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VRX update

Hamilton

vrx march 3 2016

Our target was always around $50. This is based on bubbles bursting and returning to a level below the starting point. A few things have happened since our last blog.

Hillary Clinton angrily denounced the company for its predatory pricing, mentioning a very specific senior citizen who essentially could no longer afford the medication. The price had gone from $180 to $18,000 for a certain dosis.

The CEO is back in the saddle after a short leave of absence for medical reasons, hopefully without having to use any of the company’s medications.

The company is now under investigation by the SEC for bad behaviour.

RBC Capital Markets analyst Douglas Miehm , yesterday March 1, downgraded the company and lowered the target by US$100 to US$85 (about C$115), still about 30% above the present price. The stock is now “sector  perform” down from “outperform”. But if you are wondering if you should perhaps sell now that the stock has lost 78% from the peak, you may find it heartening to know that this analyst still things the company has a bright future.

From an EW perspective it is most likely that the stock completed a 4th wave triangle (which may have started a little earlier than you think) and is now thrusting down. The $50 target is reasonable in this context. For those that speculate, this stock should be a buy at about that level of $50 for an upside target of , possible, $150.

As a practical point, one should not forget that investment advisors, certainly if they are working on a discretionary basis, are seriously conflicted if their own research departments go negative on a stock they hold for their accounts. Essentially they have to find the courage to sell the stock , or are forced to, and face the music. This usually takes a little time as these advisors are mostly tone deaf when it comes to losses. Deutsche Bank “suspended” their rating, Scotia is reviewing and no doubt there are hundreds more that are going to the same thing amplifying the swings in the market.

Oil again

Hamilton

oil march 1 2016 boil march 1 2016 s

Oil’s rebound has been rather lethargic despite seemingly large percentages. This opens the possibility that we are not yet at the bottom. Of course our longer term view was that we should go lower, maybe a year from now and not necessarily immediately. See our previous blogs.  The A-B-C correction for oil, shown on the left, calls for a price in the vicinity of $10 if and when the C leg equals the A, a common occurrence.

Shorter term we may be making a sideways triangle, the market’s way of killing time. That should then lead to another wave down which may reach those targets. This is just a possibility!

LFC, Shanghai, and QE or other forms of stimulus.

Hamilton

LFC is the US traded ADR of the China Life Insurance Co. It is not updated to today, but in China this stock is trading at a new low. This is what it looks like, together with the Shanghai index;

lfc feb 29 2016shanghai feb 29 2016

There are previous blogs on the Shanghai. In fact we warned about this index right from the very beginning. The question here, however, is why one of the largest insurance companies is doing so badly. Insurance is a relatively new business in economies like that of China (centrally planned, communist, family centered etc.), which is why so many of our own insurance companies have set their hopes for growth on China. Manulife is a good example. Maybe things got a little too exuberant but the immediate future does not look all too hot.

All we really need is that the PBOC throws in a few 100 billions of Yuan stimulus every now and then and things will just be honky dory. Not according to Bloomberg;

China Real estate v stock

We know that water always  flows to the lowest point, so does money, only central bankers do not know that. In other words you can flood the place but you cannot direct the flow. That lesson is being learned fast in China as is witnessed by the above chart from Bloomberg. The stock market over about the last year, say all of 2015 plus Jan. and Feb. of this year, is down close to 50% (right scale) and home prices are are up 100% (left scale). If you are mathematically challenged, that is the same! Furthermore, to the extent that money can freely flow across borders, this phenomenon is spread around the world (even if it is not immediately recognized by the local powers that be, such as our own Bank of Canada). The effects are also amplified as each central bank is trying to outdo the other. All we are left with, for another 5 years, is Ms. Christine Lagarde, who, by the way, has her own stimulus package , does not pay any income taxes and is the world’s highest paid civil servant, to warn us against “beggar-thy-neighbour” policies.

FSLR, First Solar update

Hamilton

fslr feb 28 2016 bFSLR feb 28 2016 s

First Solar has worked out well, so far at least. Looking at the big picture we had, and still have, much higher levels in mind for this stock. However, we are approaching a minor double top situation and, as we have said ad nauseam in this blog, it is always smart to step aside at these points in time.

The buy recommendation, we were not very alert, was at $49. Here we are a year later at $73. It should perhaps trade a dollar or so higher but we do suggest selling the stock at about that price. That is a gain of $24 on $49 or 49%, more than you get on your GIC.

The solar technology has a very bright future but the influence of China as a producer and the miserable inept interventions by various governments and their regulators,  make for an irregular path up. Playing it safe is the way to go.

See also TAN, where you should also have exited the trade at the double top level. It may be a buy again soon,