Saturday, March 21, 2009

I guess the last journey south has started

Am I still in control ?

I guess the sub-wave v has started. With its completion by end of March or early April, if wave 5 has no extension, very likely that the Major Wave A that started in October 2007 has finally came to an end after running for 17 months and dropping 53.8%. (Double clicks on chart to enlarge)

Judging from the dynamic rebound in the last up leg of sub-wave iv with high volume, I won't be surprised if the sub-wave v failed to go lower than the previous low of 6547. A failure sub-wave v is rather common at the tail end of a major down wave of long duration. This is in contrast to short duration down wave that often end with a sharp over-shot drop with equally sharp rebound to form a V-reversal pattern. During this last phase of index drop, individual stock can be one phase ahead of the index. For bank stocks and property stocks that were beaten down very badly by more than 90% in the last 17 months, very likely they are already in the major rebound wave. The US$1.2 trillion fund injection announced by Ben Bernanke last Wednesday and the possible announcement by US Treasury Secretary Timothy Geithner of a plan to get the toxic assets off the books of the struggling banks by next Monday can definitely keep the stock prices above their previous lows.

The low of US$1.02 set by Citi corp. 9 days ago is likely to be the bottom of this stock. My guess is Citi has started its uptrend. From 1.02 it moved to 3.08 after touching an intraday height of 3.87. It closed last Friday at 2.62

Bank of America (BAC) is having a similar chart pattern. Its low is 3.14, set an intraday height of 8.25 on Thursday and closed Friday at 6.19.

However, there is an alternative wave count for BAC as shown above. The last rebound can be wave 4, if so the current wave 5 can bring the stock price lower than its previous low of 3.16.

AIG closing low of 35 cents is likely to be a low that will not be broken. After touching an intrday height of US$2.00 on Thursday, it closed Friday at US$1.26. Will have to monitor closely for entry point.

It is fair to give Freddie Mac and Fannie Mae a different look. Last Wednesday US$1.2 trillion package has set aside US$750 billion to purchase the mortgage securities from Freddie and Fannie. With this latest addition, the total fund allocated for this two companies so far is US$1.2 trillions. With all the bad securities passed to Federal Reserve in exchange for cash, the worst for these two companies should be over. The actions from Federal Reserve is a very clear message that Freddie and Fannie will be kept alive. Inflation is expected to set in and house prices are expected to rise when trillion after trillion of dollars are pumped into the economy as mentioned in my last post, it is not so risky any more to include Freddie and Fannie in one's investment list. Freddie's chart indicates that the worst is over for this counter.

Similarly for Fannie Mae, the 28 cents low in November is the likely bottom for this stock. For both Fannie and Freddie, the current pull back is sub-wave ii of wave 3, the next wave up is likely to be the powerful sub-wave iii of wave 3.

No comments: