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

• S&P 500 up about 1% on the week.
• Another wide ranging week with a narrow opening and closing once again suggesting
  hesitation.
• We still appear to have completed a five wave down structure from the May 2008
  highs and a possible ABC pattern from the October 2007 highs.
• Continue to form what appears as a potential head and shoulders bottom pattern. A
  firm break above 920 has measuring implications towards 1200.
• With the background news continuing to be supportive for the markets we still expect
  a breakout and run to at least into the 1050/1100 level.
• If a rally can get going a break through 900 would be positive and focus us on 920 as
  the next point.
• Failure to break through 900 suggests that the recent trading range will prevail with
  the low end of the range down around 840.
• Below 840 would spell trouble and a further test of the lows.
• We suspect that the market will be ETF driven rather than particular stock driven.
  Volumes have been high there recently.

TSX INDICES

The TSX Composite had a sideways week gaining a mere .4 per cent. 9 sub indices gained and 5 fell. The big gainers were Metals and Mining, Materials and Real Estate all up roughly 6 per cent. The big loser was Health Care down 6 per cent but they are a small component of the TSX. The Energy Index fell 3 per cent as oil prices made new lows.

We continue to see signs that we are trying to form a bottom. Many of the sub indices continue to make higher lows and with credit conditions easing and more talk of bailouts and solutions to get the economy moving again the indices improve ever so slowly. Officially no one has given us an intermediate buy signal. The Gold sub index has been the best performer by far but it has now reached to 40 week MA resistance. While the Gold sub Index gave a short term buy a few weeks ago the intermediate buy as triggered by the weekly charts is still not a officially a buy. To make in this market one must react to the short term buy but if you are purely a long term strategist then await the intermediate buy. [read more...]

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• No Technical Scoop this week.
• There will no Technical Commentary or StockPicks for the next two weeks.
• We will put out a bulletin if we see anything develop of note.
• Have a great holiday and the best for 2009.

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TGold and gold stocks have rallied strong from their recent lows. While it may be a B wave and we have some work to do before we really take off we must note that the conditions have never been better. Evidence shows that inflation or deflation gold is a hedge.

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

• It was another relentlessly bad news week for the markets but once again they held
  together. This is another bullish sign.
• A huge hesitation candle was left on the charts this past week. What that means was that
  the difference between the opening and closing prices was small with a mere .4% gain on the week, but the high point and low point were much further away. In a falling market that usually indicates to us that we are hesitating before another plunge takes place. But in a market that has already plunged and is making signs of bottoming it may be indicating hesitation before another move to the upside. We can’t guarantee that but we like the signs.
• This is option expiration week and as well triple witching. We are seeing signs that the options market makers are trying to take the market higher so we should rally into next Friday.
• Sentiment remains as gloomy as we have ever seen. Given the background news – auto bailouts, huge Wall Street fraud, plunging retail sales, rising unemployment – the gloomy sentiment shouldn’t be surprising. So why wasn’t the market plunging to new lows? These are positive divergences. As well the expectations in particular on the auto bailouts remain as expected and the bankruptcy of GM or anyone of them won’t make a difference. The market is already pricing in those collapses and their economic fallout.
• We mention the options expiration and we note the huge amount of puts outstanding at
  the 90 strike price. We know from experience that the options market makers ensure these all expire worthless. On the QQQQ’s the 30 strike looks like the expiration point. This could suggest a relatively flat market as well this coming week.
• Technicals continue to suggest that we are in the process of some bottoming but we agree
  that it won’t happen overnight.
• A small head and shoulders bottom could be forming on the S&P 500. This is a potential
  pattern and not guaranteed.
• We continue to believe that we have witnessed a five wave decline from the May highs
  and that we have completed a huge ABC pattern to the downside from the October 2007 highs. This should complete a huge A wave of a higher degree to the downside. If that is correct we are in the early stages of forming the B wave correction.
• TA breakout over 900 should help us target up to 1000 then 1100.

TSX INDICES

The TSX Composite enjoyed a 4.9% up week despite the back drop of bad news in the US surrounding the auto companies. The BofC cut the bank rate by 75 bp to 1.50% and that may have helped. The TSX was led by the Golds who jumped 21% on the week.

Not all groups participated with Financials, Information Technology, Consumer Discretionary and Telecommunications all down on the week. These groups remain toxic. The key sectors to be involved in are Golds, Metals and Mining where the dailies gave us a buy, Materials (contains both the aforementioned groups), and Consumer Staples. To a lesser extent the utilities look good and there are a number of interesting buys in the income trusts even though as a group they continue to trade weak. The income trusts are attractive because their payouts and yields are very attractive and many of them are undervalued based on cash flow and earnings expectations. But remember dividend payouts can be at risk. [read more...]

BOTTOMING PROCESS CONTINUES

The first few days of a month tend to be greeted by a somewhat positive market. The record since 1953 is that the first day of the month is an up day roughly 56 per cent of the time, though Mondays tend to be mixed, with gains only about 47 per cent of the time. And in bear markets Mondays are up only about 40 per cent of the time. The first day of December also tends to bring us an up day in the market.

Well this past week we had the first day of the month of December, in a bear market, and it was also a Monday. The markets were pummelled. The Dow Jones Industrials dropped 680 points or 7.7 per cent, the S&P 500 fell 80 points or 8.9 per cent and the TSX fell an astounding 864 points or 9.3 per cent. So much for history.

