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Toronto Stock Broker David Chapman
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July 1, 2015

Technical Commentary Update

I thought I’d shoot out an update given the dramatic drop in the stock markets today.

The warning is that this is just the beginning. Whether Greece leaves the Euro and the EU is almost moot. The drama there will no doubt continue. Greece has threatened court action if the EU tries to kick them out. So this drama will drag on and on…. And remember that most of the money being sent to Greece was not really getting to the Greek people it was just circled back to bail out the banks most of them German banks. Greece could well default on upwards of €300 billion. That’s a lot of holes being left in EU central banks, EU banks and the IMF.

The fear of course is contagion as the focus might shift to Spain and Italy with their €1.8 trillion plus debts – each. And let’s not even look at France. EU banks are it seems leveraged to the tune of at least 26 to 1. That is just somewhat less than the US banks 30 to 1 leverage prior to the Lehman Brothers implosion in 2008.

But Greece isn’t the only problem. It appears Puerto Rico is on the verge of default and Ukraine is expected to officially default in July. But the real danger lies in China where their stock market appears to be imploding. This is a stock market fueled by massive margin debt. And the Chinese growth since the 2008 financial crisis has been fueled almost exclusively by issuing a mountain of debt. Some say it was the greatest credit expansion in history.  The US stock market is also showing record margin debt. It doesn’t take much of a collapse and suddenly a lot of margin calls are being issued.

This I suspect is merely the beginning with the real collapse most likely getting underway in 2016. Recall that the 2008 collapse actually started in 2007. It took until 2008 to really break down. The stock markets topped in 2000 but it was 2001 and 2002 where things really collapsed.

What was the best performing asset during today’s mini meltdown? It was gold. No it was not spectacular as it was just a quiet $5 rise. The gold stocks were down but they were down very small in comparison to the major stock market. For gold it is interesting to note that while gold fell along with the broader market during the 2008 financial meltdown when the recovery got underway gold led the way to upside. During the 2000-2002 high tech internet crash gold was actually making a stealth rally quietly to the upside. The final low for gold at the time was in early 2001 long before the global stock markets found their bottoms in 2002.

There will be twists and turns as time moves forward. The stock markets may even find a bottom and rally to new highs as they did in 2007 following the initial collapse. In 2000 the US markets couldn’t make new highs but the TSX did make new highs at the time. Patterns tend to repeat themselves.

Another day or so down and intermediate trends most likely could turn down to join the short term trend that has turned firmly to the downside.

But the odds now favour that the financial crisis of 2015-2016 could well be under way. Note that the US markets took out recent lows today. A bad sign that suggests that the markets are headed lower.



Chart of the Week

Gold – The Big Picture

It is not often one looks at a yearly chart. Monthly charts are quite common. Time dimensions for charts normally range from monthly right down to tick charts. A tick chart is one that prints a bar at the close of any specified data interval. One of the great things about Nick Laird’s website, Gold Charts ‘R’Us www.sharelynx.com is that Nick’s website contains what may be the most comprehensive array of charts for gold, silver and other precious metals imaginable.

Read more



June 21, 2015

Chart of the Week

Chart of the Week – Is the end game in play?

Watch out! That is what the headline said on the cover of the latest edition of The Economist (June 13-19, 2015). The world is not ready for the next recession. The Economist went on to declare “the fight against financial chaos and deflation is won”….the IMF says, for the first time since 2007 every advanced economy will expand…. Growth should exceed 2% for the first time since 2010….and (the Fed) is likely to raise rock-bottom interest rates.”

(more)



June 14, 2015

Technical Commentary

Weekend Commentary with highlights – Subscribe to Read



June 12, 2015

Chart of the Week

Chart of the Week -

Big Bubble in Little China!

