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Toronto Stock Broker David Chapman
October 18, 2014

Technical Commentary

The stock markets are up today which is probably no surprise. Given the sharpness of the drop a rebound of some sort was probably to be expected. Everyone is reminded, however, that the stock markets (TSX, S&P 500, NASDAQ, DJI, DJT) have all issued sell signals this week. The DJT is probably the strongest of all the indices. Most have fallen sharply below their 40 week MA. The rebound today is probably an attempt to test the breakdown zone.
Today is options expiration as well so there is most likely some maneuvering to ensure as many as possible lose money especially all of those that purchased puts the past few days expecting a further drop into the October options expiration. They might continue this into Monday as well before the plug is pulled once again. Could a stronger rally develop and a bottom created? It is possible. A close for the S&P 500 above 1,905 today might allow a strong rally to develop even a bottom. But basically in a few short weeks all of the gains since April 2014 were wiped out. Bears do that. The 1,905 zone was the last weekly low seen before the move to the highs of September. So that area should provide stiff resistance.
Bonds spiked this week but came off sharply after spiking. This suggests that they might not be as strong as everyone might like to think. Bond issues in Europe went poorly this past week. Could another debt crisis be brewing in the EU?
Gold was the best performer on the week. Gold broke a down channel which is positive. Gold is in the $1240-$1250 zone and as long as it can hold above $1220-$1225 then we could break through to the next level of $1280. But reality remains the last high at $1340 needs to be taken out to suggest we may have made a significant bottom. Silver is lagging and that is a concern. Unlike gold silver is still in its recent down channel. But gold up on the week was part of a flight to safety although the main safety choice was bonds. The gold stocks were up again as well but they still have a ways to go. The divergence of silver making new lows and gold not making new lows remains in place.
Oil threatened to break under $80 (did briefly) but rebounded strongly into the end of the week. Heard lots of stories especially the one that the Saudis might be behind it to help push down the price to hurt Russia. If the Saudis were involved (pump more oil at lower prices to generate cash to maintain the level of $ flow) then most likely the US was involved as well. Whether there is any validity to the story it is at least a possibility. But there has just been too much oil of late. But the lower prices will hurt Western Canada and all the fracking as they need prices of $80 or higher to stay in business. It wouldn’t be surprising to see prints into the $70′s. And one can’t forget a possible objective of $40. Resistance should be at $85 which is where the bounce appears to be taking the market. But above that could test up to $90 but probably not higher.
The US$ broke this week with the US stock market. Amazing how fast it can come off. Has now traded down to 85 support for the US$ Index. Good support doesn’t come in until just under 84. A temporary top at least appears to be in.
A full report will return next week.
Webmaster’s Note: Much apologies for the absence of articles over the past week due to technical problems being resolved.

Technical Commentary

This week…..

-          A shortened version of the Technical Commentary over the long holiday weekend. Canada is closed Monday for the Thanksgiving holiday.

-          Global stock markets were “hammered” this past week. Not even the FOMC and its musings that “zero” interest rates were here to stay could save the day. Volatility was high. The stock markets closed Friday on a very weak note. The Dow Jones Industrials (DJI) is down on the year.

-          ***Special section*** Could a stock market crash happen? Characteristics of previous crashes are discussed. Conditions are similar today.

-          Bonds rallied this past week even as the stock markets fell. A rush to safety?

-          Gold and the precious metals went against the grain and were up on the week. Could gold and the precious metals be detaching themselves from the broader market? After months of weakness gold and the precious metals could be due for a change. Other commodities fell in price on the week although copper held up. The gold stocks were flat.

-          The US$ reversed course this past week and fell following the FOMC minutes. It broke one of the longest string of up weeks ever.

-          Oil prices fell sharply given falling demand and rising supplies.

Chart of the Week

Chart of the Week – Struggling Gold!

Note: The next couple of weeks reports will be spotty. A long holiday weekend and then a weekend on a course followed by an exam. Shortened report this weekend and none the following week (hopefully an email update).  (more)

Technical Commentary

This week….

