Back in October of last year I thought this was a sell at about $55. At that time you had a three-wave move up and you had reached the level of the B wave in the previous down-leg, a very common occurrence. I was dead wrong ; the stock just kept on going like the energizer bunny. Now that things have gone this far it is clear that an “irregular” B-wave has formed ; irregular meaning not normal. What is not normal is that the B-wave did not stop at the previous top but kept on going , almost as if things are too good to be true. Well they are, and that is why we would sell, now.

The move into the high of early 2008 is a near perfect 5-wave move ( this is clearer using semi-log scale!). The fourth wave in this structure is a triangle. As is to be expected, the thing peaks precisely perpendicularly above the apex and then drops, again as is to be expected, back to a level that equates to the lowest point of the triangle. The drop is an a-b-c which could be an entire correction or just the A wave of such a correction. Given that it took less than a single year to erase an 8/9 years advance, the suspicion should be that the correction is only partially done. Ergo, this could be a B-wave. Given the circumstances under which this low occurred – a smaller investment-dealer/mutual fund operation was long this stuff but due to margin calls from their house bank was forced to sell indiscriminately – explains the initial rebound. The China story probable took care of the rest.   Here we are at $75, through the upper parallel trend-line and at the highest possible trend-line. A very nice a-b-c has developed and both the RIS and MACD are , once again, pointing downward.

(Irregular) B-waves are usually driven not by fundamentals but by a story,  a theme , or simple momentum trading. Loewen, the funeral home operator had a beautiful B-wave that took the stock right back to its highs before diving into the ground under the weight of the Mississipi legal system. You can just feel that that these prices are too good to be true. Step aside.

Lately I have been busy moving with all the little and big chores that entails. Furthermore  the market defies logic and consequently I have been wrong on two calls , so I have been a little less outgoing. This will change soon. Here, for starters, and by special request, is my view on LIF.un. For those of you that remember the precipitous drop that this stock had about this time 2 years ago. That was caused, so I understand, by the BMO that chose to discontinue its long standing relationship with Lawrence & Co by making a margin call at precisely the lows in the, then illiquid,  market. That was then, here we are now;

On this one I do not claim any degree of perfection, just a little market wisdom. There are a number of reasons why this is a sell.

1. There is no shortage of iron ore on this earth. Anyone that has travelled a little around this globe will know that virtually every second country has iron ore deposits, many in abundance , so “peak iron” is not, in my view, around the corner.

2.The overwhelming key to success in this business is simple buying low and selling high. No one actually does that, because high and low are relative concepts and therefore hard to use. Nevertheless I would argue that $20 was low and $57 is high.

3 Both the RSI and the MACD are non confirming the new, recent high, technically not a good situation!

4. The drop in ‘08 is , in EW terms, best described as an A-B-C. Typically these patterns are retraced to the top of the B wave, where we are now

5. Even if we go higher yet the double-top level is not far away and it always makes sense to sell at that level,if only for a brief time period.

6. The channel go up from the lows of $20 or so to the highs in August is very well defined even if no clear count presents itself. However given the large number of overlaps it remains quite plausible that this entire move is corrective, implying that the main trend is in the other direction.

7. The move up from the June ‘10 low looks a lot like a wedge. These tend to retrace in their entirety implying a price of about $42 in the near future.

8.This is the China/commodity trade par excellence. We all know that commodities are invariable the last to peak in a multi decade bull market, so that may be exactly what this one is doing. Concerning China,I have my doubts that they will remain the economic locomotive of the world.

9. As a broker, unless you have the misfortune of buying right at the top, you , or rather your client, should have money in the trade. Nobody ever lost by taking a profit.