Ok pardon the play on a 1986 Kurt Russell action adventure flick entitled “Big Trouble in Little China”. China isn’t little but the bubble is potentially big. Apparently, the Chinese stock market has boomed to a value of $6.5 trillion in the past year. That still leaves the Chinese stock market well short of the NYSE whose value in February 2015 was $16.6 trillion. The Shanghai Stock Exchange (SSEC) is up 58% thus far in 2015 and a 152% since the low of 2014. To put that in some perspective the SSEC was up in 2007 129% to the top in October and had run 293% from the low of 2006. The current market is still about 20% below the highs of 2007. (more)



June 4, 2015

Chart of the Week

Chart of the Week – Stock of the Week

I’d thought I would show another chart of the velocity of money but from a somewhat different perspective. I last showed a chart on the velocity of M1 in a Chart of the Week – The End of Cash? – April, 30, 2015. This is a chart of the velocity of MZM money stock and prior to 1960 money stock. Money stock is the total amount of monetary assets available in an economy at any specific time. MZM money stock is defined as money with zero maturity. It includes notes & coins, travelers cheques & demand deposits, savings accounts and money market funds. MZM is not M1 or M2 but a hybrid of the two plus money market funds. The two time series don’t line up exactly but the MZM money stock effectively takes over from money stock prior to 1960. (more)



May 31, 2015

Technical Commentary

I am evolving. Less commentary, more charts. Even stock charts.

Highlights of the week –

- US economy contracts in Q1 with real GDP down 0.7%.

- Despite surprises to the upside US economic numbers this past week remain sharply below previous

recoveries.

- Outlook for Q2 remains murky with many not expecting better than 1.5%-2%.

- Oil prices took a toll on Canada’s GDP as Q1 GDP was down 0.6%. Nominal GDP was down 2.9%

in Q1.

Highlights for the coming week –

- US nonfarm payrolls are out on Friday. Market looking for 226 thousand jobs and a headline

unemployment rate of 5.4%.

- Canada employment is also out on Friday. Looking for a gain of 10 thousand jobs and a headline

unemployment rate of 6.8%.

- June historically is the 2nd worst month on record for the markets but it also usually signals the start of

a summer rally.


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Chart of the Week

Have the horses left the barn? One of the major tenants of Dow Theory is that the averages must confirm each other. The key to this basic tenant is that no important bull or bear market can take place unless both averages agree with each other. Originally, Dow Theory was referring to the Industrial and Rail averages. Today the theory refers to the Industrials and the Transports. It is not necessary for the two to confirm a signal simultaneously but they should be at least relatively close together. (more)



May 20, 2015

Technical Commentary suppliment

- The US stock markets may be making new highs but the Cdn stock markets are essentially

treading water with both the TSX Composite and the TSX 60 up a meagre 0.1% and 0.2% over

the past week.

- Only four of the fourteen sub-indices were up on the week while two were flat and the remaining

eight were down.

- Leading the way to the upside was Health Care gaining 2.7% while Information Technology

jumped 1.3% and Financials were up 1.1%.

- The biggest loser was Metals & Mining down 2.7% while Golds were off 2.1% and Energy

dropped 1.4%.

- There was only one intermediate change as follows: Telecommunications neutral to up.

- Short-term trend changes were as follows: Consumer Staples neutral to down; Health Care

neutral to up; and Information Technology down to neutral.

- There were no new highs or lows.

(Click here for more)



May 18, 2015

Technical Commentary

This week…..

-          Monday May 18, 2015 is the Victoria Day holiday in Canada and Monday May 25, 2015 is the Memorial Day holiday in the US.

-          Despite weak economic numbers and a rocky global bond market the US stock markets seemed to focus on the positive that the Fed won’t be in a hurry to hike rates. US markets closed at almost record highs this past week. Well, all except the DJT that is. A divergence? The TSX Composite actually fell on the week not following the US markets to nirvana.

-          The bond market fell once again this week. Well most of the week anyway but late in the week with weak US economic numbers and low inflation numbers the markets decided they might have overdone it and rebounded closing the week almost unchanged. Could the recent bond sell-off be over? Could be. Odds do not favour a Fed rate hike in June given recent economic numbers.

-          Gold, silver and the gold stocks were all up this past week as the US$ continued its recent decline. Silver actually broke which suggests gold could soon follow. Still lots of work to do but the potential to rise to $1,280 for gold on this up wave remains possible.

-          As noted the US$ Index fell again this past week as the Euro and the other currencies continued their recent strength.

-          Oil prices were up on the week but the energy stocks did not fare well. A divergence in the energy patch? Confirmations are important and when it doesn’t happen it usually suggests that one of them is wrong. Supplies in the US fell this past week though and that could be positive for oil.



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