Apr 232014
 

In this post, I am going to present you with Elliott Wave analysis of Wockhardt Ltd. One of the members of my exclusive club had approached me for a consultation back in January 2014. It was the 14th of January, to be precise, and the stock was trading at Rs 413.65. The member sent me the following brief note:

“I consider myself as long term investor. I hope your advice/analysis will help in some of my long term investment decisions. By long term I mean I could hold for more than a year, if required.

Could you please look into the following stock for me: (I understand this will cost me 2 credits)
Market – India – NSE
Company – Wockhardt limited
Symbol – WOCKPHARMA
Exposure – None at this time.

Comment: This stock has comedown from around Rs. 2000 and currently trading at 420. It saw a low of 350 about 3 weeks back. Did it start its uptrend? Since the company is in pharma industry, it is subjected to lot of FDA regulations. I think FDA’s adverse observations made the stock to drop in recent times.”

I looked at the chart, and could make out that it was going to be a challenge to come up with a sound analysis. I prepared a set of 10 charts and will share with you some of them here. Please note that this is not a marketing message. The idea is to allow readers to see the value of Elliott Wave analysis, and how someone with experience with Elliott Waves could come up with a sound strategy. I recommend that you open the charts in different tabs.

Wockhardt Big Picture

Wockhardt Big Picture Elliott Waves

Wockhardt First Target for C wave

Wockhardt First Target for C wave

3rd wave target within the C wave

3rd wave target within the C wave

Verifying 4th wave as correct

Verifying 4th wave as correct

Identifying possible end of wave 5

Identifying possible end of wave 5

Analyzing minor waves of wave 5

Analyzing minor waves of wave 5

As can be seen from the above, I have finally come to the conclusion that a major correction is now over, and the rally that started off from that low is the first wave of a new cycle. Now comes the more interesting part, the one about where to buy.

Have we finished 5 waves of wave 1?

Have we finished 5 waves of wave 1?

WCKH-10-14Jan14

So we have identified a low-risk entry point. However, there were other considerations like risk-management and what size to expose. Yet, an initial entry point has been identified.

This member went long a decent position size at an average rate of 430. He probably purchased some on the way up after the dip, a smart investor I must say. He understood the size of the upcoming recovery, and wasn’t penny wise when it was the right time to take a risk. A majority of traders do the opposite. They take big risks when they should be cautious, and take small risks when everything points to a favorable move! Anyway, this is what happened. I am sharing with you just the plain chart without any notations. We got a dip down to below the 400 mark twice in the days that followed and the stock is up by nearly 70%.

The power of Elliott Waves

The power of Elliott Waves

Mar 102014
 

Today’s FT carries an interesting report filed by Miles Johnson, their Hedge Fund Correspondent. This report says that Seth Klarman, one of the most respected investors, has raised the alarm over a looming asset price bubble, and specifically mentions Tesla Motors , (TSLA:NSQ). He has warned of the potential for a brutal correction across financial markets. See this link: Seth Klarman warns of asset price bubble

So I decided to check out the charts for Tesla Motors to see if Elliott Waves could offer us additional clues that might help us play along with the view professed by Mr Klarman.

Take a look at the first chart below. It clearly shows that we are in the fifth wave of a move that stated back in Q3 of 2010. According to the Elliott Wave Principle, it is normal for one of the three impulse waves within a five wave sequence to be extended, i.e. for it to move a greater distance than the other two impulse waves. The chart below shows that the first and third waves were roughly equal is measure (i.e. they were of ‘normal’ proportions). This also ties in with another feature of Elliott’s observations that often enough, two impulse waves tend to be equal in dimensions. You will also observe the principle of alternation in the two corrective waves seen, whereby when wave 2 was shallow, we got a wave 4 that was deep.

The next chart shows how to anticipate a possible end point for wave 5. Because we are expecting wave 5 to be extended, one possible terminal point is at a place where wave 5 would have traveled a distance equal to that from point 0 to point 3. This comes at $295.

 

We will now zoom in to the fifth wave and see if the sub waves of the fifth wave can give us additional information. As you probably know, every impulse wave is composed of its own set of five sub waves. We can immediately see that sub wave (3) was extended to reach about 300% of sub wave (1). Wave (2) was 50% of wave (1) and wave (4) has already corrected to a 23.6% measure of wave (3). All these Fibonacci Ratios are common measures used by Elliott Wave Analysts to add confidence to their reading of the waves.

 

The final chart below uses the technique I have described in my book “Five Waves to Financial Freedom” where we measure the distance form point (0) to point (3) and compute a 38.2% and a 50% measure. These measures, when added to the bottom of wave (4) will give us potential targets for wave (5). Interestingly, if we add a 38.2% measure to wave (4) at 235, the target comes just below $295 which we already saw earlier. And should wave (4) come down some more to reach a 38.2% correction of wave (3) – that is reach $217, then we will get wave (5) to land at 291 if we add a 50% measure of (0) to (3).

Because of these confluences, we should go with the belief that there is a high probability for Tesla Motors to complete its extended fifth wave just below $295 and commence a very sharp decline that can take it all the way down to $137. This is the level where the extended fifth wave had its sub wave (2) end. There are numerous illustrations of this phenomenon explained in this blog as well as in my book so much so that I have often informed readers that fifth wave extensions can make us rich! Good luck and happy hunting.

Feb 112014
 

I had prepared the following article for publication in Seeking Alpha on Sunday, but I decided to share it here with you folks directly. Meanwhile Chevron Corp is already moving nicely.

Chevron Corporation is an integrated energy company with operations in countries located around the world. The company produces and transports crude oil and natural gas. Chevron also refines, markets, and distributes fuels as well as is involved in chemical operations, mining operations, power generation and energy services.

Let me be honest about one thing upfront. I don’t have a Dividend Growth Portfolio at the time of writing this article. I have been involved with the financial markets for over 30 years, and have always been in the thick of action in a variety of markets. But I neglected building a DGP. Yes, it is a serious lapse! But it is never too late to start. The goal is to reach an yield to cost of 10% within 10 years. Perhaps, Elliott Wave Analysis would help me reach that goal in a shorter time frame!

The stock had a closing price of $112.05 on Friday, 7th February 2014. If I were to buy this on Monday at $112, my own yield will be 3.59% which looks good. My Bloomberg screen shows that the 5-year Net Growth rate for dividends is 9.04% and the 3 year and 1 year dividend growth rates are respectively 11.15% and 11.11%. The P/E for the stock is 10.09. As many fundamental analysts have done adequate research on Chevron Corp and awarded it high marks, all I wanted to know before I placed my buy order was whether Elliott Wave Analysis offered me some additional clues. Is it time to add Chevron Corp to my brand new Dividend Growth Portfolio?
Let me give you a quick summary about Elliott Wave Principle. The theory was put forward by Ralph Nelson Elliott in the 1930s and has stood the test of time. Elliott discovered that all market moves in the direction of the main trend developed in a five wave pattern. Two of these five waves served to correct the first and third waves. But once the fifth wave completed, the next correction served to correct not only the fifth wave, but also the entire sequence for five waves. Hence that correction is usually bigger and lasts longer than the two minor corrections seen on the way up.
With that introduction, let us take a look at the first chart below. You can see that starting from the significant low posted in the early 1980s, Chevron Corp has a clear five wave move to its recent top. The third wave traveled a distance of 161.8% of the first wave, a classic measure for third wave moves. Some of you might recognize this ratio as a Fibonacci number. You will also notice that wave 4 and wave 2 were alternating in length and complexity. This too is as per Elliott Wave Principle.

Chevron Corp is in wave 5

Chevron Corp is in wave 5

I then zoomed in to view the fifth wave to see if that had its own five minor waves. And sure enough, I could make out a clear five wave pattern there too.

Elliott Wave Analysis of Chevron Corp

Elliott Wave Analysis of Chevron Corp

So does this mean we will now experience a decline that will be longer than wave 4 seen during the great recession of 2008? If that happens, won’t the price go down to around $79?
This is where one more important guideline from the Wave Principle will help us decide. According to the theory, we should expect at least one of the three impulse waves to extend, i.e. travel an unusually long distance. From the above two charts, it is evident that both waves 1 and 3 were of ‘normal’ proportions. Hence, it is likely that wave 5 will be extended. That means what we have seen in the second chart above is not the end of wave 5, but probably only the first sub-wave within an extended fifth wave. Seen from that angle, it would be very tempting for the investor who seeks dividend income to get a full exposure of his/her maximum position size that the portfolio would allow. It is true that we could still get a dip under $100, but that dip should be used to add some more exposure to CVX. I am going to buy my first lot on Monday, before the stock goes Ex-Dividend.

Jan 312014
 

There have been a few requests for publishing a record of the trades that the members of the Exclusive Club shared. The following is the complete list of the trades closed in January 2014. As you can see, I am very selective about the trades. The aim is to become rich slowly! WaveTimes is used by members as a supplement to their normal investment and trading activity. And because we are willing to be patient, we are successful most of the time. In January 2014 it was a 100% success rate.

Here is the link: http://tinyurl.com/WTJan2014

Jan 282014
 

You would have heard about the disappointing news from Apple. Wonder what Elliott Waves tell us about the extent of possible downmove? Take a look at the chart below. In after hours trading on Monday, the stock was already around $506. There is some mild support around 503, but think the correction of the sell off will probably come from around 497. Later on, though, we will see the decline continue to around 485. You may wonder why I have chosen to label the just completed rally as a C wave and not a 3rd wave. As you probably know (especially if you are a member of the exclusive club), our goal is to make money from the markets using Elliott Waves. Hence, I am flexible with the wave counts. However, take a look at wave B. If that was wave 2, it is a deep correction. So wave 4 should be a shallow correction, finishing near 503 and rallying again. This could still happen, but I doubt it. Too many people have been hurt by this surprise, and in any case, the broader market is looking decidedly cagey. Will investors pile on to snap up Apple stocks at 503? They will do so only if they think this latest earnings report is a one-off bad number. But many people will begin to suspect that the future is more uncertain than what they imagined last week! And that is only going to pressure the stock in the near term.