TSX INDICES

The TSX Composite fell another 2.4 per cent this week. We now have an official sell signal on it. Nine of the 14 sub-indices have gone into sell mode or have been there for a while. Of the remaining five, only gold and energy remain either in up trends or within potentially bullish patterns. Materials to some extent are also in the same category but it is being held up by the gold sub-index, as the metals sub-index looks toppy and is closer to a sell signal.

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ETF’s

More get-out signals came from XIU, XIC and the QQQQ. XGD and XMA weakening but are a hold for the moment at least (although we have changed the classification to topping as the short-term trends have turned down). Only XSB and XBB remain buys.

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LONG PICKS (JUNIOR MINING STOCKS)

It was another lousy week for our remaining junior portfolio. We are going to do some cleaning up. BRX has been a major disappointment and continues in a downtrend. Enough already, particularly since it started printing new lows. JPN broke a support line. Let’s stand aside. ORA is threatening to break down and we have a nice profit so we will exit that one as well.

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The S&P 500 managed to eke out a gain this week, but not before putting in new lows for the most recent move down. Tuesday saw a huge up day, pumping up the bulls, but it was all for naught. We failed at the 200-day MA and then proceeded to fall once again. Last week we noted how we should fail in the range of 1,480 to 1,500; the high of the week was 1,492. The recent lows were around 1,440 and if that breaks again we are almost sure to test the August lows.

Indicators in many cases are oversold but we can remain oversold for some time. There is no sign here that we are making a low, so now is not the time to come in and buy dips. Strategy should be to sell rallies. Cycles are now pointed down into December. We expect to continue this downtrend until at least the second week of December before we might see the start of a possible year-end Santa Claus rally. We may or may not be at new lows by that time; new lows would not surprise us. Irrespective, we don’t believe it will last long but it could be dramatic.

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Technical Analysis 101 is Dow Theory. If one is to have any understanding of Technical Analysis one must understand Dow Theory. Dow Theory is the basic tenant. The Dow Jones Industrials and its predecessors have been around now for 123 years when the first Dow Jones market average was published on July 3, 1884. That average had 11 stocks of which 9 were railroad stocks. In 1897 the index was split into two an Industrial Index with 12 stocks and a Railway Index with 20 stocks. In 1928 the Dow Jones Industrials was expanded to 30 stocks and in 1929 a Utility Index was started. The old rail index is really today’s Transportation Index.

Dow never wrote the theory. Instead he made a number of journal publications in of course his newspaper the Wall Street Journal. In 1902 it was published into a book by S.A. Nelson called the ABC of Stock Speculation. Dow Theory was thus introduced. It took, however, until 1932 before a full book was written on appropriately called Dow Theory by Robert Rhea.

So what is Dow Theory? It has 6 basic tenants as follows:

1. The market has three trends – First an uptrend is defined as a series of higher highs and higher lows. A downtrend is defined as a series of lower highs and lower lows. Dow divided his trends into three distinct categories – the primary, the secondary and the minor. His main concern was the primary that often lasted more than a year and sometimes for several years. The intermediate trend lasted for months and sometimes longer while the minor trend was measured in days and weeks. When we base our models we base them off of the intermediate trend. If the primary trend can be thought of as one huge wave, the intermediate and minor trends are sub waves of the bigger wave.

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