PAAS update with implications for all metals and miners.

Pan American silver will trade with the Metals and Miners sector so what is true for it is true for all.

My first post ever on PAAS was late November 2013 in which I suggested a bottom was in or near.  The price was $10.34 at that time and the shares pretty much took off from that point to peak at near $16.

In my most recent major high level update of PAAS which occurred back in May of 2014, I warned of potential M+M trouble ahead.  While the actual chart turned into a 4th wave triangle which was slightly different than what I modeled, we did head back down to the kinds of levels modeled for the double bottom shown in that chart.  I updated that model back in October with this chart and of course the sell signal happened by PAAS being unable to hold the indicated support:



Today's update is below and it indicates that we might already be at a bottom but leaves open the possibility that the sideways chop we are now seeing could be 4 of 5 of 5.  The green lines show the potential 4th wave triangle forming.  If that path is taken, it will likely appear as the pink model.  However, if about $9.75 does not hold as resistance then that 4th wave triangle model will be bust and the red model will be the primary.  That could occur as soon as next week since PAAS closed at $9.65 in Friday's extended trading according to Yahoo finance.



This is no man's land as far as picking the exact bottom is concerned but we are getting very, very close if not already there.  Again, there is no way to call it exactly until a full and obvious wave count is seen and this is usually not the case near turning points.  During 3rd waves when the herd is clear as to which direction it is heading in, the EW patterns are very clear but 5th waves near major turns can and often are confused, tricky choppy messes which is just about how I would describe the PAAS chart.

Folks, this is one you should be telling your mother to buy, at least until it tests $16 (at which time I will update with a count of the waves that got us there).  M+M have gotten the living crap beaten out of them so nobody is buying a peak here!  We are much closer to a significant bottom than to any kind of top.

This is how you make money in the stock market: buy the bottom when everyone else has given up, everyone else thinks the dollar is unstoppable, everyone else thinks oil is going to zero, OPEC is dead, blah blah blah AND when you have a wave count model that says a bottom is likely.  You need both of these (chart and sentiment) in order to have the max chance of catching the big turn.

PAAS is sporting a nice 5% yield even at depressed silver prices.  377mn cash vs 78mn debt puts it into position to weather the storm until metals actually do turn around.  Price to sales could be lower at 1.78 but P/B is a seriously cheap 0.66.

Of course, none of those "fundamentals" have saved it from crashing down to the $8.60 level this time around so fundamentals really don't mean jack shit.  It's the wave count that makes this a buy IMO and while there remains the potential for a spike down to $8.50 it would be momentary and a huge buy signal, not a sell signal.  The time for selling was in the low 40s! 

I model USO as having put in a significant bottom today.

Here is my primary model and here is my alternate model.  Today's action looks like it could be a completed 5 waves down from the peak of the 4th wave.  Of course that could just be 1 of 5 as well but the dip today down to $19.68 is pretty close to my original $19.50 price target and so I'm sticking with that as my primary model.

If oil has bottomed then will gold and (especially) silver not also move up?   For people who want commodity leverage but not as much as provided by JNUG, check out USLV.  My price target for it is $55 some time in 2015.

UVXY update

Check out the backlink model and compare to below side by side.  Pretty close IMO, again based on nothing more than an EW model.  I changed the color scheme on today's count and simplified it to a higher level of abstraction based on how far down pink 4 retraced.

Monday I model a gap down in the markets and gap up in UVXY so I loaded up on the dip near the close after having bailed out @$26.80 during blue 5.   In other words, I just traded my own model and it happened to pay off this time.  The wave count has not been difficult to spot during this bounce and I think this is the sign of conviction buying.

Today we did not fully get down to the level of the prior 4th (pink 4) in order to form (2).  In fact, the pullback was just shy of the 50 fib.  A pullback to pink 4 would have been (and might still be on Monday) the 61.8 fib.

In terms of wave count, the herd has left it some leeway.  It will likely either take the red path or the blue path.  The red path represents a WC wave which is why it does not count 5-3-5 but rather 3-3-3-3-3.  At least that is my interpretation right now.  A break back up through the top rail would be the first confirmation that the reversal back upward is in progress and a move higher than red a would be final confirmation. 

It can also happen that we have only finished 4 of c and that we need one more wave down as shown in blue to touch pink 4 before a massive reversal occurs.  It would not surprise me at all to see this happen even though it is not currently my primary model.  In other words, I am not using tight stops here because I expect it to bottom at pink 4 if it doesn't gap up from the open to take the red path.  If it does take the red path I would expect the gap to take out both the lower and upper rails of the falling wedge in one fell swoop.  That would be a clear buy signal for anyone still on the fence.

