Long Term Alert

For about half a year I have been watching and observing the Coca Cola stock price. Needless to say this is a very slow moving stock and for good reason, it has 2.25 BILLION shares in the float. Definitely a beast or dog to the hot blooded trader. However, what I am about to tell you may change some of that perception.

New bull market you say? But why?

I am talking strictly from a technical perspective ( as usual). The fact is that Coca Cola stock has been in a downtrending channel for the past 7 and 1/2 years. In other words this ‘famous’ stock has been in a severe bear market for quite some time. When I see a stock or index in a bear market for that long it usually starts to get my attention. The act of any security going down persistently for this length of time slowly creates a better risk reward scenario. The better risk reward scenario really comes to fruition at the point when the accumulation stage is about finished and the new mark up can begin.

Identifying the end of bearish trends of any security can be very tricky because bottoms generally take much longer to complete than tops. So the jumpy trader is at risk of entering too soon thinking he has found bottom, only later to realize a loss or whipsaw action as price continues to base out in a channel.

I suppose from the fundamental side one can come up with all sorts of reasons why ‘Coke is dead’ and should be avoided at all costs. The move towards healthier diets and the goverment crackdown on overweight children is just one of those reasons. I still drink some type of coca cola beverage at least once a week.. Should I? Well probably not, but damn it sure does taste good :) Is it the best for my health? Well, probably not, but you only live once right? Might as well have a little enjoyment while we are all still here..

I remember reading the book, “For God, country and Coca Cola”, in my dusty old apartment at college. At the time I had a headache, was generally not feeling too well and was tired from a long day of studying. I was sitting there reading the book and learned how this company grew from a seedling to what it has become now. It was quite an interesting read. The book talked about how the first version of Coca Cola was supposed to cure headaches, make you feel better and refreshed, and give you new energy. While reading the book and drinking a couple cans my headache went away, I started to feel better and started having quite an uplifting mood! It could be that the act of reading this interesting book helped activate the change in me, but probably most of it had to do with the secret ingredients inside that can.

Coca cola still has massive branding power. Going forward let us not forget that World Cup 2006 in Germany is coming up, the worlds most watched sporting event. Coke is a sponsoring advertiser of the cup which starts in June 2006. We also have a warm summer coming up? And maybe it will be a hotter than normal summer? I don’t know, but it is possible. A very hot summer and a very hot World Cup 2006 in my mind at least can only help lift the mood of Coca Cola investors.

Of course these are all subjective opinions, not technical ones. My technical opinion does confirm my subjective ones however.

As previously mentioned, Coke has been in a long bear market. But I believe Coca Cola stock is about to break out (bullishly) of a 3 YEAR symmetrical triangle with price volatility. In order to validate this breakout I need to see (and expect it) wide price spread and sufficient volume.

Take a look at the chart:

This is such a beautiful chart is almost makes me want to cry ;) . Part of the reason for this is the longer term duration of the chart. The longer the time frame the better and the bigger the implications of its resolution! I believe the breakout and much higher price volatility is very close! A wide price bar and sufficient volume would VALIDATE a breakout from the 7 year downtrendline and launch coca cola into a NEW bull market! I expect all of the above to happen.

But when?

It is entirely possible that the big move will happen as we go into the end of March (end of this quarter) and begin April (begin of next quarter). End of quarter and beginning of next quarter window dressing should help the cause of this breakout.

Money to be made in Coca Cola?

I think the best way to make money on the new bull market in Coca Cola is through a longer term call option. the January 2007 , 50 Call option on Coca Cola seems reasonable. Right now it is trading at .30 to .35 With the expected increase in volatility, I think we could see at least another 30 cents premium added to this call from the upcoming expected volatility.

I believe this is an outstanding opportunity in Coca Cola and as of this posting rate it with pretty high confidence. Aside from the option trading opportunity, long term investors worldwide should be alerted to this stock as a potential buy and hold for slow and steady gains in the year ahead.

I am going to post a chart here which should give you a rock solid dose of long term thinking. Ponder for a moment your long term opinion on the market.. do you have one? Bearish, Bullish or in between? It goes without saying that a fairly confident long term forecast can help so many of your trading decisions between now and the end point of your forecast…

But a long term forecast is extremely difficult to gauge with accuracy for the same reason that a long term forecast of weather patterns is just as difficult… However, I do believe that the market is easier to forecast on a long term basis than the weather :) .

The chart at the below link is one I made of the Dow Jones Industrial Average.

