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Toronto Stock Broker David Chapman
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December 17, 2014

Technical Commentary

December 17, 2014

I am working on a forecast for 2015 but may not have it completed until Friday or early next week. In the interim I thought following the FOMC today that it was worth an observation.

The FOMC only word smoothed the language from “considerable time” to patience. In essence they mean the same. The Fed noted that they are “unlikely to begin normalization process for at least the next couple of meetings”.          That suggests that a 0% Fed rate should remain for at least the next three months. But after that everything is contingent on economic conditions. That too has not changed. They seemed pleased with the labour market but I confess I was non-pulsed when Fed Chair Janet Yellen noted that the participation rate has stabilized. Well yes it has but at 1970’s levels. Ditto with the employment working-age population ratio that has also fallen to 1970’s levels. Both the participation rate and the employment to working-age population ratio remain well below peaks seen prior to the 2008 financial crisis. What the employment to working-age population ratio is saying is that the working-age population has grown but employment has grown at a much slower pace and has not absorbed all who may wish to work. And most of the jobs created are part-time. The FOMC doesn’t remark on that.

As might be expected the stock market reacted positively. This may be the beginning of the “Santa Claus” rally. That could continue into the first week of January but will likely be choppy.  But will it make new highs? That remains to be seen and will be discussed in the forecast for 2015. Gold was smacked down on Monday by $25 plus. That was an odd drop. Attempts to rally since have constantly been pushed back. The operation looks suspicious and it may be the commercials whose COT has gone down in the past few weeks may be trying to cover their shorts. The gold stocks were up strong today after falling earlier in the week even as gold prices fell following the FOMC. If anything the FOMC today should have been friendly for gold. It certainly was for the gold stocks. Gold stocks usually lead so today’s rally may be signaling the rebound.

The energy stocks (XOI and TEN) put in a strong up day on December 16, 2014 even as oil prices hit new lows. The TEN made an outside day possible key reversal. The oil stocks appear to be signaling a bottom. Oil prices tried to rally today but pulled right back following the FOMC. Russia appears to be approaching a meltdown and some appear to be salivating at the thought.  There has begun to be some admissions that the collapse in oil prices was engineered to help push oil producers such as Iran, Venezuela and Russia to the brink. They should be careful what they wish for. Some are even talking about a Putin overthrow. Russia in a civil war is not in anybody’s interest. On the other hand Russia has considerable foreign reserves and may be able to withstand the onslaught. They also have the ability to retaliate.  Venezuela on the other hand is another matter and they could be pushed to default. There are numerous other sovereign countries that are teetering as well.

The FOMC today was largely as expected with the change in words a clever disguise for saying the same thing as they have been saying all along. Surprisingly the FOMC did not even mention oil or Russia. I can’t tell whether that was deliberate or they are being blinkered. They said they wanted to concentrate on the US economy. That’s fine but the US is a part of the world economy and what is going on elsewhere cannot be ignored. The Fed’s balance sheet has exploded to $4.5 trillion or over 25% of GDP. In 2008 prior to the financial crisis it was $870 billion or about 6% of GDP. Its growth has been nothing short of phenomenal. All the major western powers central bank balance sheets have exploded during this period. Yet growth has been mediocre at best and the EU and Japan are sliding back into recession. Their ability to manage the economy is becoming increasingly constrained.

D.C.



December 11, 2014

Technical Commentary cont.

