still good news, which is why today we will take a look at BCE. This is a blue chip, widows and orphans, quasi government owned, utility type of stock. For the most part management (civil service rejects) was considered inept. They were but the monopoly shielded them from the worst consequences. Bad news was served all the time so this stock must have done very well. It did.

bce feb 15 2016 bBCE feb 15 2016 s

Exactly a year ago, Feb. 8 2015, we opined that this stock was a sell (see blog). It had reached a peak of $60.20, very close to that Fibo ratio of 61.8. We have trouble confirming that peak today, but despite that it does not appear to have made any progress over the year worth speaking of. A triangle remains a possibility but it is not worth betting on.

Waves 5 on normal, non-commodity stocks, are seldom longer than waves 3. That would be at the pink line. This chart is very educational. Everything within the green circle is a “flat”, the very same pattern that most stock markets are presently in, only at a higher degree. This one took 9 years so the higher degree patterns should take even longer. That flat took the stock down >55% just eyeballing it and more like 60% if you adjust for the failed 5th wave of c. Should this happen again we would be looking at $24 which is very close to the 4th of previous degree. BCE could be just one good disruptive communication adaptation away from becoming, a copper mine without a future.

HCG , Home Capital Group update

Hamilton

The then, June 29, 2015, and now charts as usual;

HCG june 29 2015hcg feb 14 2016

At the time the stock was around $42 or so. Recently it got to $23 or another $19. From the peak the total damage is close to the 61.8% magic Fibo retracement and consequently a bit of a bounce could be in the cards, perhaps in a minor wave 4 of 5 of 1. After that a bigger bounce which may even close the gap and then further down in wave c of this a-b-c correction which should reach the lowest point of the triangle. Reverse engineering suggest that closing the gap is attainable assuming c will equal a.

All the banks have similar patterns, mostly B-waves without triangles, but all are well on their way. This one and CWB are the furthest down and CM, Commerce , oddly enough the least. There is no reason to change the EW count at this time so we remain bearish on the group, including the insurers.

CHN, the China Fund update

Hamilton

The China Fund, Inc. is a non-diversified, closed-ended management investment company launched in April 1992. Its objective is to achieve long-term capital appreciation through investment in companies and other entities with significant assets, investments, production activities, trading or other business interests in China, or which derive a significant part of their revenue from China.

This is a proxy for the Shanghai index; here are two charts, then Sept. 2012 and now;chn jul 2012CHN feb 13 2016

Since that time the fund has dropped about 50% and it is well on it’s way to our target. Originally we were looking for a simple A-B-C. That does not look to be correct. First of all the huge initial drop is very symmetric, suggesting a zig-zag. Secondly the retracement is close to where the b wave is. This points towards a double zig-zag. Furthermore , not that it matters now, wave 4 is probably a triangle.

So we have an a-b-c X a-b-c. The second b can be a triangle (in blue) or a running flat (in black) Both suggest a target of about $8 which is pretty well the low in this chart. This Google chart goes back a little further;

chn feb 13 2016 g

The low was on Sept. 4, 1998 at $5.50 and that is probable our target as it could be a 4th of previous degree. ( For EW enthusiasts; There is a clear overlap between 2 and triangle 4. That is obvious, but there is a school of thought that says that it is where the triangle ends that counts, and then there is no overlap). Bubbles normally also retrace back to below their starting point. The channel does support the notion that everything on this chart is one single 5 wave sequence.

Monday the market in China will reopen after having been closed for 9 days. The fund, however, trades in NY and has traded all this time. It is down about 4%, maybe that is an indicator;

  chn feb 14 2016 small Bamboo Shoots Nutrition Facts - Health Benefits, Nutritional Value & Calories - _2016-02-14_11-07-53

By the way, for about 30 years, that is a lifetime in the world of investments, you would have had no capital appreciation on this fund, this is while China was the fastest growing economy over that time. And what about distributions? Well here is the answer;

Total investment returns reflect changes in net asset value per share during each period and assumes that dividends and capital gains distributions, if any, were reinvested. The net asset value percentages are not an indication of the performance of a shareholder’s investment in the Fund, which is based on market price.