-          The nonfarm payrolls exceeded expectations and the unemployment rate fell and that in turn triggered a rebound for the stock markets that had been falling. ‘Buy the dip’ remains the mentality. Trouble continues to lurk in the background and they are noted. October is the month of crashes and historically the markets are often weak into the mid-term elections.

-          Bonds were up on the week and the reaction to the nonfarm payrolls was muted. There continues to be expectations that the Fed will hike rates in 2015. QE should end this month.

-          Gold had another miserable week. Does annihilation await gold? Expectations of annihilation appear to be too high. But it can’t be eliminated. Silver is at new lows again and gold is only about $10 from its June and December 2013 lows. Bearish and bullish factors for gold are discussed plus a couple of potentially key bullish factors.

-          The US$ Index just keeps soaring. Many expect it to continue. The US$ Index appears to have broken out of a multi-year triangle. The market is as bullish on the US$ as it is negative on gold, the Euro and other currencies.

-          Oil prices were hit hard as a combination of lower demand and ample supplies knocked it below $90. The energy stocks were also hit hard. Oil and the energy stocks remain in their weak seasonal period.

Chart of the Week, Stock of the Week

Chart of the Week – The soaring US$!

The US$ has been soaring. Since making a low in May 2014 just under 79 the US$ Index has jumped
almost 9% to over 86. If the US$ is rising other currencies must be falling. The Euro has lost almost 10%,
the Japanese Yen has fallen 7%, and, the British Pound has lost about 6%. Those three make up 57.6%,
13.6% and 11.9% respectively of the US$ Index. The Cdn$ makes up 9.1% of the US$ Index and has lost
5%. Oh yes, gold has fallen about 10% in the same period. Gold may not be a part of the US$ Index, but
many consider it to be an alternative currency. (more)

Stock of the Week – The world’s most powerful investment bank

Goldman Sachs (GS-NYSE) may be one of the most controversial and at the same time powerful
investment banking companies in the world. Goldman is once again in the news. The story? Seems that
some secret tapes of conversations between Federal Reserve supervisors and Goldman Sachs have come
to light. The tapes apparently raise “disturbing” issues that has some US Senators wanting to hold
hearings. The Fed polices Goldman and the other major banks. But Goldman like other major banks also
are major shareholders in the Fed. The tapes are reported to reveal that while the regulators have the tools
to police the banks they don’t use them. (Washington Post – September 27, 2014 – Secret Goldman Sachs
tapes show regulators still respect bankers too much; and, Reuters – September 26, 2014 – Secret tapes of
Fed meetings on Goldman prompt call for US hearings). (more)

September 23, 2014

Technical Commentary

This week…….

-          The week was all about the FOMC, Alibaba and the Scottish referendum. As expected the FOMC did nothing with regard to interest rates and it is going to be sometime before they hike interest rates but it will be based on economic data. Alibaba soared 40% after its record IPO. Scotland voted to stay in the United Kingdom but this is probably not the end of the question. There are numerous separation movements globally.

-          The US stock markets made (again) new highs. But not everyone is joining the party. The TSX Composite diverged and fell on the week. The advance is narrowly based.

-          Bond prices were mixed in Canada and the US this past week. There was relief that the FOMC did not hike interest rates although it was never made a lot of sense as to why a number of market participants thought that the Fed might hike rates.

-          Gold, silver, the gold stocks all fell again. Threats of higher interest rates and a soaring US$ were working against them. Silver made new lows. Bearish sentiment in the market is prevalent.

-          Oil prices were mixed this past week. WTI oil was up small but Brent oil jumped over 1%. Supplies are weighing on the market for WTI. But Brent oil is dominated more by geopolitical concerns.