CHART

Note that the Dow Jones Industrial Average has been up until TODAY in a sideways basing pattern with 2 FULL YEARS of CAUSE. We also have a large symmetrical triangle pattern that is nearing the apex.

The inset chart is the 8.6 global business cycle model. This cycle model has over time made some STUNNING forecasts. Notably, many of these stunning forecasts were in existence decades before they even happened!

Note in the chart the 1998.55 peak forecast… which you probably remember as being the beginning of the asian currency crisis. That peak, July 20th, 1998 was an astounding forecast. It was perhaps one of the most famous and precise forecasts of the 8.6 year cycle model. The next most famous one was the precise forecast of the 1987 peak and crash.

The chart I have drawn shows the the cycle model also accurately predicted the major low of the bear market in 2002.85.

The next major peak is forecast to be 2007.15 or February 25th, 2007. Simple trendline analysis predicts about 14,000 target on the Dow Jones Industrial Average by this date.

Mark this date on your calendar! February 25th, 2007 !

An extraordinary run is coming that will take the Dow to new all time highs!

Peace.

Thomas

It is a shame I did not put this post up earlier. It was in my charting program and is one I have been watching for many months. I did not post it up here earlier for various reasons but it is still good to point it out anyway even though it has already had quite a run.

ESLR is a solar energy company and I do believe that the alternative energy theme is one that will be important, probably very important for the next 10 years and the reason why I put it in the ‘Long Term Alert’ category. . .

If we are heading into an environment where we will have $100 + price of crude oil, then the economic viability of solar and other alternative energies is compounded. By the way, I do believe that eventually we will be at +100 per barrel of oil. I do not know exactly when, but I do believe this will be the case, probably before 2012. Incidentally, on the old version of this site I indicated the following in a report I did on May 13, 2004:

The daily chart of crude really does still look like a price chart that is in acceleration mode. My forecast is for 48 crude by August 2004. That would put the price right under the dotted blue channel line seen in the chart below. Crude Oil could go as high as 60 which would correspond to an RSI value of around 80. That price and RSI level would be consistent with the case of crude oil being in a major bull move here. For now though, the major obstacle and target remains 48.

Not too shabby eh?

As it turns out Crude Oil did precisely hit just around 48 by the August time frame of 2004. I made this forecast by the simple use of reverse trendlines on the price of crude oil chart. The old report is here.

Ok, back to alternative energy. As I said this to me is a very important theme to keep an eye on next decade. Imagine if every home in the United States had a bunch of solar panels on the roof? What would that be worth in dollars? I don’t have the answer to that question but I imagine it is a very big number, probably gargantuan number. But solar energy does not have to be the clear winner over the long haul. Maybe it will be fuel cells? Or mabye a combination of both? I dont know the answer to this either, but what I do know is that the early stages of any ‘new big thing’ typically appreciates the value of all the players regardless of whether or not they will be the proven long term winner.

You just have to look at lycos, yahoo, amazon and all the other dot coms.. everything was moving up then in the simple belief that it was the next big thing and that everyone would get rich if they just bought one of the players.. well as you know this is not the case at all. You had to be very selective and it is very very difficult to predict a long term winner.

Other players in this alternative energy space include Plug Power (fuel cells), Fuel Cell energy (also fuel cells but for very large corporate and government energy projects), Millenium Cell, and Ballard Power (Auto motive fuel cells). Incidentally many of the stock charts of the above look still quite ugly. Not enough basing yet to consider looking at… and the volume is horrible.

So here is the chart of ESLR. As you can see it had a huge reverse head and shoulders pattern which has to this point resulted in a nice new trend and breakout. That huge reverse head and shoulders pattern also morphs on a larger scale into what appears to be a rounding bottom formation . The growing volume supports this overall pattern. The slow upward arc that defines the rounding bottom pattern (not drawn) should provide longer term support for ESLR. Recently the stock had a big move on improved margins and expansion plans and is a very high risk entry. Will likely see eventual pull back to the rounding bottom upsloping arc. ESLR could be a ‘longer term play’ as long as energy prices remain high or head higher. I do believe though that the Japanese are getting into this space as well. Also Siemens and General Electric… Plenty of competition for this tiny little company.. but still as I mentioned earlier, in the early stages, a rising tide lifts all boats…

I would not be surprised to see ESLR at 13 by the end of 2005, early 2006.

Peace.

Im out.

P.S. I have plenty I want to say about GOLD… And plenty of charts that say a lot about Gold too… I don’t know exactly when I will get them online but watch out for them, they will yet again be in my own humble opinion, WHOPPERS. :grin: