Thursday, February 16, 2006

Elliot Wave Analysis of Nasdaq



This is my interpretation of the Elliot Wave Analysis of the Nasdaq. The chart above is a 4 year chart of the nasdaq. The numbers denote the wave sequence. The brackets beside the numbers indicate the future values of the nasdaq. Although elliot wave was one of the first things I learned about the markets, I haven't done it for a while because of the arbitrary nature of the theory. However, I still like to use it once in a while to get a "clear" picture of the future (especially when I am confused), as elliot wave is the only theory that looks into the future.

According to my interpretation, the nasdaq will make its way towards 3000. Whether this will actually happen is beyond me. But I do like the market action of late; I believe the markets are oversold, and it will go up, even if it is a dead cat bounce. As a result, today, I bought calls in AMD, GOOG and CNQ. (Please note that I may exit and sell these positions without warning, so trade at your own risk).

Wednesday, February 08, 2006

Selling overdone

The markets have become super bullish to super bearish in only a matter of days. When the markets are going down, people focus only on the bad news, and when the markets are going up, people only focus on the good news. The fact is, there are arguments to support both a bullish and bearish market.

I bought CNQ again when it was tradin at 66.60 CAD or 57.90 USD. Buying while everything is plunging is scary, but I believe oil is at good support.

Monday, February 06, 2006

Market Commentary

Wow, what a miss on my Cameco (CCJ) call. I still have no idea why I picked that stock. Prior to that day, I was telling a friend that I thought CCJ was in a serious need of a correction, even though I still like its long term potential. And the next day, I bought it once it started its correction. At least it formed a nice reversal today. I don't know whether I will see a profit on my CCJ position...I might sell it at a smaller loss if things don't work out.

As for the markets in general, I still stand by my opinion that we will see a correction. If I had to guess, I would say that the markets will trade sideways for a few weeks before making new lows. After a 3 year bull markets, some stocks have run up so much, that people are using 50 x earnings to justify their valuations. At least they're not using 50 x revenues like they did back in 2000. But that is one thing I don't understand; how could technology stocks be valued so highly? I thought the markets were supposed to punish risky stocks by giving them a lower valuation. The reason why technology stocks are risky is because they may lose their market share at any time. If their R&D falls behind, another company will invent better technology which will make their technology obsolete.

Meanwhile, I still don't understand why commodity stocks get so little attention. They've been in a raging bull market since 2000 and commodity stocks are still extremely cheap (P/E < 10), yet everybody expects them to fall. One of the first things I learned about the markets is that there is always a bull market, that each bull market is lead by a certain sector, and each successive bull market is lead by a DIFFERENT sector. We saw a great bull market in technology stocks up to the year 2000. But after that, technology stocks started to go down and commodity stocks took over. Many people still do not realize this. Until people start to acknowledge that we are in a long term commodity bull market, and that this is not just a blip on the radar screen, commodity stocks will CONTINUE to go up. I stand by my prediction that we are in a 15-20 year commodities bull market. Fundamentally, China and India are ACCELERATING their growth (as opposed to the popular view that they are slowing down), and I haven't even mentioned the other emerging markets. Having said this, I acknowledge that commodities have run a lot so I would expect some type of correction. But every sign of weakness is an opportunity to buy.

Wednesday, February 01, 2006

Cameco (CCJ)

I just bought some CCJ calls. Cameco is off today because they reported "disappointing" earnings, mainly due to their hedging program. I am not really concerned because Cameco goes down after every earnings report, only to go back up after analysts realize they are the only uranium company out there. Spot prices are rising so fast that even if Cameco hedges, they will do well.

By the way, it was nice to see CNQ breakout again. Will crude break above 70? We will see.

Edit: I sold my CNQ calls. Although CNQ may still go up, it has risen too much in the past little while, giving it an unfavorable risk/reward ratio. Besides, my CNQ position had become so large that it was bigger than my long term holdings, so I had to take the profit.