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Toronto Stock Broker David Chapman
March 3, 2015

Technical Commentary

This week…..

-          Once again the US stock markets made new all-time highs. Well all except the DJT. New highs were seen in the Euro zone as well and Japan. With interest rates at or close to zero and below zero especially in the Euro zone funds are rushing into the stock markets. Complacency reigns. Beware the Ides of March?

-          Janet Yellen spoke and the bond market interpreted her words as bullish for bonds. Even Vice Chair Stanley Fischer failed to put a damper on the bond rally. While Janet was coy about hiking interest rates she expressed concern about negative inflation (deflation). Fischer tried to dampen the enthusiasm musing about the Fed hiking rates in June or September. Nonfarm payrolls out this Friday.

-          Gold even managed to rally this past week. Could our potentially negative scenario change? Yes. But resistance lies above to be taken out. Some similarities between today and late 2008. But proof is in the pudding and resistance zones must be taken out above and hold the key support zones. And overcome seasonal weakness that could last into May/June. But the recent COT continues to encourage.

-          The US$ Index rebounded this past week and the Euro fell to new lows. No wonder with negative interest rates coming to dominate the Euro zone.

-          Oil prices slipped back this past week and natural gas was hit hard. Simply too much supply especially in North America and not enough cut back in production, yet. Brent prices widened with WTI. But then Brent has interruptions thanks to wars.

February 27, 2015

Chart of the Week

Chart of the Week

After peaking at just over $1,300, back on January 22, 2015 gold has been on a bit of a slide. The prime reason appears to be the fear that the Fed is about to hike interest rates. Is the fear rational? Probably not. Memories are no doubt short. They probably forgot that in the late 1970’s gold was rising as interest rates were also rising. Studies have shown that gold does not have a strong correlation overall with interest rates. If gold does have a strong correlation with anything it is the US$. The US$ has been rising so gold is falling. At least that what conventional wisdom says. (more)

February 1, 2015

Technical Commentary

This week….

-          A shortened commentary this week.

-          It was a volatile week with lots of things happening. There was the FOMC, renewal of fighting in Ukraine, and an anti-austerity Greek party wanting to renegotiate the austerity plan imposed on Greece.

-          US stock markets fell on the week. As a result there was no follow through from the previous week’s good news of the massive QE from the ECB. The US stock markets appear poised to commence a waterfall decline.

-          Bonds continued their strong rally and yields have fallen for the most part to record lows. Bonds are at important resistance so further gains may prove difficult.

-          Gold enjoyed its best month since June/July 2014 with a solid gain. Silver did even better. The gold stocks were stellar. Can it continue? There are a lot of doubters and sentiment while it has improved is still not at levels that could suggest a top. But the commercial COT is somewhat of a worry as it fell again.

-          The US$ Index hit another new high then reversed and closed lower. Has the US$ Index hit a temporary top. Downside follow through this week would be helpful. While most currencies actually rose this past week against the US$ the Cdn$ fell under 79 following a lower than expected November GDP report. Given oil prices and other things could Canada fall into a recession? Some are expecting the BofC to cut rates again.

-          WTI oil plunged to new lows then reversed and closed higher on the week. A reversal week? Follow through to the upside this coming week would be important. A correction of some sort is overdue and seasonals are turning positive. But how high could oil prices go?  I believe it will difficult to get beyond $60.

January 23, 2015

Chart of the Week

Chart of the Week – Banks tipping over?


January 13, 2015

Technical Commentary

This week…..

-          The first week of 2015 was highlighted by the killings in Paris. Globally the stock markets fell (except China) as there was concern over falling oil prices and deflation in the Euro zone. The US nonfarm payrolls were generally as expected but hourly earnings fell and the markets did not care for that.

-          With deflation in the Euro zone, falling oil prices and nothing from the Friday employment numbers to suggest that the Fed is about to hike interest rates US and Canadian bonds responded positively and rose to new 52-week highs. Both are within hailing distance of the all-time highs seen in July 2012. New highs are probable. Interest sensitive sectors responded positively.

-          Despite a rising US$ gold and silver were both up on the week. The gold stocks broke out a small bottom pattern but there is further resistance overhead. Gold still needs to break out over $1,230 but Friday’s strong close possibly bodes well for the coming week. A break over $1,230 suggests a run to $1,270/$1,280.

-          The US$ soared to new highs while the currencies continued their downtrends. The Euro is breaking down and could be targeting down under 0.90. The Japanese Yen was the only currency this past week that managed a small gain.

-          WTI oil prices broke under $50 and continue to appear to be targeting down to $40/$45. The weekly and monthly RSI is at levels normally associated with at least a bounce. The energy stocks could be making higher lows which if successful could be positive. But buying energy here is for speculators only.

January 8, 2015

Technical Scoop

It is 2015, a year ending in 5. Years ending in 5 have been good years for the stock markets. Since 1881

there has been only one year ending in 5 that was not an up year. That year was 2005 and the Dow Jones

Industrials (DJI) lost a small 0.6%. Prior to 1881 there were two years ending in 5 that were not up years

– 1865 and 1875. The years ending in 5 tend to be strong performers as well. 1915 remains the best year

ever for the DJI with a gain of 81.7%. Years ending in 5 have recorded numerous stellar gains. (more)

December 31, 2014

Technical Commentary (Shortened version)

-          This is the last report for 2014. This is a shortened version of the usual longer weekend report. I will be returning to reports in the first full week of January. A forecast for 2015 has been started but I am saving it for the first week of January in order to see how the markets close for 2014.

(shortened version)

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.


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.

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.

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