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Toronto Stock Broker David Chapman
July 10, 2014

Chart of the Week, Stock of the Week

Chart of the WeekRising banking problems!

This morning I woke up to the following headline: Before the Bell: Stocks set to plunge on Fed, Portugal worries (Globe and Mail, July 10, 2014). While many would no doubt centre on statements from the June FOMC meeting one of more important aspects of the story may well be that Banco Espirito Santo of Portugal was covering up a potential $1.8 billion hole in its accounts through accounting chicanery. Banco Espirito apparently missed a debt payment. (more)

Stock of the WeekCopper prices are rising.

Copper prices have been on a bit of roll. After hitting a low of around $2.88 back in March 2014 copper prices have rebounded to $3.26. At the time copper prices appeared poised for a free fall with potential objectives down to about $2. It turned out to be a false breakdown. Demand has been rising particularly in China due primarily to stockpiling coupled with a turnaround and uptick in demand. As well some new laws in Indonesia designed to spur local demand has seen the government put on higher export taxes. This has negatively impacted exports to China. The result has seen two large miners, Freeport McMoran (FNR-NYSE) and Newmont Mining (NEM-NYSE) stop exports. Making it worse the current election has pushed the issue to the backburner and Newmont has shuttered their mine. (more)


July 6, 2014

Technical Commentary

This week……

-          Once again the stock markets soared to new all-time highs. There are some who believe nothing can stop it. Maybe they are right. It would appear that only a sudden “black swan” event might stop this market in its tracks. But the stock market is rising against a bevy of negative divergences that should eventually prove to be the markets undoing. All the stock markets are confirming each other as the S&P 500, the DJI, DJT, NASDAQ and even the TSX soar to new highs.

-          The nonfarm payrolls number got market pundits excited that the US economy is poised to soar. Stocks rose, the bond market faltered, the US$ jumped and gold slipped. All according to expectations. The US bond market is slipping and there is an important auction this week. Two year Treasury note yields are the highest seen in 2014 and the highest since a blip in September 2013. The nonfarm payrolls are more closely examined.

-          Gold prices slipped following the higher than expected nonfarm payrolls on Thursday. But by the end of the day, gold had recovered roughly 2/3rds of the drop and end the week with a tiny gain. Gold is faltering under $1,330/$1,335 resistance and the bears remain. No COT this week and the previous week’s COT seemed to indicate that a top was pending. Or is it? China continues to import gold.

-          The US$ fell then bounced back following the release of the nonfarm payrolls. The Euro slipped because the ECB now has negative interest rates. But the Pound rose and so did the Cdn$.

-          Oil prices fell as it was perceived that the crisis in Iraq wasn’t as bad as initially thought. The major Iraqi oil fields in the south (Shia controlled) appear to be safe from the Sunni insurgents. (more)

June 27, 2014

Technical Commentary Update

June 27, 2014

I am away this weekend but thought I would get out a short update before leaving. There will be a full report next weekend.

Everyone would be forgiven if they thought that the onset of summer has also brought to the markets the summer doldrums. Markets seemed to be almost standing still this past week. If there was any action it was in Iraq with the ongoing civil war or the ongoing civil conflict in Ukraine. As of about 3:00pm on Friday the S&P 500 had barely budged all week. It was off a small 0.3% on the week. This was despite the release on Wednesday of the 3rd estimate for Q1 GDP that showed the US economy contracted at the rate of 2.9%. This was revised down from the previous release that showed a contraction of 1%. This steep revision to the downside should have stopped any thoughts of a complete rebound for Q2. But it hasn’t. The belief is still out there that Q2 should be ok and Q1 was just a bad winter aberration. Trouble is most of the numbers that have been coming in during Q2 are pointing to a possible contraction  as well. Housing is going nowhere as only luxury housing is benefitting. Durable goods orders this past week for May fell 1% when the market had been expecting a gain of 0.5%. Personal income for May was up 0.4% but personal spending was only up 0.2%. One can only presume that the differential is either going into savings or paying down debt. Retail sales have been anaemic at best and the trade deficit is widening not contracting. The Michigan sentiment indicator was steady as expected at 82.5 but that remains far below where it was in 2006. The expectation remains rosy for Q2. But the numbers are suggesting otherwise.

The S&P 500 has been treading water now for seven days. This shouldn’t last. The S&P 500 can’t seem to make any headway above a 1,970 ceiling and even if it did there is a bigger ceiling up around 2,000. Maybe they want that magic number. The risk is below where a break first of 1,945 then under 1,930 would spell trouble with a decline to 1,900 and even down to 1,865. Ok so the market has had numerous pullbacks over the past few years as it just keeps on rising. So a pullback to 1,865 is not a big deal. But a breakdown under 1,825/1,850 would be. The expectation is that Q1 GDP was an aberration not to be repeated for Q2. They might be in for a surprise.

Next week is the nonfarm payrolls for June and the market is looking for 210 thousand new jobs and the unemployment rate to remain at 6.3% (U3). Despite the rosy report it has been acknowledged that U6 unemployment should remain high in the 12% plus area (includes part time workers and discouraged workers).

If the stock market has appeared to be standing still so has the precious metals market. Gold and silver are both up this week but barely. The gold stocks have barely budged as well. All of this is probably putting everyone to sleep. The US economy is showing signs of weakness and a civil war is raging in Iraq. The markets seem to shrug. Gold has resistance at $1,325/$1,330 and support down to $1,305/$1,310. If there was a worst case it would be for a drop to about $1,290 to test the most recent breakout level. The major resistance is up around $1,360/$1,370 and that appears to remain a reasonable objective for this move. Again as I have stated in the past I am not sure whether this up wave is merely a continuation of a pattern that has been forming for the past year since the low of June 2013 or is the start of a potential new bull up move. If it is a continuation pattern then risks remain to the downside including the risk of a breakdown under the double bottom June/December 2013 low near $1,180. A firm break above $1,370 would be positive. A break above $1,390 even more positive and a break above the August 2013 high near $1,430 would be quite positive. Until any of those points are taken out risks remain to the downside.

Even oil prices failed to move this week. Indeed they are off slightly despite the war continuing to rage in Iraq with the Sunni rebels seizing more oil facilities. Potential objectives for oil prices still appear to be up to around $111/$112. Currently there is resistance up to $109. Below a break of $103 would be a sign of weakness but a break under $100 would end any thoughts of higher prices for now. Maybe oil is pausing as I have seen stories that the US might be amenable to a break up of Iraq with the Kurds in the North forming Kurdistan along with the Kurdish area of Northern Syria; a Sunni country to be formed of out the northern part of Syria and the western provinces of Iraq; and, a Shia country (Basra?) formed out of the Shia dominated parts of eastern/southern Iraq. Probably logical except the Shias might not agree, Turkey with its large Kurdish population would not be pleased with the formation of Kurdistan, and Assad of Syria might not be happy to lose over half his country. In the interim the civil war in Iraq keeps showing signs of spilling over into other countries such as Jordan and the Iranians could become more involved on behalf of the Shia government in Baghdad. A further deterioration of Iraq would be positive for oil prices.

As to the market well this narrow range trading shouldn’t last forever.

June 22, 2014

Technical Commentary

This week….

-          Another typical week for the stock market. New highs once again. But the range is getting narrower and narrower. I feel like a broken record warning that a fall is coming. And the fall might only be a shallow one. But after five years up this market is long in the tooth and warning signs are everywhere. A breakdown under 1,925 could send the markets lower. But the sluggish US economy is showing just enough “oomph” to keep the market up. That and the sea of liquidity provided by central banks and artificially low interest rates. Conflicts like Iraq and Ukraine are over there and everyone shrugs.

-          US bonds fell this past following an uptick in inflation. Canada bonds reversed and closed right back where they started the week. Canada’s inflation also surprised to the upside. That helped the Cdn$ but not the bonds. Bonds are looking vulnerable to a pull back. Rising interest rates might not help the stock market.

-           Gold, silver

-          Gold, silver and the gold stocks all enjoyed a strong up week with silver breaking above a downtrend line from the August 2013 high. Numerous gold bug writers were instantly declaring the gold bear dead – just like they did in July 2013 and January 2014 only to be disappointed. Goldman Sachs reminds us that they are forecasting $1,000 gold. This rally may be the final wave up within a consolidation pattern and could fail near $1,360. If that happens Goldman might be right. But if the market continues up through $1,380 then the gold bug writers might finally have a winner.

-          The currencies are just meandering seemingly directionless. But then the Yuan is the currency everyone should be paying attention to but it is not a part of the US$ Index.

-          Oil prices rose again against the backdrop of the ongoing conflicts in Iraq and Ukraine. Iraq is especially a concern. It is OPEC’s second largest oil producer and the world’s 7th largest producer. Oil production is already being curtailed. The US has sent troops to Iraq (after leaving earlier). Iraqi PM Maliki is a problem but he was elected and it would be difficult to boot him out. But he is as much the problem as are the Sunni insurgents as they try to carve out a country in Syria and Iraq. The British and the French carved up the Mid-East in their image following WW1 but it never took into consideration the religious and tribal mix of the Arab populations. Things as they say are coming home to roost with no strongman dictators in charge to keep the warring parties apart.

Note: I am away next weekend so there will be no commentary. I hopefully I will get out a short update email prior to leaving.


June 19, 2014

Chart of the Week, Stock of the Week

Chart of the Week – A stock market on steroids -

The chart of the S&P 500 is one everyone who is long the market should be worried about. In terms of bull markets, while the current one may not be the most powerful one following a 50% or more collapse in the market it is one of the longest. This current bull is now over 1,300 trading days old. The other two markets that saw the market fall 50% or more was the bear market of 1929-1932 and 1937-1942. (more)

Stock of the Week – A gold royalty play - Sandstorm Gold (SSL-TSX) is an interesting company. Sandstorm bills itself as a gold streaming company. Sandstorm provides upfront financing to gold mining companies seeking capital and in return they receive a gold streaming agreement. What this allows is Sandstorm to purchase a percentage of the gold produced by the company’s mine, for its life. The price is fixed. But Sandstorm is also a royalty company not unlike Franco Nevada (FNR-TSX). (more)

June 15, 2014

Technical Commentary

This week…..

-          A surge in violence in Iraq and Ukraine sent the US stock markets to the downside this past week. On the other side both US Treasuries and gold rose as safe havens were sought. The trading range for the US stock markets has narrowed over the past several weeks. This narrowing trend suggests a building ascending wedge triangle. The breakdown zone is at 1,910. A move under that level could suggest a decline to 1,810 and major support.

-          US Treasuries were up this past week as they acted as safe haven to the escalation in strife in Iraq and Ukraine. Overall the action on bonds is weak. This week the FOMC meets for its interest rate decision. It is fully expected that the FOMC will leave rates unchanged and “taper” an additional $10 billion.

-          Gold was up and the gold stocks put in a strong up week. Junior gold miners gave buy signals while silver gapped higher possibly signaling that low might be in.

-          The US$ Index was up slightly on the week but remains below resistance at 81. The Euro was weak but the British Pound was higher on some expectations of a rate hike.

-          Oil prices rose to their highest levels since September 2013 on the back of a surge in violence in Iraq. The conflict is threatening to spread and could in a worst case scenario engulf the region. (more)


June 12, 2014

Chart of the Week

Chart of the Week -

Some hope for the Gold Bulls.

In the previous week’s Chart of the Week, (Is there a Bear Case for Gold? – June 5, 2014) I mused as to whether there was the potential for another drop for gold in the works. The thought that gold could once again put in another scary plunge was based on the premise that there was the eerie similarity between the pattern that is currently forming and the pattern that formed from September 2011 until April 2013. On April 12, 2013, some 400-500 tonnes of gold were offered at the open in thin market conditions on the COMEX the futures exchange that trades gold. The result was a $200 meltdown for gold. The gold sale had a value of roughly $23 billion.


June 8, 2014

Technical Commentary

This week….

-          The US stock markets rose once again to new all-time (nominal) highs. But bullish sentiment, margin debt, falling volume and numerous other indicators are suggesting that one should be very cautious pursuing this market. The market reminds me of the famous “nifty-fifty” market of 1972. After the market topped in early 1973 a 50% collapse got underway. The economy may look strong but underneath there is rot and geo-political tensions do not appear to be going away.

-          Bonds fell this past week as there appeared to be another switch out of bonds into stocks. The US nonfarm payroll numbers appeared to be good but as John Williams of www.shadowstats.com suggests the numbers are laden with potential errors and are overstating the case. The Cdn employment numbers were quite disappointing and suggest that Canada could be falling back into a recession. There was considerable loss of full-time jobs only to have them replaced by part-time jobs. Low participation rates continue to “dog” the US. The unemployment rate would be considerably higher in the US if they even had Canada’s participation rate of 66%.

-          Gold prices rose this past week even as they have not fulfilled potential objectives. A rise above $1,270 would be positive but the reality is gold needs to rise above $1,300 to suggest a rally is underway and the low is in. Even at that the potential on what appears as an E wave is only to around $1,360.

-          The US$ Index tried to break out over 81 failed and fell back. The action appeared to be bearish and the US$ could fall back once again. 79 remains the line in the sand.

-          Oil prices were soft this past week but natural gas was higher. The energy stocks made new highs but here to there are caution signs out as indicators and the price action are diverging negatively. As well the energy stocks have been making new highs despite oil prices remaining well off its highs of 2013. (more)


June 5, 2014

Chart of the Week

Chart of the Week –

Is there a bear case for gold?
With gold prices down over $130 from its most recent high in March 2014 and only a little over $60 above the lows of June and December 2013 one has to wonder if there is another major bear drop to come. Gold remains down over $600 from its all-time (nominal) high of $1,911 seen in September 2011. This has played out against the backdrop of the US stock markets making ongoing moves to new all-time (nominal) highs. Gold as a result has become a “bad word” with some predicting that gold has much further to fall even as those committed to the “yellow metal” continue to believe holding gold is the right strategy. (more)

D. C.

June 3, 2014

Technical Commentary

This week…..

-          The US stock markets moved to new highs this past week. However, there are numerous negative divergences present in technical indicators and sentiment indicators. The market could be moving into a blow off phase. June is typically a weak month for stocks but if the US stock market survives June then new highs are possible into July. The Cdn stock market was weak dragged down by weakness in material stocks (golds and metals). The US stock market shrugged off the poor Q1 GDP numbers and focused instead on improved consumer sentiment ..

-          Bond prices rallied again but the bond market appears to be moving higher primarily because of a short squeeze. The market had felt that with the US economy improving that interest rates would rise. Instead the Q1 GDP was weaker than expected and some other numbers suggested an economy that is not particularly robust. The result was a bond squeeze. Oddly bonds are rallying for exactly the opposite reasons that stocks are rallying. This is a divergence.

-          Gold broke down this past week (as did silver). But palladium moved to new highs. The US$ did not exactly rally this past week nor did the Euro fall despite expectations that the ECB might cut interest rates into negative territory and provide more stimulus. Gold was perceived to have lost its safe haven status given the successful Ukraine election and a supposed easing of tensions in the east. Fighting continues in the east Ukraine and it was reported that upwards of 1,200 were killed including a Ukraine General. The drop in gold prices appears to technical and could project at minimum down to $1,220/$1,225. However, if that level were to fall and especially under $1,200 then a decline to test the June and December 2013 lows would be underway. Triple bottoms are rare and with numerous bearish reports for gold out there it is possible to fall further.

-          Oil prices fell as supplies came in higher than expected and tensions supposedly eased in Ukraine. A break under $100 could send oil prices back towards $92 once again. (More)


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