Monday, February 25, 2008

Potash Corp...$188 million dollar mistake?

I have been studying the chart for POT.TO (Potash Corp) lately looking for confirmation about what may lie ahead for the TSX Composite Index. Potash Corp is definitely one of the stocks contributing to the January rally on the TSX. The wedge shaped rally is more pronounced with POT than it is for the Comp Index.

Today was not one of the larger volume trading days, but about $188 million changed hands today for shares of this one stock. $500 million per day is closer to the longer term average daily trading.

I see a high probability that this stock is ready for a good price tumble. If true, all those buyers today will soon be surprised and disappointed.

A few facts.

$160 per share and a P/E ratio of 48. This P/E level is way too high and not sustainable.
Price has accelerated from $75 to $160 over the last 8 months (0.67 years).
A doubling of the price in 8 months. This is in excess of a 100 % increase per year.
The larger and larger price oscillations in recent months are an indication of a nervous and uncertain market. It is a sign of financial instability.
The chart looks more like a chart for a 5o cent penny gold mining stock than a blue chip stock.

It looks like a text-book example of classic irrational exuberance.

It will be interesting to follow this one.

Thursday, February 21, 2008

TSX Fooled Me Again

The rally that I suspected was over is still in play and it rose above the 13,570 mark. This has eliminated one of the possible options to solve the current puzzle.

I still see 2 or 3 scenarios for a continued bear market. One is a triangle shaped rally. So far it looks like this is a possibility. If so, this rally still has some more headroom with a couple of more small legs to go. If it turns out to be a triangle... then once the triangle is complete the drop following it will be downward and relatively fast.

Tuesday, February 19, 2008

TSX Composite Index Forecast Feb. 19, 2008

I was wrong about the TSX Composite Index rally having ended. This made me ask...What am I missing here? I took another look and noticed a detail in the chart that I had overlooked earlier. It always makes sense in hindsight and the market never breaks its own rules.

I now see another possible outcome. The ultimate limit to the current rally could be the low of 13,570 made near January 7th. As always there are other possibilities but this one appears the most likely maximum value before the index makes the next important turn and continutes its zig zag decent toward lower levels. I'm still expecting a final bear market low somewhere below 12,000.

The rally is still rising far it has hit an intraday high of 13,452. With this short-term scenario it can only rise a maximum of another 118 points (13,570-13,452).

Monday, February 18, 2008

Apple Computer still on a downhill run

I took a look at Apple Computer today. It is currently at ~$125 per share with a P/E ratio of 27. The price run up from about $10 to $212 over the last three years was an excellent example of "building castles in the air". I guess there was still some life left in the mania.

The evidence points to a high probability it will be going down to $100 or lower. It could go significantly lower than $100 before this bear has run its course.

Still waiting to see if that TSX Comp rally has finished or not. I'm guessing it has but time will tell.