September 22, 2014

Chart of the Week, Stock of the Week

Chart of the WeekWe live in an energy-centric world

Oil prices have been falling. That’s not new as oil prices have been going up and down for years especially after 1967 when the first Arab oil embargo got underway just after the Arab/Israeli Six Day War that started on June 6, 1967. Grant you at that time the actual impact on oil prices was muted but when the second Arab oil embargo hit in October 1973 following outbreak of another Arab/Israeli war known as the Yom Kippur War oil prices leaped from roughly $3.50 to over $10 in a matter of weeks. (more)

Stock of the WeekA rising natural gas producer

EnCana Corp. (ECA-TSX, NYSE) has been an underperformer for quite a few years. Back in 2009 EnCana split itself off into two companies – a predominantly integrated oil company Cenovus Energy (CVE-TSX) and a predominantly natural gas (NG) company EnCana. Initially at least it seemed to help EnCana and the stock rose from roughly $28 to $35. It didn’t hold and by January 2012 EnCana’s stock had fallen to just under $18. It should have been no surprise that NG prices had also been falling from about $6 to under $2 in the same period. (more)

September 15, 2014

Technical Commentary

This week…..

-          For the first time in five weeks the stock market faltered as the S&P 500 lost just over 1%. Could this be the top? Well at least a temporary one. It is after all September and October is approaching. An interesting seven year cycle of trend changes courtesy of Malcolm Bucholtz is discussed.

-          Fear of the Fed hiking interest rates early pushed bond prices lower this past week (and was also behind the stock market fall). The fear seems to be misplaced given both the Euro zone and Japan appearing to fall back into recession.

-          Gold and silver were down again. The gold stocks were hit as well. Everything in the gold sector is gloomy. Even some bulls are throwing in the towel. Gold appears to have potential to fall to $1,200. But will it fall further? The strong US$ was hurting gold. That and fear of the Fed hiking interest rates.

-          The US$ soared again as the Euro, the Pound and the Yen all took it on the chin. The pound is falling because of fear of Scotland separating. Canada got in the act as the Cdn$ fell sharply as well. Some are calling it a race to the bottom for currencies.

-          Oil prices fell as this past week. Too much supply and lower demand.

-          All in all a gloomy week unless you own US$. But beware the rise for the US$ has been too fast.


Chart of the Week, Stock of the Week

Chart of the WeekFear is in the wind!

The James Turk Fear Index has always been interesting www.fgmr.com. It is an easy concept. The Turk Fear Index is a measurement of gold’s relative value in relation to currency. The Turk Fear Index centres on the US by comparing gold’s value to money but a fear index could be calculated for any country and any currency and for that matter the world as well. The US being the world’s largest economy is most likely a good indicator for the rest of the world. (more)

Stock of the Week Some warning signs.

Berkshire Hathaway (BRK.A-NYSE) has had quite the ride. Warren Buffet’s signature firm recently had considerable front-page news. The news came because of Berkshire crossing $200,000/share. Yes, you read that right – $200,000 (Note: the chart says $20,000 as the Omega chart system can’t accommodate six figures). Seems that Berkshire has returned 22.8% annualized since 1977. Buffet purchased the company back in 1965 when it was actually a failing textile company and turned it into an investment management company. Berkshire has outperformed just about everybody. Berkshire has never had a stock-split nor can investors purchase fractional shares. (more)


September 7, 2014

Technical Commentary

This week…..

-          Another week another new high for the US stock markets. The Cdn markets didn’t co-operate and were actually down slightly on the week. The market climbs a “wall of worry”. Retail investors have poured in especially seeking yield. But the background remains dangerous, sentiment is overly bullish and numerous indicators are suggesting a top could soon be at hand. The supposed robust US economy surprised on Friday with a considerably lower nonfarm payrolls then people expected. That didn’t stop the market from closing at an all-time high.

-          The Cdn markets as noted fell this past week but it was mostly because of weak Energy and Materials. The Cdn jobs report said 11,000 jobs were lost in August and that the private sector lost 118 thousand jobs. But amazingly 89 thousand jobs were created through self-employment. Canada has had trouble lately with its numbers.

-          US and Cdn bonds fell this past week after the ECB cut interest rates to virtually zero and some to interest rates to negative. Prices bounced back on Friday following the negative nonfarm payrolls report.

-          Gold and silver both fell this past week and the gold stocks broke falling a sharp 7%. As in the past gold’s big drops came early in the morning on big volume. Bearish reports abound.

-          Oil and gas also fell sharply this past week as peace was breaking out in Ukraine. The energy stocks also fell but overall they continue to hold up well despite the drop in oil prices.


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