Month: March 2016

Gold, the stuff, and Silver update

Hamilton

Here are the then, December 24, 2015, and now charts as usual;

gold dec 23 2015gold mar 16 2016

This is the same “diagonal” that ABX displayed. They are very reliable patterns and almost always result in a violent reversal back to the starting point. We view golds trajectory as an initial 5-waves down, then an intermission, where we are now, and then another 5-waves down to complete a big A-B-C correction to, perhaps $250 or so. That may or may not be correct, but for the moment it does not matter as this diagonal should be retraced and we are only halfway. Another $75 down would probable do it. In any event you do not want to miss the opportunity as it is almost guaranteed. Maybe Yellen will surprise us all and put her foot down with another increase.

Silver, by the way, may be doing the same thing;

silver mar 16 2016

TCK.B Teck update

Hamilton

tck.b mar 16 2016 b

In our 2011 blog we explained how this stock would decline either in an A-B-C zig-zag or a simple 5-wave sequence, all depending on where the actual top was. Most probable it was in 2007 so this C wave had to become a 5-wave sequence (see also Vale and WLT). We have that and we have participated in the first up leg, good for about a 100% return if sold close to $11. In this chart you can see why that $11 level was important. It is the upper trend line of the channel that has been operative for the better part of the last six years. The stock simple cannot break out on the first run.

If we are correct in our overall assessment than one should expect a retracement of about 38% at the very least, of course if we are in a new bull market we should go to new highs but that might be a lifetime away. 38% of about $60 is $22 and if we take $4 as the starting point that gets us to $26. So really we should own this stock, but not if we can get it cheaper than it is today. We think chances are good that you can get this for $7.50, see below;

tck.b mar 16 2016 s

If you can get the stock at say $7.50 or lower, your return will improve dramatically, after all the “buy low” part of “buy low and sell high” is half of the equation. If this analysis is correct “break out” should soon follow after which a double is again a reasonable expectation as W1 up appears to be a 5 wave sequence and should then be followed by another. In the worst case it could become an a-b-c correction but should still lead to a double, give or take.

By the way,  gold stocks are trading in the same way as TCK.B.  They probable, recently, completed their first leg up (see ABX) and are now correcting in a wave 2. Gold itself idem ditto except it may have a lot further down to go ultimately.

VRX update

Hamilton

vrx mar 15 2016 b

We are at a low of $65 and called the top quite accurately even if it was the second time. Our target was $50 which equates to the top of wave one in an extended 5-wave sequence. This is only one out of a number of possibilities.

The count as shown (in previous blogs) cannot possible be correct. By the time we get to the ground floor one has to assume that a full correction has taken place. That is not possible if this is a 5-wave down sequence. More likely it is a double zig-zag or a–b-c  X  a–b-c. The p/e is still above 30 but certainly down from 225 or so. We suspect that at least one more minor wave is needed, as shown in detail below;

vrx mar 15 2016 s

This is a log chart, as it must be given the idiotic range. Now we are only $7 away from the $50 mark but a little lower is definitely possible and we will get to the $50 today.

PS. Now that the stock has gone all the way to $45  and that is where the two legs are about equal on this log scale. If you were to start both legs with a 1-2,1-2 setup you could also view this as a simple A-B-C , 5-3-5 with C equal to A, shown below. A 4-5 would still be needed but it does not have to travel that much further. Interestingly, for a brief moment this stock had a larger capitalization than the Royal Bank!

vrx mar 15 2016 ss

Stock buy backs.

Hamilton

stock buybacks mar 14 2016

 

This looked like an interesting graph from Bloomberg. There are different schools of thought with respect to stock buy backs. On the one hand you have the modern approach that approves buy backs for pragmatic reasons. Companies earn so much that they cannot reinvest in themselves, or, alternatively, cost of borrowing are far cheaper than issuing equity so why not redeem? On the other hand you have the notion that buying back stock is tantamount to admitting that you are out of investment ideas and that, moreover you are probable engaging in some nefarious exercise aimed at manipulating the stock values ( and your bonus).

Whatever the case, it is perfectly clear that the prevalence of stock buy backs in the last decade or so, is driven by cheap money and just one of the many manifestations of Central Bank largesse. Income inequality is a direct and inevitable result. Note that the buy backs , at least for the past your or so, are accompanied by rising mutual fund redemptions.

From an EW perspective, there is clearly an initial 3-wave drop during the “great recession” and now we are pretty close to double topping in what could very well be a B-wave. This is the hallmark of a “flat” and now wave C down should be underway.