April last year we showed 3 possible scenarios. We still do not know if any of them will prove to be correct but the most bullish one is winning, which has been par for the course the last few years (see previous blog). It is a bit of a stretch but it does work best. We assume there was a 10+ year triangle 4th wave and the actual “thrust” started just 3 years ago, most of which is shown in the smaller chart. We have almost done enough, slightly more than the triangles measurement but short only a few dollars towards the upper  trend line of both the whole thing and the thrust. This should be a sell. It would be reasonable to assume that the entire thrust will be retraced!

We were wrong on Honeywell (see previous blogs) thinking that it would not rise much above $60 or so, and here we are at  about $74. This time we are using the longest chart that we could find (Globe & Mail) to improve our chances of getting it right. The only thing that stands out fairly clearly in this chart is a wave 3 from 1991 to 1999, corresponding with the tech rise at that time. Everything else is educated guesswork. Even so 3 distinct possibilities present themselves. In black; the peak in 1999 is THE peak, so wave 3 is somehow not wave 3 and from that point on the stock traces out a “flat” with an unusually long B wave with a new, unorthodox, top. Wave C down should start any moment. Given that the pattern has ben in force almost 14 years already, any moment means sometime in the next three months or so.  In purple;  wave 3 is indeed wave 3 and following that there is a triangle wave 4. Given the $40+ “mouth” of this triangle a top at around $85 should be anticipated, after which the stock should drop back to the lowest point in the triangle ($20).       In blue; no triangle, just an a – b – c  flat followed by a very ugly wave 5. All that is needed is just a new high, which we already have.

The upshot is that all three are calling for a fairly dramatic drop, either now or pretty soon. Time to sell. See detail of B-wave (or 5th wave) below;

Twice we recommended selling this stock. The first time it worked out quite nicely but not so the second time (see previous blogs). Where did we go wrong? The first time around we assumed that the A-B-C rebound was complete in 2011, not unreasonable since it sort of double topped there in any event. It did drop about $20 or some 30% but then came right back up. With the benefit of hindsight we now assume that the C part of the rebound was not yet complete and now has taken the form of a diagonal (wedge) just as in  the DOW , S&P and even the Nasdaq). If correct we had a small throw-over in the 5th wave of this structure and it should now be complete. A sell for sure.

The chart on the left is an old one (see previous blogs under CAT and HON) done on July 22 of this year. The argument then was that the stock had completed a clear B-wave and should decline (ultimately to new lows). In reality the top was already behind us and the stock was doing a wave 2, never quite doing a double top but reaching a high of $62+ . Then it took a dive to about $41+, or a little more than 30%. Then it rebounds , after a pause to complete a 5-wave structure, at about the same speed. This seems to be symptomatic for these times where gambling is reduced to a binary all-or-nothing, red or black game of roulette.

Here we are back at $56 is what should be a wave 2 of C that should take us to new lows. With a retracement approaching 80% the risk now is entirely to the downside.

The patterns are ugly, neither the 5-waves down or the a-b-c up for wave 2, are text-book examples. Perhaps it is the constant meddling, the plunge protection team or the binary nature of these markets that change the normal patterns and distorts them to some degree. In any case, it is time to exit Honeywell.