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BA, Boeing update

Hamilton

BA jan 2 2018ba june 20 2018

The chart on the right is from last January. We repeat it just to reiterate our sentiment that this stock may have gone too far to fast. Despite that, on April the 9nth we concluded that the drop was corrective and should therefore be followed by a new high, which we recently got by a few dollars.

Trump has been inconsistent in his treatment of this company. First he complains about the costs of his two replacement Air Force Ones, but after shaving off “billions” he celebrates his first party in the hangars of this company which must have been worth a tidy sum in free publicity. Then it occurs to him that Canada might deliberately be undermining the first military apparatus of the US by producing so much aluminum ( the correct “comparative advantage” to use standard trade lingo, is cheap hydro or electricity a major vanishing input. ) Yet in order to apply his notion of the art of the deal he has to tease a little so he postpones the actual implementation, which the market had anticipated anyway, so nothing happened. Then with the help of his new found friends Larry Kudlow and Peter Navarro he wakes up to find that our Prime Minister Justin is a backstabber etc. and at the same time that China, who everyone knows is the real enabler of the Kim-Trump photo opt, is still stealing the US blind. So the tariffs go back on and now they may actually be implemented even if that has not materialized yet. In these hard to follow twist and turns one thing that must have escaped the presidents attention, despite almost daily use of one or both 747s, is that these birds are actually made for a good part of aluminum. A 25% tariff, when none will apply to Airbus, can have rather significant competitive consequences. This is what you get with one-dimensional thinking.

This was one of the best on the way up which usually implies that it will also be one of the best going down. There are a lot of air pockets and we are nowhere near normal cruising altitude.

COST, Costco update and option trade.

Hamilton

cost june 19 2018

There can be little doubt that this 5th wave is a “diagonal”. And if it is a diagonal it must be a 5th wave. The high was a couple of working days ago and reached $207+. Diagonals invariable retrace back to their base level which should be in between the two horizontal lines. Typically this move should be swift which, in practice, means in about 1/3 of the time it took to go up, about 18 months, so in about 1/2 year. This $90 drop might sound like a lot but it would only take us back 2 years out of nine. Furthermore the p/e is running above 30. See chart below for the bigger picture;

cost 19 june 2018 b

In my opinion this situation would be played best by way of an option. As an example, a Sept. 2018 put with a strike of $200 sells for about $4. If you want to have more time on your side you can take it to Jan. 2019 where a similar $200 put would go for about $6. You will probable earn a multiple of your money back! with excellent odds as the complete lack of volatility in this stock, see the narrow channel, makes the put options dirt cheap.

Dow futures (mini)

Hamilton

dow june 19 2018

This is the same chart as in the previous blog using the futures. Nowadays they trade more or less around the clock and around the World. They are easier to manipulate as trading can get rather thin at certain hours of the day or night. Having said that , both charts present essentially the same picture and that is a picture of an initial wave 1 down followed by an a-b-c correction that corrects roughly 60-65% at the end. That the c wave is unable to exceed the high of the a wave does not bode well.

All the ingredients for a rough economic time ahead are present. Interest rates have been ridiculously  low for some twenty odd years which more or less dictates that they can only go up and this is indeed the stated policy by the Fed. and other central bankers. Employment at 3.8% can hardly go lower. Government spending in one form or another is virtually out of control everywhere while at the same time the discretionary portion of budgets is getting smaller and smaller. Military spending is going up in many parts of the World. Etc, Etc. In short we have never had it so good for so long, which , paradoxically, is the problem.

If this is in fact wave 3, then one should expect a drop of at least 4800 to 7800 points given that wave 1 was about 3000 points.

DOW again

Hamilton

DOW june 15 2018

This has taken a long time. The immediate low was on Feb. 9, now more than 4 months ago. The Dow has remained within the range set in the aftermath of the initial drop. That is not the case for the Nasdaq and/or the Russell 2000 both of which have achieved new highs. This diversity and “slow-motion” action is typical of major tops if that is what we have here.

Nothing in the action of the Dow is perfectly clear. The initial drop looks like 5 waves but certainly can also be viewed as a completed a-b-c correction down. The b-wave shown can likewise be viewed as either a single diagonal or a three-wave structure. Much would depend on where one assumes the top of a to be, as shown or one step earlier. The diagonal c wave fails to make a new post wave one high as is but not if one assumes the latter interpretation. With the TSX within 100 points or so of its high and now displaying a relatively clear five waves up, there is good reason to suspect that this is it.