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Toronto Stock Broker David Chapman
April 26, 2015

Technical Commentary

This week…..

-          Nirvana has arrived in the US stock markets. The S&P 500 hit a new all-time high and so did the NASDAQ – 15 years later. Well high close anyway. The DJI and the DJT did not confirm with new highs. Maybe they will or maybe they won’t.

-          Bond prices were weak this past week but rebounded in the latter part of the week. The FOMC meets this week for the monthly interest rate decision. Watch the language.

-          Gold and silver fell miserably this past week although they remain above recent lows. The gold stocks were down but held relatively well. It is possible that gold remains in a corrective mode and if so it could be near the end of an ABC type move. Gold often shows weakness in the FOMC.

-          The US$ slipped this past week which makes gold falling all the more mysterious.

-          Oil prices were up again on Mid-East tensions. But supplies continue to build in the US even as the rig count keeps falling.

April 23, 2015

Chart of the Week

Chart of the WeekAre Biotech stocks in a bubble?

Are Biotech stocks in a bubble? This is a question that is being asked. According to an article by Bloomberg (Biotech Index in Nosebleed Territory – Up 500% In 4-years, Trades At 10X Revenues – Bloomberg Business, March 8, 2015) the 269 Biotech companies that are listed on the NASDAQ are up more than 500% in the past four years. The Biotech companies have the biggest weighting on the NASDAQ at 11.2%. (more)

April 21, 2015

Technical Commentary

This week….

-          Global stock markets succumbed to a slowing China, signs of a slowing US, falling US earnings and rising tensions in the Mid-East on Friday. Markets everywhere were falling with some Asian and European markets making new highs on the week then reversing to the downside and closing lower. If there was a bright spot it was energy stocks and even gold stocks that managed gains on the week.

-          US bond yields fell further this past week but rising oil prices helped push Cdn bond yields slightly higher. What drove the stock market lower helped push bond yields lower (bond prices higher as prices move inversely to yields). Economic numbers are suggesting a potential contraction for the US economy in Q1. Could the FOMC now be put on hold for an interest rate hike?

-          Both gold and silver were off slightly on the week but the gold stocks managed some small gains. The US$ Index was down on the week and that may help gold going forward. The US$ Index was falling because of the weak economic numbers being reported.

-          As tensions rose in the Mid-East oil prices rose. Oil was also higher because of a weaker US$. As well there are signs of slowing production in the US and the weekly build was lower than expected. But it is the Mid-East where the focus might shift as there were reports of Iranian ships headed for Yemen. A confrontation between Saudi Arabia and Iran could send oil prices soaring.

Chart of the Week

COTW – So why are the banks lagging?

The banking system is supposed to be the backbone of the economy is it not. Ok maybe not. Many tout small business as the backbone of the economy. That is most likely a myth as well. Big business helps create numerous small businesses so that would make big business the backbone of the economy. It is the financial and banking system that greases the economy. So one would think that the bank stocks would be amongst the strongest sectors on the NYSE. But the chart above of the PHLX KBW Bank Index appears to suggest that is not the case. The KBW Bank Index remains well below its highs of 2008. Over the past couple of years the KBW Bank Index appears to be caught in a sideways trading pattern as the internal indicators weaken. This suggests that the index could be poised for a fall. (more)

April 9, 2015

Chart of the Week

One of the best ways to gain some perspective on stock markets and gold is to look at the Dow Jones

Industrials (DJI)/Gold ratio. The Dow/Gold ratio has a long history as the 200-year chart above attests to.

The ratio has had considerable movement over the years, which is an accomplishment in itself since gold

was until August 1971 fixed first roughly at $20.67 and then at $35 in April 1933 when the Roosevelt

administration revalued gold up in order to devalue the US$. The devaluation of the US$ was a part of the

currency wars of the 1930’s. The Roosevelt administration also forbid the hoarding of gold, gold bullion

and gold certificates and gold was purchased by the US administration at the then fixed rate of $20.67. (Read)

April 6, 2015

Technical Commentary

This week….

-          A shortened commentary for the holiday weekend.

-          The US jobs report that came out on the holiday Friday was a shocker coming in sharply lower than expected. In brief trading following the release of the report the S&P 500 futures fell 1% and the DJI futures were down 165 points. The negative jobs report should drive trading for the week. Trading opens at 6 pm (Eastern) tonight.

