Energy and Gold sub indices are showing positive signs

A very steep down week with the TSX Composite losing 6 per cent. All sub indices fell on the week. Despite the down week both the Energy and Gold sub indices are showing positive signs. On the other hand the Financial sub index continues to trade near resistance and has still not really demonstrated to us that it should be bought. The Metals and Mining sub index has taken it in the ear again but now stands at major support. Others though that set new lows such as Information Technology and Healthcare just look awful and should absolutely be avoided.

The TSX Venture Exchange (CDNX) while down on the week continues to show us some positive signs. Many of these stocks are so beat up that we are seeing some basing going on. We continue to believe that this group can be selectively accumulated. [read more…]

THE NIGHTMARE ON WALL STREET CONTINUES

Fear treads unchartered turf – Toronto Star, Business section, September 27, 2008

Last week we were looking for the Maalox. We are now out of it. For years, we, along with many others, warned how the growing mountain of debt, coupled with unparalleled growth in
derivatives and complex products, would wind up in a massive debt collapse. Of course we were
for the most part considered charlatans, doomsayers or worse. Only occasionally did the
mainstream financial press point out essentially the same, even if it was on the back page. Now it is upon us and the creators of this mess are caught like deer in the headlights.

Watching Henry Paulson, Ben Bernanke and George W. Bush look and act like dead men
walking is a sight to behold. On August 8, 2007, at the start of this crisis, President Bush declared “the economy is strong,” repeating it several times in the same speech. Then on September 15, 2008, he said the same thing, adding that troubled Wall Street shouldn’t expect any more rescues from Washington. At the same Paulson said that “what we are going through in the short term doesn’t make anything easier, but in the longer term it’s going to make things better….” Bernanke often recited the same mantra.[read more…]

TSX INDICES

A very dramatic week for the TSX Composite. While the TSX gained only 1.1 per cent this past week the dramatic up day on Friday gave us one of the biggest up days in history – a 7 per cent gain. Despite the gain on the week not everyone participated. Still ending up on the downside were Information Technology, Consumer Discretionary, Healthcare, Industrials, Real Estate and Telecommunications. New lows were seen for a host of sub indices including Information Technology, Healthcare, Telecommunications, Utilities and Metals and Mining. The CDNX Venture exchange also gave us new lows but a dramatic reversal at the end of the week left us with only a tiny loss and virtually got us back to where we started the beginning of the week. No one gave us any buy signals. Financials, while posting an up week are at resistance.

The ones that enjoyed an up week included Energy, Financials, Gold, Materials, Consumer Staples and Utilities. Energy and Gold both bounced of a major long term support levels. It is important they follow through to the upside this week. Indeed if this rally is real then all of them must follow through or it will be a false start and we could in essence head back to new lows. The TSX Composite also hit new lows for his move. [read more…]

NIGHTMARE ON WALL STREET

The events of the past couple of weeks or so are piling up so quickly, our head is spinning. The daily gyrations of the market has everyone running for the Maalox, we are sure. Occasionally we have had to grip our desk. Maybe it is a good thing that unlike 1929, windows in office towers do not open. So is this it – financial Armageddon, a true nightmare on Wall Street?

The temptation is to say that we told you so, but gloating is not a very good trait. A new wave of financial instruments and complex financial derivatives that no one understood except the “masters of the universe” were of course at the root of the collapse. But it was more than just that. It was as if everything conspired at once to give us the perfect storm. Deregulation, highlighted by the repeal of the Glass-Steagall Act (which kept retail and investment banks separate); a long period of low interest rates; seemingly unlimited injections of liquidity into the financial system highlighted by some of most rapid and persistent monetary growth ever seen; and the aforementioned “financial weapons of mass destruction” as Warren Buffet called them that were used to help create an extraordinary array of products, many of which were peddled to Main Street from Wall Street. [read more…]

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

Once again all indicators have turned down across all time frames. The S&P 500’s fall this past week was spurred on by a series of poor economic numbers. Friday’s unemployment numbers, while worse than expected, actually resulted in an up day for the market because everyone thought the Fed will now have to cut interest rates again.

Interest rates are nowhere near the lows seen for the 2002 recession. That would require another 125 bp of cuts. Still, we might get that because given the collapses in the job market, the housing market and the debt market, they will have to hyper-inflate in order to save the economy. Difficult, when everything is pointing to massive deflation. Money supply is contracting, the granting of credit is at a standstill and the jobless rate is the highest in years. We have now matched the unemployment highs seen in 2003, at the bottom of the 2002 recession. And we are barely into this one. We could see the highs of the 1990 recession or even the 1982 recession that reached into double figures. The Great Depression saw unemployment of 25 per cent. [read more…]

TSX INDICES

As much as the previous week was up, up, up this past week was down, down, down. And what a down week as it lambasted even the most ardent bull. There was absolutely no where to hide. Lots of calls this week from those wishing to slit their throats, leap from high buildings or stand in front of a train. Course here we are lucky. Our office is on the second floor with a tree right outside the window and my razor is electric. So do we know any good railroad trestles? If desires of suicide are rampant can a bottom be far behind?

The TSX Composite fell a nasty 6.9 per cent this past week. We lost some 954 points. Not one sector was up on the week. Those in the gold, materials and the CDNX Venture Exchange saw new lows for the move down. The fundamentals for gold and precious metals remains very strong but the technicals are in a meltdown giving true meaning to the term “technical correction”. IS there any good news? Well yes gold, silver and PM stocks are still above their 2007 lows.[read more…]

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

In our last write-up at the end of the July we noted that the S&P 500 had major resistance at
1,310-1,315 and that this area might be a target zone in the correction that appeared to be getting underway. The high thus far on this rally: 1,313.

But the rally period may not be completely over. The action since the lows in July has clearly
been of a corrective nature. Thus far we appear to have an a wave and a b wave and the current
up wave appears to be unfolding in a five-wave manner typical of a c wave. So there is a chance
here of getting up to the 100-day MA resistance near 1,325 or in a best case to the 200 day MA
near 1350 before we complete this correction. But let’s be in no doubt that this is a corrective
wave and not the start of a new up leg, or that the decline that got underway last October is
somehow over. Elliott wave interpretation can be fraught, but we try. [read more…]

TSX INDICES

It was up, up and up this past week as the TSX Composite gained 2.4 per cent and every sub index was up. Even the TSX Venture Exchange was up for the 2nd week in a row. WE note the CDNX gave a potential bottom signal the previous week with a lovely hammer left on the chart. The hammer is a well known bottom pattern. WE can only hope so as the CDNX has been in a virtual depression the past year.

Despite the positive week there are few sectors that can be recommended as most are at resistance of their 40 week MA. We see few positive divergences on the charts so once this counter trend rally ends we expect the markets to turn back down again.

Gold of course turned down during our vacation but the Energy Index held its support zones and remains long. This is a positive development. One group that does have considerable positive divergences and may be trying to make a bottom pattern is Healthcare. However, it is still too soon tell but we will watch it. [read more…]