Month: December 2016

BMO, XFN

Hamilton

bmo dec 29 2016xfn dec 29 2016

Banks, all of them and not just the Bank of Montreal, constitute a large sector of the investible Canadian market. In Canada, when you are not sure what to do, which for the past seven or so years  must be just about all the time, you buy a bank. Not any bank, but one of the big five as the small ones usually turn much earlier as some already have, a few years ago, see HCG and CWB.

     As always there is some ambiguity in the EW counts but the alternative is pretty draconian. Theoretically BMO could drop back to the level of the 4th wave of previous degree, say at $20. The same holds for the capped financials. Ergo it is time to lighten up or even sell the whole lot.

Below are charts of HCG and CWB. They peaked quite a while ago and are precariously holding on to recent corrective gains. After that they should continue down.

hcg dec 29 2016cwb dec 29 2016

GS and MS, Goldman and Morgan Stanley…… When in Rome…

Hamilton

gs & ms dec 24 2016

Both these “banks” function as “hedge funds”, that is they can go long and short and create all kinds of securities on their own. Obviously the simple fact that they can play the entire spectrum of possibilities gives them an enormous advantage over others that are confined to a much narrower range of the spectrum. This,  and seeing most of the flows, accounts in large part for their enormous profitability. That every second central banker or any other key player call either of the two their alma mater does not do any harm either.

Clearly regulations affect these pretend banks, in fact MS was created in the wake of Glass-Steagall , enacted in 1933 as a response to the great depression, specifically to circumvent the rules. GS on the other hand operated to a degree outside the scope of Glass-Steagall but was reluctantly drawn in by the bailout. Of course Glass-Steagall was repealed in 1999 which has some people conclude ironically that this law was both the result of the great depression as well as the cause of the great recession. Dodd-Frank (2010) is the new Glass-Steagall and Trump has promised to do away with it (and maybe the Fed. as well). His administration-to-be seems to subscribe to the Ayn Rand philosophy of complete and total unfettered selfishness and a government that interferes as little as possible, sort of where we were after 1999 and before 2010 at a time when these stocks peaked. Oddly enough Greenspan was once part of her (Ayn Rand’s) inner circle.

We have no idea if this Trump rally is over or if it has a long way to go, therefore we would suggest that the best approach is to “when in Rome, do as the Romans do” that is be your own hedge fund and short GS and go long MS. Both companies are about the same size, GS has a slightly larger cap. and MS more employees. The spread between the two has never been larger. A ratio of about 6 shares of MS (at $40) against 1 share of GS (at $240) would, more or less, do the trick.  You can achieve something similar with options.

Better yet, listen to this;

https://www.youtube.com/watch?v=QjO2GiINraM

Merry X-mas and a Happy New Year.

LMT, Lockheed Martin Corp. and GD, General Dynamics

Hamilton

lmt dec 20 2016

Trump has promised to make the US armed forces both the best and the most efficient in the World. Lockheed is the maker of the F-35 and as such it is the recipient of the single most costly military order ever. There are 3 versions of this fighter, one for the army, one for the navy and one for the air force. They are to replace the F-16, someday. They are behind and over budget, do not perform as designed according to some and already some foreign purchasers have cancelled orders (Australia). Others, like the British are concerned that their new class of aircraft carriers (the Queen E class), which do not have catapults, may have to be redesigned or retrofitted. Even with an expected production run of about 4,500 these toys will still cost north of $160 mln. a piece.

The chart is hard to read as there are no distinct or obvious sub-patterns that are readily recognisable. Nevertheless our gut tells us that we are probable at the end of a 5-wave sequence. The fundamentals also suggest that we are overdone to the upside for quite some time now;

LMT dec 20 2016 Morningstar

LMT is clearly outperforming both the Aerospace & Defense stocks as well as the S&P, both by a very large margin! But there is really nothing in this company’s key financial ratios to warrant this outperformance.  So we will have a look at that other fighter manufacturer, General Dynamics (builder of the F-16) to see if it confirms that the stock might be ahead of itself;

gd dec 20 2016

Fortunately this one presents a much more readable picture; the only ambiguity might be where the 4th wave ended, that is if there was a triangle or not. Probable there wasn’t one. In any event both LMT and GD should be exited or even sold short in our opinion.

TCK.B update

Hamilton

The usual then, Nov. 28,2016, and now charts;

tck.b nov 28 2016 stck.b dec 20 2016

Less than a month ago we predicted, that is our EW analysis showed, that much of this wave 1 would be washed away. As it turns out November 28 was the exact date of the high and, so far at least, about 24% has been washed out.

That is normally not enough as first waves tend to have pretty large corrections by virtue of the fact that not everybody is totally convinced that a new bull market has started. Again, normally, one should expect a retracement of at least 62% and in the form of an a-b-c. Considering that the RSI and MACD are almost ready to turn, it is most probable that wave a down is not yet complete but close. A 4th and 5th wave would create a clean 5-wave sequence that would constitute wave a down. Then b up, itself retracing, perhaps, as much as 62%. Then c – always a 5-wave sequence – takes the stock down to about $20 or lower.

Now perhaps none of this will actually happen, but at least you have a blueprint to go by that will tell you when you are right or wrong. What particular part you want to play is entirely up to you and would depend on what degree of fine-tuning you are willing to accept or tolerate, as well as what risks you are prepared to take.

As always ask your broker. He will readily agree that here it is an excellent buy because the recent drop is overdone (never mind the preceding rise). China will need more iron ore pellets now that Trump has won and this company’s management is right up there with the best. It is a good time to offset some tax-loss selling with a few gains and there are only a few days left to do that. Last but not least your broker needs money to put food on the table, certainly at this time of the year.