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

The big outside reversal week we saw two weeks ago came back to haunt us this past week. The huge jump in unemployment to 5.5 per cent seen with the non-farm payrolls on Friday coupled with a sinking US Dollar and a big jump in oil prices conspired to sink the markets on Friday and send the S&P 500 tumbling almost 3 per cent on the week.

The real danger here is that this turns into a mini panic. We can’t help but note that the banking crisis is rearing its ugly head once again. Consider that in the past week alone that Wachovia Corp. ousted its CEO after writing off $7 billion and raised some $10 billion in new capital. Washington Mutual, the US’s biggest savings and loan also stripped the CEO of his job. The bank has written off some $9 billion and had to raise $10 billion in emergency funds. State Street the US’s 13th largest bank has lost over $3.4 billion and needs to sell $2.5 billion in stock to raise capital. Downgrades came to Lehman Brothers, Merrill Lynch and Morgan Stanley the three largest investment banks. Lehman Brothers is planning on raising some $4 billion in new capital and on the initial problems LEH sunk as low as $27 before rebounding on the capital raising news to close just above $32. We could go on with stories.[read more…]

TSX INDICES

The TSX put in an up week of 1.7 per cent but it was a decidedly mixed week. The up move was led by Energy and Golds and following along were Metals and Mining, Materials and Income Trusts (led by the energy trusts). But also up on the week were Consumer Staples, Real Estate, Health Care and Utilities. The surprise in this group was both Real Estate and Health Care given the weakness seen at the end of the week. Down were Financials, Consumer Discretionary, Industrials, Telecommunications and Information Technology. These are the groups we continue to look to be weak in a bear market. But the reality is the TSX dominated by Energy and to a lesser extent Gold can continue to outperform their American cousins as long as these groups hold up.

We are adding a new Index this week. The TSX CDNX Venture Exchange. This is to give those in this junior market a sense of where we are at. We are now receiving buy signals from this important sector. If that is the case this could bode well for the long suffering junior exploration group. We will follow the exchange every week from now on..[read more…]

Oil in a Bubble?

We keep hearing that oil is in a bubble. Google “oil in a bubble” and watch scores of articles pop up. There are recent articles on CNN Money, the Guardian and the Washington Pos and more. Every time we turn around it is the “sujet de jour” on BNN and CNBC. George Soros says we are in a bubble. George Soros has made more money in a minute then I have made in my lifetime, so maybe we should pay attention to him. So it is no surprise that when asked who has caused the price of oil to soar from lows of $11 in 1998 and $50 in January 1997 and $86 in February 2008 to the recent high of $135, many reply – speculators.

When in doubt, blame the “speculators”. Many people, including the talking heads and especially the politicians, will nod wisely and agree. And then someone knowingly pulls out a chart of oil and says “Look, it has gone parabolic”. The CFTC (or Commodity Futures Trading Commission for those who do not know the acronym) began a probe into so-called speculative trading. That caused an immediate drop in speculative net long positions. Gee, maybe there is something there after all.[read more…]

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

Following the huge outside week reversal the previous week, the market bounced back this past week. It is strange sometimes watching the reaction of markets to events. The bond market is now clearly showing signs of concern over rising inflationary pressures, and the US dollar appears to be hailing the rising inflation by rising because it believes the Fed will be forced to stop lowering interest rates and even hike them to stem the inflationary pressures.

The gold sector has naturally reacted negatively to the rising US dollar, as has oil. Both fell on the week. But the stock market seems unperturbed by rising inflation and clearly they don’t believe that the Fed will hike rates and may lower them further.

The S&P 500 was also helped by the report that first quarter growth was 0.9 per cent, revised
upward from the previously reported 0.6 per cent gain. As we have mentioned elsewhere, given
the fall in the first quarter for Canada, a rise in the US seems almost unreal. Further, some good results were reported on the week by stalwarts such as Dell. The drop in oil prices this past week also emboldened the S&P 500. [read more…]

TSX INDICES

Boy what a mixed week. The TSX Composite closed down very slightly on the week. The down week was led by Energy, Gold, Metals and Materials. Overall out of our 14 sub indices six were down and eight were up. But overall it was the four major downs that took the TSX down on the week. Others down were Health Care and Consumer Discretionary. The latter has performed very poorly and no reason to own the group at all.

The up groups are no big star performers at all. Utilities look good and so does the industrials group but most of the others are weak and are still to be avoided. They are trading for the most part under their 40 week MA and as long as we are under that level we will continue to stand aside. We do have up markets on the dailies and as long as that is in play we are probably in a bear market rally and one might selectively trade the group but no reason to hold on for longer unless we regain above the 40 week MA and the weeklies turn up as well. Given we are at or near resistance zones profit taking at these levels is suggested.[read more…]

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

It was a big outside reversal week, setting up a major sell signal on the markets. Outside reversal weeks see a higher high, a lower low and a close below the low of the previous week. We busted through and closed below our important 1,380 support. We also busted through the uptrend line from the March lows. It is amazing how in one fell swoop we wiped out a month’s gains.

The key day was Monday, when we ran right up to a perfect topping zone at 1,440. This was the area of both the 200-day MA and the 40-week MA. We raced to the highs, then collapsed late in the day to the opening levels. Except for Thursday’s small up day, the rest of the week was spent on the downside[read more…]

TSX INDICES

The TSX Composite roared to new all-time highs this past week on the back of energy and gold but at the end of the week the only one standing was the gold sector. All other sectors and the TSX Composite closed down on the week. Since we hit new highs for the Composite as well as for Energy and Income Trusts (propelled by the oil and gas trusts) and then closed lower on the week it does constitute a reversal week. But since we did not take out the previous week’s lows and close under that level as we saw with the S&P 500 and the NASDAQ it does not constitute a key reversal week.

Particularly hard hit were the Financials, Consumer Discretionary and Real Estate. The Energy sector closed lower despite record highs for oil and new highs for natural gas. That was disappointing but as we note in our oil and gas commentary it may be because they fell in sympathy with the rest of the market or maybe there is a lot of nervousness that the high prices will not be sustained and that at the least sign of trouble they rush for the exists. The latter reason is actually quite bullish although the former only suggests to us a mild bear at best. [read more…]