TSX

RBA , Ritchie Brothers and Elliott Wave and the TSX

Hamilton

rba aug 2011

Ritchie Brothers, they trade on Toronto and are in the business of auctioneering earth-moving and farm equipment. They have a near perfect EW chart. At this point it is not relevant whether or not the “top” is the top, suffice it that it is a top of some degree. After the lows – almost down by 50% – the stock rebounds in 3 waves (which could still develop into a 5-wave wedge) making a slightly higher high. All of this is classic “expanded flat” behavior, a model of which is shown beside the chart. The entire structure is a 3-3-5 and (apart from the wedge possibility) we are now in the initial stages of wave c which should drop below the earlier low of $15. C waves, the one we are in now, are always 5-wave affaires.

Now that Larry Berman is spending time in giving EW 101 lessons on BNN, complete with statutes of Mr. Fibonacci from Pisa, I thought I would add a little bit as well . This does not apply so much to RBA (but it might) as it does to the markets in general. As stated C waves are always 5-waves but there is a little complication one should be aware of. Everyone can count to 5, most of us have 5 fingers on each hand which makes that task a little easier, but often waves extend. An example is shown where wave 3 of C extends. The midpoint of the wave is called the point of recognition, for the obvious reason that this is about where hope fades and fear starts seriously. So you count to 5 and you think you are done. (the S&P  now at 1150 is down 61.8% and this could be a turning point, in Larry’s example). But guess what, you are not, you are only halfway; it quickly gets to be a little like the kids in the back of the car – are we there yet ? – 5 minutes after leaving home. Ten hours later you arrive at your destination, frustrated, demoralized and fatigued.

TSX extension model

I use the TSX rather than the S&P simple because it expresses the situation a little better. In this case it is assumed that wave 3 of C extends , the most often occurring situation. For each 1-2 that you have at the top you should have a 4-5 at the bottom. Things can get worse if wave 3 of c extends AND wave 5 of 3 also extends, but I will skip that one. There are a lot of variations. We could, any moment now complete a wave 1 and get a 1000 or more rebound and only then continue the drop. It is impossible to know these things in advance, but even if the “how” part is not predictable, the “where” part is a little easier, and that is a lot lower.

TSX

Hamilton

TSX diagonal

Here we have the TSX. Again the A-B-C rise from the lows is clear. Already the C is approaching the time spent in A. In my 15th of June blog I mentioned that there was still the possibility that we were doing an A-B-C, with the C as a diagonal. At the time the TSX was some 800 odd points higher. The alternative would be a 1-2 series.

The action in the middle, the big B wave, may well have been such a structure. The differences are small between that and what we have just done in the last5 months or so. First of all the top in the recent pattern was most likely the second top, not the first. This would take away the A and B. Secondly the structure seem to have a wave too many. Also the size looks out of proportion.  Accordingly my guess is that we are looking at a series of 1-2, a decidedly bearish situation.

Another serious consideration is that if you look at Italy, France, the UK, Taiwan and all over the world, I have not found a single other index that supports the bullish A-B-C scenario. Instead many clearly show acceleration down, which fits the 1-2’s scenario perfectly. Also the very large number of individual stocks that have clear A-B-C corrective structures, finished, or about to finish over the past two months are indicative that this is it, we should then go a lot further! To illustrate the point, below is the SMI, Zurich, and it is by no means the worst. By the way it has broken 30 year support lines (see blog from a few days ago).If we applied this to the TSE we would be at about 8500.

SMI aug 5 2011

TSX, update

Hamilton

TSX aug 2011

We are down almost 2000 points on the TSX. The top was probable in April even if it is hard to tell. From there it looks like a series of 1-2s was made. At least 3 but perhaps 4 if we are now in wave 3. Today’s 460 points was big relative to what we had before and this is an indication that the “point of recognition” may not be that far away. Roughly that occurs somewhere close to the middle, which tentatively targets about 10,000. This is very tentative!!

TSE, Toronto Exchange Index

Hamilton

It is not the TSE, it is now the TSX, either way it is the Toronto stock exchange. It has been a great performer over the last ten years or so, outperforming most other markets. But we may also be at crossroads of our own and today our GDP growth rate of MINUS 0.3% may have put a little damper on the euphoria.

Today it was also the US borrowing limit that played a role. A few days ago it was Greece’s second bailout, now close to 250 bln Euro’s all told. Neither of these events have anything to do with reality. We know Greece is not going to pay its debts and we know that the US will, albeit with depreciated $$ , so the end result is the same. All this is just a side show in what will take at least another 10 years to resolve.

In the mean time where does our exchange stand? Here is the chart.

tsx july 29 2011 s

Remembering an analyst (I forget his name)  that was totally preoccupied with symmetry, I did the best I could to duplicate that approach , no doubt in a amateurish way. The X is at the center of the Canadian universe. Clearly there was an a-b-c of sorts from the lows of March 2009. I must confess that for the life of me I cannot count the individual sub divisions in such a way as to be sure that this is it. The C-wave does seem to have a neat 5-wave sub structure but Canada is unique in that regard. The DOW, the S&P and the FTSE  have been going side ways now for about six months. It is hard to get bearish immediately on those exchanges, after all , as the saying goes, “do not sell a dull market”.

Canada, almost invariable the laggard, may have changed it’s colors and may have become avant garde, as unbelievable as that sounds. But commodities are the last to peak and since our exchange is 30% commodities perhaps we will get hit first. The chart looks as if we are in the process of completing a wave 1 down soon. A rebound after that may well take us up 800 odd points in wave 2, but in all other respects there is not much to hope for here. Below is the pattern discussed earlier (see previous blogs) that could still be bullish, but time is running out. It is in purple with the purple circle. Symmetrically it would make a lot of sense if the low was , in fact , the Nov. 2008 low and not the March 2009 low.

tsx july 29 2011 s

These patterns, the expanding diagonal triangle can have a very violent resolution once complete. The sub divisions in each leg should be 3’s, if they are not it could all be a wave 1 down! Nothing “fits” , so play it safe.