“If a thing does not have the right look, it does not work.”
– Leonardo da Vinci, as quoted by Frost&Prechter
In my most recent works, particularly in the very long term charts, I find that Mr. Market is exceptionally accurate when it comes to charting the moves within a channel. The longer the term, the more accurate channel is.
Recently I refreshed the Frost&Prechter book and wanted to share one paragraph that inspired me to look differently at the channels and their role in long term projections. I highlighted the most critical, from my point of view, thought:
“In a double or triple zigzag, the first zigzag is rarely large enough to constitute an adequate price correction of the preceding wave. The doubling or tripling of the initial form is typically necessary to create an adequately sized price retracement. In a combination, however, the first simple pattern often constitutes an adequate price correction. The doubling or tripling appears to occur mainly to extend the duration of the corrective process after price targets have been substantially met. Sometimes additional time is needed to reach a channel line or achieve a stronger kinship with the other correction in an impulse wave.”
Having this in mind, I decided to take a shot at some stocks in different sectors and try to understand the Market undercurrents.
Berkshire Hathaway B
The stock fits nicely in an all-time channel. Wave (I) looks complete or almost complete at 2.414 fibs. A little higher and wave V = wave I. If this is going to be the top of wave (I), expect a retrace to minimum 190. Could be a very sharp retrace if the current wave is an ending diagonal. Alternatively, the current wave could just be wave B of a bigger, complex correction. In this case, the same possible target 190 at the support of wave 4. There is a chance that the channel is shifted and wave IV in red takes much longer. Underlying thought: if wave 4 takes over a year, completion of the whole wave IV in two months is questionable.
A very interesting chart – slow advance, almost horizontal, however, well alternated to qualify for a motive wave. The current wave does not look motive at all. It could be a beginning of a flat or a triangle, the second wave in a more complex corrective pattern. I’m thinking of 3-5 years of sideway moves and ultimate whipsaw.
The stock has developed in an ideal channel. The big question is the following: if wave 2 lasted 2 years and wave 4 lasted 2.5 years, would it be reasonable to believe that wave II lasted just 8 months? I am expecting at least one more wave down, comparable to the one in February-March, to complete a zigzag.
Produced a fantastically accurate channel, baselined on tops of II and IV. If we assume that wave V of (I) is complete, the minimal target for wave (II) would be 224 (0.236 of all time) and it could be lower. Speaking about a possible shape, a zigzag comes to mind, but it is quite unpredictable now. For an alternative, assuming it is just wave alt III completed, I would be looking for a possible drop to 140-180. From the perspective of timing, wave II took over 8 years, wave IV – over 2. Wave (II) – several years for sure.
Similarly to GS, a very slow advance over years. Wave II took over 10 years to develop and I just refuse to believe that wave IV is over. If the channel is the guidance, the correction could take over 10 years and be extremely complex.
The stock looks like it has completed wave III few months ago and is working on the first wave of the correction. There is an interesting pattern about this particular one. All waves 2 and II are long flats, waves 4 are zigzags. Would it be reasonable to expect a zigzag for wave IV or AMGN brings a surprise for the sake of alternation? A triangle perhaps? We will see.
In order to have the Right Look, all these stocks need to develop their long-term channel boundaries and it would be possible if they continue with the corrections each stock has either started or about to start.
Main Hypothesis: If you try to look at all these stocks from the bigger, Market perspective, it would be somewhat difficult to expect Market (or indices) to march upwards as the major players in different sectors seem to be expecting further correctional moves.
I will try to analyze more major stocks in various sectors in order to confirm or reject the hypothesis. So far, I am leaning towards a long-term correction that could last at least several years.