HCG update

June 12, 2017 Hamilton

Home Capital did not quite make it to our potential target of about $4. Nevertheless we had made it perfectly clear that we did not expect a move much under $6. See previous blogs. So if you were smart and happened to buy some of this stock in anticipation of a rise to at least $8, you are doing well having already doubled your money.

From this point on we feel fairly confident that there is more room to the upside. A closing of the gap at about $16 is realistic regardless of what particular count applies. We would exit at that level even if much higher levels are still a possibility.

In our view the problem with this bank has been totally mis-characterized as a solvency problem. With real estate up 30% or so just in the last year that is ridiculous. It is a liquidity problem which, unlike a solvency problem can be totally resolved, at little cost, by injected the necessary funds. It would be an attractive take-over target for most financial institutions that are not part of the big five or six that might have a philosophical problem digesting such an addition. It might be a good fit for quasi banks such as Manulife Bank or even one of the large credit unions with an aim to completely demutualize one day.

an encore to the DAX blog

June 5, 2017June 5, 2017 Hamilton

Here we have the Stoxx600 and the Russell 2000. Starting with the Stoxx 600 a case can be made that a near perfect flat was completed in early 2009, followed presumable by a simple 5-wave 5th wave that should make a new high to complete the sequence. All that is missing is a small 4 and 5. Time wise the drop in wave 4 and the rise in wave 5 are now almost equal.

Looking at the Russell 2000 the argument could be that a very large diagonal started much earlier in late 2002. The proportions sort of argue against this, so it is more likely that a simple 5-wave 5th wave started in this index also in early 2009. Alternatively an expanding diagonal could also be fitted in from this point. In both cases a small wave 4 seems complete and we are now in 5.

Regardless of what count applies, the conclusion that we are close to a peak seems to be inescapable. What is truly amazing is that both these broad indexes, one for Europe and one for the US are at these levels. Particularly the RUT 2000 seems to confirm the adage that “the sky is the limit” which, by the way, also follows from the discounted cash-flow approach.

DAX update.

June 4, 2017June 4, 2017 Hamilton

The usual then, March 4 , 2015, and now and now charts;

The Dax is, ofcourse, a total return index so contrary to, for instance the Dow, the value of the Dax should increase by the dividends and the price appreciation of the stocks. It should therefore record relatively higher values than most other indexes.

Recently I was reading somebody else’s take on the Dax. The argument was that we are in a contracting diagonal triangle, shown in red in the semi-log chart on the right. This may well be correct but it differs from what I thought was going on some two years ago, which is a triangle with a thrust to slightly under 12000. Initially that worked out quite well as the Dax did turn at about that time and dropped some 5000 points or >40%. But then the Dax turned around again and recouped all the losses and then some. One explanation could be that the “thrust” having started with a 1-2, 1-2, only completed a wave 3 and needed a 4 and 5 before completing.

In any event looking at it today, I still prefer the triangle interpretation but that has become somewhat irrelevant as regardless of whether or not the diagonal or the triangle are operative, the Dax is very close to peaking. The triangles mouth measurement, applied from the low point of the e-wave (about 8000 points) suggests a peak at around 13000 to 13250. Under both scenarios, as always, the ultimate target is the level of the 4th wave of previous degree or roughly 2000. When is always a little more difficult but this index should turn soon as in days or weeks but not months.

By the way, had you bought right at the top of the tech bubble in 2000, your total return to date is still less than 4% per annum. That includes the dividends of about 2%!

AMZN

May 30, 2017May 30, 2017 Hamilton

We have been consistently wrong on this stock. It seems to always go higher than one would expect. This time there is again a very nice EW count with a fifth wave diagonal (wedge) into the top, just a dollar shy of the super Mnt. Everest high of 1000. The p/e is at 187X , totally ridiculous by any known standard.

We are not wedded to this precise count as shown as the subdivisions could be slightly different, but when all is said and done this stock is most definitely not a buy. In the last two years at has been climbing in a near vertical fashion, more than tripling so when you do reach the top the first target is 700, next 500 and, as is most often the case, 300 where the 4th of previous resides.

By the way, if the 5th wave diagonal assumption is correct, we have a situation where wave 1 is about 400 points, wave 2 is about 350 points ergo wave 3 must become less than 350 points. As it already has travelled about 300 points it can only go up another 50. Moreover it is already causing a “throw-over”of the upper line.

Below is another acceptable count now that we found a longer chart;

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