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Stock buy backs.

Hamilton

stock buybacks mar 14 2016

 

This looked like an interesting graph from Bloomberg. There are different schools of thought with respect to stock buy backs. On the one hand you have the modern approach that approves buy backs for pragmatic reasons. Companies earn so much that they cannot reinvest in themselves, or, alternatively, cost of borrowing are far cheaper than issuing equity so why not redeem? On the other hand you have the notion that buying back stock is tantamount to admitting that you are out of investment ideas and that, moreover you are probable engaging in some nefarious exercise aimed at manipulating the stock values ( and your bonus).

Whatever the case, it is perfectly clear that the prevalence of stock buy backs in the last decade or so, is driven by cheap money and just one of the many manifestations of Central Bank largesse. Income inequality is a direct and inevitable result. Note that the buy backs , at least for the past your or so, are accompanied by rising mutual fund redemptions.

From an EW perspective, there is clearly an initial 3-wave drop during the “great recession” and now we are pretty close to double topping in what could very well be a B-wave. This is the hallmark of a “flat” and now wave C down should be underway.

STN, Stantec alert

Hamilton

stn mar 9 2016

We got most of this C wave spot on. However we were expecting a more sizeable drop in the immediate future. This may, repeat may, be incorrect. The simple reason is that the above C wave is starting to look an awful lot like a contracting diagonal. These are ending patterns and warn of a fairly fast reversal ahead.  This could after all still be a 4th wave that could be followed by a new high. Step aside untill the future has become the past and we can more accurately predict it.

CVX, Chevron update

Hamilton

The usual then, Jan 22, and now charts.

cvx jan 22 2016cvx mar 8 2016

Chevron was always a little ahead of Shell and has a slightly different pattern, perhaps. But from an EW point of view this one is fairly simple. From the Aug. lows there was an initial 5-wave correction which then has to be a first leg of a 5-3-5 A-B-C. Sofar that is exactly what we are getting. There is a whole cluster of “logical” targets, the B wave level (in purple), the 61.8% retracement level and equality between C and A all around 104/105. You are already up about 26% but now it is worth holding out for more.

This has been a great stock to analyse.  It must have read the script. We even got the top right all though we were late to recognize that, see our blog a year earlier, Feb. 22 2014;

cvx feb 22 2014

ABX update

Hamilton

abx mar 9 2016

Here is a bit of reverse engineering to illustrate possible paths for this stock. We have chosen 3 possible levels for the A leg (of an A-B-C), where it is now, $23 where the 4th wave resides and $30 which represents a 50 % retracement. Furthermore we have assumed that the A and C legs will be about equal. We are preferring the blue one, simple because it is in the middle. In that scenario you would go up to $23 in the A leg, then drop to about $15 and then rise to just under $30 in the C.

After that the assumption is that the stock will fall in the same relative proportion that it did in the past four years, that is down by about 84%. This gives you the targets for the entire correction and also the in between levels where you can buy back in if you sold.

Again, this is just an attempt to create a rough roadmap. None of it may come true but it may just turn out to be more accurate than what your gold bug broker tells you.