Dec 11, 2014

As I noted earlier this week was away for part of the week so no COTW this week.
Another interesting day on the markets yesterday. WTI Oil prices plunged again down to below $61 at one point. Oil has broken down under a bear channel. This suggests that oil prices are most likely going lower. Minimum targets remain at around $55 with a chance that we could fall down to $40/$45 at one point. A year end close under $75 is negative for 2015 and under $55 is very negative for 2015.
The collapse in oil prices triggered another massive sell-off in the stock markets. Everything was down yesterday on the TSX as even the gold stocks that were up in the day earlier came under selling pressure later. The TSX Composite (and the TSX 60) are now issuing intermediate sell signals. Of the sub-indices Income Trusts have broken down, while Financials and Industrials are the closest to issuing intermediate sell signals. The only groups whose intermediate signals are improving are Golds and Materials. Energy is in crisis mode and could fall even lower.
The US stock indices are rolling over once again but are not yet near sell signals.
Gold prices jumped sharply on Tuesday and now appear to be going through another round of backing and filling. $1250/$1275 appear to be minimum targets. Above $1280 and we could move higher to challenge the July 2014 high of $1340. The US$ Index might have turned a corner here and has plunged so far this week although for the life of me why the Euro should rebound is beyond me. Greece is in crisis again and there is considerable turmoil in the PIGS and the Eastern European states. Even Germany and France are teetering and sharp disagreements between EU officials are surfacing. Numerous EU countries are facing social unrest. Russia has hiked interest rates sharply to protect the Ruble.
Japan’s crisis is deepening and there has been social unrest there as well. The US continues to be rocked by social unrest due to the police actions and more may come because of the CIA torture reports. Despite supposed signs that the US economy is doing well underneath it has never recovered from the 2008 financial crisis.
The stock markets are still showing signs of buying the dip. It could prove dangerous as a panic mode may be overtaking it. Although a temporary bottom at least should come possibly next week. The S&P 500 under 2000/2020 could be dangerous and further sharp declines could be seen. As always the stock markets fall faster a lot faster than they go up. But as noted the only area that appears positive right now is golds. Oh and US Treasuries have rallied. But does one want to hang their hats on a country with $18 trillion in debt. The energy collapse alone is going to blow holes in government budgets everywhere. Those that chose to cut expenditures further in the face of falling revenues will only deepen any looming financial crisis.
More later on the weekend report. A full report will be issued.
D.C.


December 8, 2014

Technical Commentary

I don’t normally send out intraday updates. But today is interesting. The TSX Composite is down about 400 points at the moment and had been down 500 at one point. Energy stocks are down 7% and even Financials were down 3%. After a hesitation the US markets fell as well although nowhere near what the TSX is down.

The catalyst of course is oil prices that are down another $2.50 or roughly 4% or so. Oil prices are now starting to collapse into danger zones. Russia surprisingly will survive this. But this is going to negatively impact the Mid-East as they have ramped up their budgets too high and now have a problem. Saudi Arabia will have to pump more oil just to stand still putting more downward pressure on oil prices. S&P announced they were downgrading their outlook for Saudi Arabia and Oman. A year end closing below $75 is negative going into 2015. But a year end closing under $55 would be quite negative for 2015. This could trigger even more deflationary forces. I heard that Morgan Stanley are calling for $43 oil. Well one of our targets is potentially $45 so close. I am not going to call for that but it is well acknowledged it could happen. Continued and sustained low prices while great for consumers could well devastate oil producing provinces (Saskatchewan, Alberta) and States (Texas, California). It is unknown how much banks are exposed to the oil patch but the betting here is it is substantial. This collapse could cause serious damage to the high yield market.

Note the only thing up today is gold and gold stocks. Gold is merely where one runs when there is nowhere else to hide. Recall that even in the midst of the Great Depression while the DJI was collapsing 89%, Homestake Mining rose 400% and gold was revalued upwards by 70%. Not surprisingly though all I hear on TV is buy the dip.

Today’s action could be the start of more serious problems ahead. It will no doubt unfold in stages both up and down.

I may provide another update later in the week. I am away for part of it and have a funeral to go to on Wednesday so won’t be producing my usual COTW.



December 7, 2014

Technical Commentary

This week…..

-          Once again the US stock markets made new highs. Except not everyone joined the party. The TSX Composite was down for the 2nd week in a row after the banks were hit hard.

-          Bonds fell on the week as the US the surprising US job numbers overwhelmed lower oil prices. A discussion of the dubious US jobs numbers takes place. Canada lost jobs in November failing to follow the US.

-          Gold was up on the week as it put in a massive upside reversal day following the Swiss referendum. But the big gain had little follow through.

-          The US$ Index soared once again to new highs especially following the surprising US jobs numbers. The other currencies all fell again including the Cdn$ following the weak job numbers in Canada.

-          Oil prices keep sliding and natural gas also fell this past week. Cdn energy stocks slid to new lows but the US energy stocks staged a small rebound. How low can oil go?

D.C.



December 4, 2014

Chart of the Week

Chart of the Week – Oily trouble ahead?

Consumers are most likely elated about the recent drop in oil prices that has quickly translated into a drop in gasoline prices. It could also help the economy. The IMF has calculated that a 30% drop in oil prices could boost GDP by 0.8%. The drop is estimated to have transferred $1.5 trillion from producers to consumers. The drop in oil prices so far since June 2014 has been roughly 39% (more)



November 27, 2014

Chart of the Week, Stock of the Week

Chart of the WeekThe wild & woolly gold stocks

If one loves to ride a roller coaster, then owning gold stocks may be for you. The above chart of the Philadelphia Gold & Silver Exchange (XAU) is enough to give anyone that sinking feeling one gets while riding a roller coaster. On a roller coaster when the drop comes you have the feeling that your stomach is floating in your chest. As to your heart well…… (more)

Stock of the WeekSome gold stock suggestions

I thought I’d take a different tack with the stocks. Rather than feature just one stock I’d thought I’d provide a list of gold stocks that appear to be somewhat ahead of the curve. By ahead of the curve I don’t mean to say that their intermediate trends have turned up, although the odd one has, but that they appear to be ahead of most of the gold stocks on a technical basis and may be considered leaders. Consider this a list of potential gold stocks to own assuming that a bottom is being formed and that a new uptrend may soon be underway. All are producers ranging from junior to senior. The most noteworthy large cap gold stocks that appear to be showing positive signs are royalty plays. Most of the stocks noted below trade on the TSX. There are no exploration stocks. There are no ETFs. (more)

D.C.




November 23, 2014

Technical Commentary

This week….

-          The US stock markets once again soared to new all-time highs as China cut interest rates and announced QE and the ECB was showing signs of QE. Japan is going to have an election to give Abenomics a mandate for its massive QE. The FOMC released its October minutes and they don’t seem to concerned about the growing problems in the EU, Japan and China nor do they show much concern for war drums that are beating. The FOMC’s motto seems to be “don’t worry, be happy, buy stocks, we have your back”.

-          Bonds put in another nothing week. Bonds seemed to yawn cut interest rates and QE.

-          Gold was up again even as the US$ was up. A potentially positive divergence. The gold stocks enjoyed another strong up week and appear to be leading the way. Gold stocks broke their recent downtrend. The US$ made new highs even as gold that normally moves inversely to the US$ rose in tandem. This is the week of the Swiss referendum. The Swiss authorities seem worried they might lose given how nasty the campaign has become. The polls are too close to call.

-          Oil prices finally had an up week as oil was encouraged by the Chinese cutting interest rates and Japan, the EU and China bringing on more QE. Cold weather helped push natural gas prices higher. But a thaw is coming.

D.C.



November 22, 2014

Technical Commentary

This week…..

-          Once again the US stock markets made new highs. But the week was spent trading in a narrow range and failed to close above the broadening channel. The market appeared to be churning on low volume. War talk is looming in the background.

-          Bonds were flat on the week. Not much to say there.

-          Gold put in a strong up day on Friday and closed over $1,180 regaining the breakdown zone. While this is a positive development gold and silver both have considerable work to do to confirm that a low is in. The gold stocks put in another strong up week. The Gold/HUI ratio was at historical highs. The Swiss referendum on gold looms on November 30.

-          The US$ Index made new highs then reversed and closed lower. This may suggest that a top is in for the US$. Six major banks were fined $4.3 billion for currency manipulation. More fines could follow as well as criminal charges.

-          Oil prices plunged to new lows although they got a boost towards the end of the week. The collapse in oil prices is forcing countries that depend on high oil prices to revamp their budgets. Strain could appear for those involved in the shale oil industry. The group generally is highly leveraged and many of them become unprofitable with oil prices below $80. The Cdn oil sands could also feel the squeeze. Many continue to believe that oil prices were forced lower to hurt Russia that is highly dependent on oil revenues.



Chart of the Week

Chart of the Week – Gold – Maybe not so much into the Abyss or “Splat Back”.

It was only a week ago that gold appeared to be staring into a deep abyss (Chart of the Week – Gold and Oil – Into the Abyss? – November 6, 2014). The dreaded “vomiting camel” pattern appeared poised to “hurl” gold down to $700/$800. While I warned about the potential for “splat back” technical objective calculations projected gold to fall to around $950 following the breakdown under the triple bottom of June and December 2013 and October 2014 just above $1,180. (more)



November 13, 2014

Chart of the Week

Chart of the Week – Gold – Maybe not so much into the Abyss or “Splat Back”.

It was only a week ago that gold appeared to be staring into a deep abyss (Chart of the Week – Gold and Oil – Into the Abyss? – November 6, 2014). The dreaded “vomiting camel” pattern appeared poised to “hurl” gold down to $700/$800. While I warned about the potential for “splat back” technical objective calculations projected gold to fall to around $950 following the breakdown under the triple bottom of June and December 2013 and October 2014 just above $1,180. (more)



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