-          Bonds rallied following release of the report. Many believe the weak report means any Fed rate hike could be on hold although many still expect a rate hike by September. Many also believe this is just a one off weak report. Maybe they haven’t looked at the potential for disruption from the California drought and the unprecedented request to cut back water usage by 25%.

-          Gold was up small on the week but the week jobs report could see gold jump on Monday. The US$ Index was down sharply following the release of the jobs report.

-          Oil prices continue to be battered by war in the Mid-East and oversupply in the US. The weak jobs report could send oil prices lower.

April 2, 2015

Chart of the Week

Ok that is not a picture of a gold bull market. It is anything but. But I will get to the bull market. Some analysts have

in the past compared the current gold market decline (2011-2015) to the gold market decline of the 1970’s (1974-

1976). So far, the current decline has seen gold lose about 41% from the September 2011 high to the November

2014 low. Gold topped in December 1974 at $190.50 and bottomed in August 1976 at $101.50 for a loss of about

47%. In some respects and argumentively trying to compare the two is difficult because the current gold market

decline has gone on for considerably longer than the 1970’s decline (42 months so far vs. 20 months in the 1970’s). (more)

March 23, 2015

Technical Commentary

This week……

-          The Fed lost patience but downgraded its growth outlook and lowered its Fed funds targets. The markets rejoiced as stocks, bonds and golds all “leaped” to the upside. The US$ went in the opposite direction.

-          The S&P 500 continues its upward march within what looks like an ascending wedge triangle. The rise is becoming narrower and narrower. The end is getting closer and closer.

-          Bonds jumped this past week realizing that the Fed is not about to hike interest rates anytime soon. Still some cling to a June rate hike. Others pushed it out September, December and even 2016. I am in the “it won’t happen” camp. Although I agree that if the economy were to turn down the Fed has no room to lower interest rates unless they want to go negative as Switzerland, Sweden, Denmark already have.

-          Golds had a strong rebound week. I believe this is the start of the C wave to the upside. However, gold still has work to do with considerable resistance above and hopefully no new lows. Silver had a strong up week and appears to be leading. The gold stocks also enjoyed a strong up week but as with gold they have considerable work to do.

-          The US$ was a the big loser on the week. Some speculate that the Fed’s dovish stance was meant to help knock down the US$ as it was becoming a problem for US exports and profits for the multinationals.

-          Oil prices plunged to new lows but the Fed save also saved oil prices as they reversed and closed higher on the week. Energy stocks also enjoyed an up week. Oil still appears to be in a potential consolidation corrective phase.

March 20, 2015

Chart of the Week

Chart of the Week – The Fed drops “patient”.

The Fed lost patience. Well they did not so much as lose patience but they dropped the word “patient” in their “guidance” language. It seemed to be widely expected that they would. Then the Fed talked out of both sides of its mouth simultaneously (aka – Fed speak). The Fed may no longer be “patient” but in the same breath they downgraded the expected pace of growth and inflation. In other words, they are no longer using the word “patient” but they will still be “patient”. Go figure that one out. The word “patient” may have become the most overused word in the English language over the past few months. (Read More)

March 17, 2015

Technical Commentary

This week…..

-          The US stock markets fell for the third week in a row. The S&P 500 sits on the cusp of a mini-collapse or it will rebound once again. The high US Dollar is beginning to take its toll. The FOMC meets this week and everyone will be hanging on the language to see when the Fed might hike interest rates. US economists are lousy forecasters. So says the surprise index.

-          Bonds rebounded this past week. Maybe the bond market is watching the lousy economic numbers that keep rolling in. All eyes will be on the FOMC this week.

-          Gold was down again. That is almost becoming “what else is new”. Gold thinks that the Fed is going to hike interest rates. Maybe gold didn’t pay attention to the falling inflation numbers. Maybe gold should.

-          The US$ Index was up, up and away again. The US$ Index reached 100. The Euro sunk again, but so did the Pound, the Yen, the Franc and oh yes the Cdn$. The Euro at the rate of decline could soon be at par with the US$.

-          Oil, oil everywhere. The US doesn’t know where to store it any more. So oil prices fall. New lows are probable. A decline below $40 is quite possible. What happened to Peak Oil? Went like the Dodo bird it seems.

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