S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

The S&P 500 has now run right up into our ideal topping zone of 1,425-1,435. The high this past week was at 1,422. There is an outside chance that we will still make it to the 200-day MA near 1,433 but the reality is that this bear market rally is getting long in the tooth. Many stocks are approaching major resistance zones and former breakdown zones that are often tested in bear markets.

Of course the bulls will get excited at breaking the down trend from the October highs, but last week we pointed out that that was possible. We are now at “sell in May and go away” time, and typically if we are to see a top it comes in the first week of May. We have also cited the 1938 and 1946 cycles that saw similar double-bottoming patterns in the first quarter, then after a strong rally collapsed right back to the lows and even lower. As well, if we are to continue this rally then we must go right through 1,430 and except for small pauses keep rising to 1,500 and higher. [read more…]

TSX INDICES

The TSX Composite gained 1.25% in the past week with 10 of 14 sub indices up on the week. The losers were all the cyclicals gold, energy, materials and metals and mining. Indeed the gold sub index gave us a sell signal closing under the 40 week MA for the second consecutive week. Neither of Materials or the Metals did the same.

At the other end the Information Technology sub index closed over the 40 week MA giving us a buy signal. The reality is elsewhere though all we have done is crawl back to classic resistance zones where in bear market moves we typically fail. The same could occur with the golds as well who have fallen to a huge support zone and if the bull market is still valid that could quickly reverse as well.

The TSX did not make new highs this week despite closing higher. Indeed we remain below the July and early November highs. Unless those highs are taken out the next drop could be quite problematic. We would be continuing a pattern of lower highs which is the definition of a downtrend. This occurs even as we make these highs very close to the two previous highs. The 13 week MA has still not crossed over the 40 week MA. [read more…]

S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

The S&P 500 put in another up week, reaching the key downtrend line from the September 2007 highs. Either we bust through this level now, targeting up to 1,425-1,450, or we will fail and turn back down. Even if we do bust through false breakouts are common and we need to get a series of closes over 1430 to confirm that we will advance further. We expect the market to mark time until the FOMC policy statement due out on Wednesday, unless something happens to spur it higher. GDP numbers and the Chicago PMI also due Wednesday morning could cause higher or lower prices.

There are a number of interpretations that one can make of the current patterns. One of course is that we have made a double bottom on the charts (the March low was slightly below the January low although with the DJI it was a slightly higher low). Targets could easily take us back to the highs of 1575. That is why a sustained move above 1430 would be so important as that is the vicinity of the 200 day MA. [read more…]

TSX INDICES

The TSX Composite actually fell almost 1% on the week with Energy, Golds and metals & mining leading the way down. It was actually a pretty mixed week with some up and some down. In the down category along with Energy, Golds and Metals & Mining were of course materials and consumer staples. Materials made new highs before turning lower. While the remainder were up most were barely up on the week especially Telecommunications and Utilities.

Still none of the energy, golds or metals or materials gave us signs that we should stand aside. Gold is at support of the 40 week MA (just closed below it) so it is important that it hold this level and we don’t see successive closes under this key MA.

At the other end some such as Info Technology are now at resistance of the 40 week MA. This is often an ideal spot to turn down again in a bear market just as testing it in a bull market is also quite normal. One sector that is strong is the income trusts but it has been largely led by the energy income trusts which is why we say buy selectively.. [read more…]

GOLD BUBBLE! WHAT BUBBLE?

We keep hearing that gold has been in a bubble and the bubble may have burst. A quick Google punch with “gold” and “bubble” revealed a number of articles dating back to 2005 that talked about Gold in a bubble. We saw and read numerous blogs and an article telling us that the bubble is bursting for gold and oil is about to follow and “everyone will lose their shirts”. We have been reading dire forecasts for gold (and by extension, silver and platinum) for several months. Since then gold has gone up at least $200.

A well-known popular market guru also very noisily announced recently that he is abandoning his long-held bullish outlook on gold. Seems that the fact that gold appears recently to have abandoned its link with both the US dollar and oil prices has spooked some people. And of course the big $28 down day seen last Friday April 18 worried a lot of people. The comment was that gold doesn’t do that in a bull market. In the very short term he is looking very smart. But then only a few days have passed. [read more…]