Are we there yet?

For some superstitious reason I have focussed on the  Fibonacci or “golden section” ratio of 61.8 for a termination point for this stock. This is the last of the blue chips in Canada but one should not forget that it also gave birth to one of the largest financial disasters in Canada’s history, Nortel Networks, which filed for bankruptcy protection in 2009, just seven years ago all though troubles started much earlier, arguable, in about 2001.

It is possible to show 3 different “diagonal triangles” in this stock using different timeframes. We only show the two shortest ones. The first one speaks for itself. The second one, starting from about $52, only 2 dollars higher than the first, can be interpreted as either a diagonal or simple a 5-wave sequence. As a diagonal, shown in green, the 5th wave cannot exceed the 3d wave if it were then to become the shortest wave. That puts a maximum upside of roughly $62. In the case of a simple 5-wave sequence, the trend line exclusive of a throw-over, should do the trick. That same trend line should also hold the advance on the bigger chart.

The high so far is $61.10 intraday so we reiterate our sell recommendation for this stock.  Of course we do not recommend anything as this blog does not give advice, all we do is think aloud, hopefully.

We are simple repeating the same chart we did on Feb. 15th, about two months ago. It took that long to add 17 cents to a new high the other day of $60.37. This is exactly as expected and with a chart of this size, time wise, we cannot get too exercised about a dollar or two. So a little higher is still a distinct possibility but waiting for it is probable not a very smart thing to do. A sell here and now.

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.

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.

Apparently the stock was downgraded today by one or two dealers. This is very unusual as this is one of the few remaining blue chips in Canada and investment dealers do not normally quarrel with success.  However they may be right!

Like our banks this company has had a monopoly/oligopoly throughout it’s existence. It is the largest of three and mostly the price-leader. It is very well politicized and serves quite often as a career destination for high ranking civil servants that are in need of a boost to their pensions. You will not find this company on any list of the best managed enterprises ever.

EW tells us something is brewing. Notice that in the G&M chart on the left, wave 3 and wave 5, if that is what they are and we definitely think so, are almost the same size. Except perhaps for commodity based stocks it is unusual for the 5th wave to be longer than the 3d. If you have to assume anything at all than it would be that the 3d wave is the longest. Effectively that limits any further upside. So does the upper trend-line.

    In the more detailed chart ( I can only get 3 years without paying) the peak value at $60.20 looks like a throw-over, the last gasp of exuberance. RSI and MACD also both suggest a turn is in the cards. This is definitely a sell here.

   For those that have an ACB of a few dollars and are enjoying the dividend income that is more than 3x what you get on a Can. 10-year bond, a different strategy might be more appropriate. That, by the way, goes a long way in explaining the blue chip status.