If my model is right, we have finally seen the end of the 2009 bull market and UVXY/TVIX are about to go off the hook to the upside.  If I am right then we will not see Avi's S+P 2300-2500 and so I am not 100% dyed in the wool sure I am right.  I have learned to not fall in love with a long term model and instead play it wave by wave (especially near the major turns!).  So at the very least we should see something in the low 40s for UVXY to represent either a good sized 3rd wave or a C wave.  I'll be considering all possibilities as the waves play out but for now I think the smart money is long UVXY.

For the record, I set my stops at $22.80 which is a good deal looser than I normally set them.  Until the current rally has not exceeds the prior rally at ~$32.30 we cannot be sure that UVXY is even in an uptrend.  In other words, the peak of mid December might have been an a-b-c retracement and the bottom on Dec 29th might just have been 1 down of Avi's move to S+P2300-2500.  Thus the current move might just be an a-b-c 2nd wave.  So if this goes below $22.80 they can have my shares back no questions asked and I will be looking for waves 3,4 and 5 to play out in that event.  But that should be a very significant bottom because in Avi's model that is 3 of C of the big 2009 bull market.

If UVXY is not making me money then I will certainly be playing JNUG.  I caught the last 6% of that move after selling out of UVXY today.

USO update

The bottom chart of this post was provided yesterday but I see a slight variation being possible which I have provided below.  The near term implication is for a slightly higher bounce than anticipated in the prior post up to maybe $22 before a drop to $18.50 instead of the previously anticipated $19.50.

One thing is sure: we are pretty near a significant bottom when we start reading panic-ridden "longs throw in the towel" and "OPEC is dead" articles.

$COMPX update: weakness but no confirmed break down as of yet.

Here is the backlink.  Below is the model from that link.  In that post I wrote, "A quick move above the top rail followed by a plunge back into the channel is the $COMPX breakdown signal.  Nothing is confirmed until we get the breakdown below the top rail and then second confirmation is breakdown below the bottom rail.... I like UVXY and TVIX here."




As it turned out, that wedge did throw over very quickly as expected but it went all the way up and filled the only gap that existed in wave 1 down.  So now the chart does not have any technical need to go back up there.  It also resulted in a deep vee second which is very typical.

I don't know if the move down on the 31 was 3 of 5 or 1 of 3.  Either way I expect some kind of retracement on Monday and then more selling to confirm 5 waves down. I think it is very very possible that the 2009 rally ended on Dec 26th.  If you did not get in on UVXY then don't think the train has left the station, etc.  It's just about ready to begin moving quickly though.  Buy the dip in UVXY!

Looking for a 2015 collapse in McDonald's shares. [MCD]

I have posted before about MCD being little more than a global real estate play in the past and how globalization helped them grow whereas the coming deflation will bring with it more closed borders, more attacks on international corporations in order to protect locally owned corporations, etc.  I think their whole business model is flawed and that their food is overpriced for what you get.  I cannot recall the last time I ate there.

But I just looked at their chart and I noticed something very ugly about it: a clear triangle in the middle of two equally sized waves.  That screams "a-b-c" and not 1-2-3-4-5.  A motive wave might just pull back to the 38.2 or maybe to the 50 or 61.8% fib and still be in a bull market but the best an a-b-c can do at this point is form an even larger multiyear triangle.  That would imply an a-b-c move to the bottom channel which would tend to be at about $30.  But a triangle that large is rare and so I believe that MCD has a better than even chance of turning into a mania chart - a full retracement to below where it started this run at $12 in 2003.

I already own some of the 2016 $70 puts that I paid $1.05 for.  I think it might be time to get some Jan 2017 50's.  The spread is ridiculous of course but if I can score some for .55 then I think I will do just that. Just a few thousand bucks at risk here with two full years in which nothing at all can go wrong lest I get paid.  Yeah, I like the sound of those odds.  I'll probably wait for a bit more confirmation before pulling the trigger since the value of these do not move as easily as shorter term options in any case.

50.0 Put

0.39

0.87

0.75

Russell 2000 update

In my previous russell 2000 update I claimed victory just a little prematurely on the 4th wave triangle call because it was in fact still building the 4th.  The updated model is below and if it has not already peaked into wave 5 then it is very, very likely only 1-2 days from doing so:

After a horizontal triangle puts in the 4th wave bottom we need to see 5 waves up to finish the series but EW gives no rules for how this plays out.  It could be 5 small waves that barely breach the top rail or it could be that the 5 waves up we now see on the chart only represent 1 of 5.  The key will be in the retracement level.  At the very least we should see a pullback to the 1135 range which would be the level of the prior 4th as well as the 50 fib.    But if it can't hold that level and subsequently falls below 1040 then we begin to enter free fall territory where UVXY and puts will do very, very well.