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

In a week marked once again by perp walks we were rudely reminded that the sub-prime
mortgage crisis that started last summer is not over. The S&P 500 fell a sharp 3.1 per cent this
past week, triggered by weak economic numbers, rising fears of more losses being posted at
major financial institutions, rising oil prices, and fears of war with Iran (more on that in Gold and Oil & Gas).

We closed below our key 1,320 level and below the lows of the previous week, so odds now
favour a collapse to test the lows seen in March 2007. Support is therefore at 1,270 and 1,255
with some interim support at 1,300. Only a move back above 1,350 could change this. The worst case is that the lows of March actually break and we are headed to a much deeper bear drop. [read more…]

TSX INDICES

It was a down week for the TSX Composite as it lost 1.3 per cent. Gold, metals & mining, materials and telecommunications all managed up weeks. Everything else was down. Income trusts suffered a reversal week after hitting new highs for the move up. Not a positive sign so we will have to monitor that closely. Particularly hard hit were the Consumer Discretionary stocks and the Financials. These are two areas where you definitely do not want to be involved. Consumer Discretionary hit new lows and looks lower.

The Energy Group was down and while there is definitely a possibility of seeing lower prices just ahead we still do not have any major negative divergences on this group. If that is the case we suspect that this pull back will be corrective only and another buying opportunity. The golds may be coming out of a funk as they put in a good up day on Friday and are beginning to run counter to the broader market just as they did late in 2007 and into March 2008. [read more…]

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

The S&P 500 has turned firmly downwards. Once again though we found support in the broad 1,320 to 1,350 zone (the low was 1,331) and rebounded. Technically it is possible that we have made an important low but we would not be able to confirm that until we broke out above 1,375/1,385. That zone should now repel any rally to the upside. In the short term we are at resistance/support near 1,360 but above that level we certainly could return to 1,375. Only above 1,400 would we be in a position to challenge the highs at 1,440 and focus on targets up to 1,500.

To the downside, a firm break under 1,320/1,330 would target the low closes near 1,270. Below that the lows at 1,257 would be in the line of fire. With all indicators both for the intermediate and short term having turned down, the up day on Friday does not change the near-term picture, which has turned decidedly bearish. As we are in a zone of a potential bottom it is possible that we could turn back up.[read more…]

TSX INDICES

The TSX Composite fell 1.3 per cent on the week led by energy and financials to the downside. 12 of 14 sectors were down on the week with only information technology (Nortel had a big up week) and the income trusts enjoying an up week.

Key going forward of course is the TSX Energy group as they represent some 30 per cent of the TSX Composite. They could help drag things down going forward if they were to go into a corrective mode. After a 39 per cent up move from the lows seen in March a corrective period would not be surprising nor would it be unwelcome. Golds have been whipsawing us the past few weeks and the Metals group appears to be topping. However, the Materials Group with both golds and metals is still in a good uptrend even if it is slowing down here.

The jump in the Technology Group caught us by surprise. However, we admit a reader did suggest we buy Nortel. We were not enthusiastic about it but good call on him. The stock is still overvalued at these levels so we had little interest in pursuing something that might be short lived. If we are going to buy stocks like that we would rather find undervalued ones not overvalued ones. .[read more…]

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…]