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

• The previous week had seen a huge engulfing bull candle. This past week saw a pullback
  but no real technical damage was done. Friday’s up close against back drop of relentlessly negative news was positive.
• Some fast moving weekly indicators are turning up and continued to point upward this
  past week despite the down week.
• Some shorter term indicators are giving some early buy signals. Daily MACD has turned
  up and stayed up this past week.
• We appear to be on the cusp of breaking one of the down trend lines. A move above 900
  would confirm the break out.
• Early December lows are not unusual in the market.
• We may have completed a five wave down pattern from the May 2008 highs.
• Potential target zones remain anywhere from 1000 to 1100.
• Only a firm break under 800 would signal a more serious test of the lows or even new
  lows. We doubt that at this time.
• The VXN Indicator remains above its 1997, 1998, 2001 and 2002 highs but is down off
  of a potential double top high. A breakdown under 50 could target down to 20.

TSX INDICES

After getting some relief the previous week the markets took it on the chin again as the TSX composite fell 12.4 per cent. Very few were spared although we can note the following:

• Consumer Staples and Information Technology were the only sectors to close up on the week. Interesting that Info Tech bucked the trend. Info Tech can sometimes be the early birds out of a big hole.
• New lows were seen for Telecommunications, Metals & Mining and Income Trusts. Telecommunications were a bit of a surprise given that we now have three of them in our portfolio below and all hung in nicely. We think they are buys still. Metals & Mining are struggling hugely because of the meltdown in commodity prices. But many positive divergences are emerging. Income trusts suffered but yields are now high. Expectations seem to be that many will suffer dividend cuts.
• The CDNX Venture Exchange hit new lows again. Numerous positive divergences are showing up in the charts though and we are seeing clear signs of accumulation and insider buying in a number of juniors we follow.
• Despite a down week the Gold sector remains a short term buy.

A lot of bad news was absorbed this week and we could not make new lows. A possible bullish sign? [read more...]

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• The first day of the month is usually positive. Not this month.
• The job numbers were dismal.
• Other economic numbers are telling us that we have been in a recession now for a year
• Collapse in commodity prices was astounding from a top in July. It was a crash and is actually separate from the financial panic collapse.
• All financial panics are about debt collapse. For years the warnings were there but most ignored them and the messengers were shot.
• The similarities between this bear and the Great Depression continue to astound us in terms of the ups and downs in the market.
• There are even similarities with the financial panic collapse of 1973-1974.
• The money just keeps pouring in and there is more to come.
• Some differences between Japan of the 1990’s and today. They had deflation. We have default.
• Some of the credit spreads are coming down – but only a little.
• Will Santa Claus come this year?

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THINGS LOOKING UP – A LITTLE

We are only a week or so from the lows of November 20 but seven weeks from the momentum
low made on October 10. And we couldn’t help but notice that fewer stocks made new lows on
November 21 than were made on October 10. This tells us that we are still trying to form a low of some importance. This does not rule out new lows or a test of the November 21 lows, quite
possibly even in December, but we are seeing signs that things are looking up – at least a little.

The seasonals have shifted in favour of the bulls. If the old adage of “sell in May and go away”
was particularly vicious this year, then quite possibly “buy when it snows” will counter some of
that gloom. Okay, we have seen at least one decent snowfall. So we guess that counts. But the
reality is that most bear markets end in November or early December. Tellingly, the famous 1974 bear market low was made on December 6. The momentum low was made two months earlier, on October 4.

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

• A big 12 per cent up week leaving a huge engulfing bull candle on the charts.
• Some fast moving weekly indicators are turning up.
• Some shorter term indicators are giving some early buy signals. Daily MACD has turned up.
• The previous week we did bounce off a long term trend line from the lows of 1932. It obviously proved to be prescient.
• The gloom of the previous week has not gone away. Expect a rally to eventually be met with selling especially for yearend tax selling.
• We may have completed a five wave down pattern from the May 2008 highs.
• We broke a steep down channel although more gentle down trend lines remain firmly
  above at 1100.
• The 1100 area we believe is target zone for any coming rally.
• While we would be pleased to see some follow through this week first initial resistance is seen at 970. Expect that zone to act as a first good resistance and then a retest of the breakout line at 890/900.

TSX INDICES

At last some relief. The markets closed up on the week with the TSX Composite making a 7.3 per cent gain with no new lows. A solid performance. Leading the way was two old favourites – Gold and Energy up 8.6 per cent and 20.6 per cent respectively. The big gains in the energy sector were a relief after weeks of falling and becoming grossly undervalued in relation to the price of oil and gas.

The CDNX Venture exchange also saw an 8.8 per cent gain on the week. So are commodities back? Well naturally we are not out of the woods yet but the gains coming with huge positive divergences at the lows are a relief at minimum and heartening at best.

Not everyone participated in the rebound as healthcare, information technology and telecommunications bucked the overall positive week closing lower although none of them saw new lows for their move. [read more...]

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• Lows may have been made on November 20.
• Most lows for the year are made by early December at the latest.
• Could Santa Claus bring some relief?
• Last year Santa Claus stayed away and the January effect was a bear.
• Documenting the nasty bears of the past century and the rallies that followed.
• Most ended anywhere from October to December with November being the favourite month for the final low.
• The rebound rallies can be impressive averaging gains of 77%.
• The commitments from the US Government keep getting bigger and bigger. Now $7.8 trillion.
• The fear is deflation but the real bug-a-boo will be inflation as they monetize the debt.
• Bonds have had a record rally to new highs. But it won’t last.
• Bond cycles.
• Safe havens. Gold and Bonds.

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