Sony - more, shorter term model details: bull and bear cases.

In this post I indicated that SNE shares had a bright future ahead of them both from a charting model perspective and from a fundamental perspective.   However, since catching breakouts in real time is such a tricky game I always try to look at the charts from multiple perspectives. Also, even though the high level chart says "$60" eventual target, what if you bought right now and had to eat a 20-30% paper loss?  Most people can't handle that and it's hard blame them when all they have is a model to go by.  That's why most big money managers never catch the bottom.  They are more afraid of losing a few percent on paper than they are of losing the bulk of the profits of the next run.  That, I think, is why I think the big money managers are doomed to fail.  They no longer have any insight, vision, skill or passion.  They are just plodding bureaucrats hoping to jump into the momentum if it arrives. 

In any case, here is my updated, zoomed in SNE model.  There are two most likely movements coming and both are modeled below. But before I get into that, I want to point out that the past 2 moves had steep slopes to them.  The last move down (far left in the diagram below) hit a low of $9.74.   Then we had a massive vee style bounce where the shares more than doubled in price off the bottom.   The current move is more leisurely, suggesting it is a corrective retracement in a broader new bull market.

The next thing to notice is that the pattern resembles a cup with handle which is a bullish continuation pattern should it be confirmed.  I would have preferred the top of the cup to be more horizontal and I would have preferred the handle to be shorter before seeing a breakout, but if it breaks that top green line at either of the two locations indicated above then that would be first confirmation.  If it happens to break the top heavy red line then it is full confirmation and the $60 price target has a very high chance of being achieved.

But there is a risk associated with being early as you will see if you scroll down.

While I do think that a near term breakout is very possible very soon as shown above, I always have to look at the negative possibilities as well.  The newer a new trend is, the riskier it is.  Until the path is well worn, the big money members of the herd are skeptical about taking it.  That strategy works most of the time until you get a black swan event and then none of the old rules apply anymore and all of the old advantages like massive size and clout become your worst enemies.  There is a reason that it was small animals that survived the meteor impact that wiped out the dinosaurs...

First off, the breakout might not occur at all.  See the last post for what "breakout" means in this context.  Without that breakout, the model is bust right from the start.  The models are all conditional on trigger levels being hit and that's what breakout really means.

So let's say we get the breakout mentioned in my first SNE post.  What could possibly go wrong?  The major threat that I see is shown below.  It is barely hinted at by the less than perfect aspects of the cup with handle that I mentioned above but the real hint is the declining double top with peaks in early 2010 and 2011.  They form an ominous line that would make a textbook upper channel for an ending diagonal.  In addition, this current wave that is forming would essentially bisect that imaginary down sloping triangle.  It would make a nice A-B-C if it behaved as shown below.  Finally, I worry that if my larger model of the major markets is correct that a falling tide sinks all boats.

In other words, it ain't over 'till the fat lady sings and there is potentially a rattlesnake behind every bush.  Fear and discipline!  The shares were already down at $9 not long ago.  There is nothing stopping them from going to $2 in a massive market collapse where panic selling / domino defaults / contagion makes every paper asset nothing more that toilet paper at best and toxic waste at worst.  Besides, shares that pay no dividend are essentially worthless. I have stated this 1000 times.  They are a form of fiat currency and they have only the value that the next greater fool will give for them.

So I'm essentially saying the shares could go to $60 or they could go to $2!  What the heck good is any of that???  Why even bother writing anything at all?

Enter Elliot wave trigger levels.  If the breakout of the last post doesn't occur, you never got the buy signal and so no harm no foul.  Don't buy without the buy signal!  But in the ending diagonal shown below, the original buy signal happens, the shares hit the top of the invisible channel (that doesn't have widely spread data points) and then they cannot break through.  Worst yet, they form a declining double top there whose slope matches the top blue line.  What do you do then?  What do you do in PANIC MODE then?

Simple: you trust the Elliott sell trigger.  See that green horizontal line?  I like to refer to that kind of setup as a "set trigger".  Yes, it's another made up term by me but it's one that I find very useful in these cases.  It essentially enforces the EW rule that the 4th wave cannot retrace back into the area of the 1st wave.  If it does, the model is bust.  That green line marks the top of what I hope to be the first wave up of a new bull for SNE shares.  Once it breaks above that line in 5 waves, the following a-b-c retracement cannot break below it.

Imagine you with your finger on the trigger of rifle with a 2 stage trigger (AKA "set trigger") that you are using to sell your SNE shares if needed.  You pull the first (or "set") trigger when the shares break out above the green line in 5 waves.  Ideally they will gap above that line so that you don't get oscillations on top of it.  The market knows that line exists!  Pulling the set trigger does not fire the sell bullet.  It just puts you on notice that the main sell trigger is ready to pull if needed.

Once that happens, put in a limit sell at a slightly lower price -1% even.  If the shares ever go below the set point again, you pull the sell trigger (better still, let the brokerage computer do it for you so you don't have to sit and watch it all day).  If the breakout and then break down signal happens, you do not watch.  You do not ponder. You do not wonder.  You sell first and you ask questions later.  Defined trigger points are in fact the most powerful aspect of the EW principle even if you never see anyone write about it like that.

Those sell points actually take the fear out of making a move.  I cannot tell you how many times I have watched the chart break my sell triggers and I was not afraid or wondering about it.  I knew it was a possibility up front.  I was even expecting it in many cases.  The more trading discipline you have, the less fear there is.  But there should always be some healthy fear!