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

• The S&P 500 fell a sharp 6.9% on the week following the previous week’s 4.8% decline.
• Plans to recapitalize the US banks has the market gasping for air.
• All the economic indicators continue to be gloomy with few if any signs of a recovery or
  even a bottoming.
• The stimulus package was greeted as if it was due for a Razzie rather than an Oscar.
• The banking sector (see below) is leading this market lower.
• The US banking system is effectively bankrupt.
• The plans from the US Treasury are vague and Treasury Secretary Geithner’s performance has been hugely underwhelming. He may have to go before he drags the Obama administration down with it.
• The S&P 500 broke down out of a triangle pattern and broke below 800. Negative developments.
• New lows are a clear possibility.
• Targets are 600/650.
• While the seasonals are supposed to be positive during this period our thoughts on a high
  in April are now looking like a low.
• Investors should watch their positions carefully and lighten up on any profitable positions
  acquired over the past few months.
• The DJI lows of 2002 were 7177. At lows Friday of 7226 we are within 50 points of taking them out. Expect them to fall.

TSX INDICES

It was a terrible week for the markets unless of course you are a believer in gold. The TSX Composite fell a sharp 8.4% and with the exception of the Gold Index all sub indices fell. Three hit new lows – Financials, Income Trusts and Utilities. Others are perilously close to new lows as the TSX Composite itself is a mere 200/300 points off of its November lows and it does potentially seem quite possible that we will now see new lows.

With the Gold Index being the only one gaining this week as Gold itself briefly topped US$1000 it is a reminder that this sector is now taking on the attributes of a defacto currency. Even with the Gold threatening new highs in US$ terms the TSX Gold Index remains just over 11% off of its March 2008 highs. Gold hit new highs this past week in Cdn$ at over $1250. Indeed Gold has been hitting new highs in almost any currency you can name. An exception is Yen due to Yen strength against the US$ and of course we are now just below the US$ highs. But we expect these levels to fall in the coming weeks.

The real danger now in the market is that we will see new lows in almost all the sub indices. Even the Consumer Staples who have been an area of strength weakened this week and broke down from an up pattern suggesting a move to the downside once again. The up daily signal for Consumer Staples was changed back to a down..[read more...]

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

• The S&P 500 fell 4.8% this past week. This was a disappointment following the strong
  up week the previous week.
• The major catalyst was Treasury Secretary Geithner’s bailout plan suggesting the cleanup plan for the US financial sector could easily be $2 trillion. There was also the talk of the release of the remaining TARP money of $350 billion. The plan would allow for stress testing of institutions, selective capital injections, the ability for FDIC to dismantle some badly troubled institutions (meaning forced bankruptcy), guaranteeing bank debt, trying to lure in private capital (with juicy dividends on preferred shares). Shareholders would be largely wiped out.
• The market gulped.
• Friday the 13th was largely a non-event as the stimulus package was the only major news and the market drifted lower. This weekend is the G20 meetings. Don’t expect anything exciting.
• There is thoughts (again) that General Motors will go into bankruptcy.
• The market is just drifting in here.
• The key support remains at 800 for the S&P 500.
• IMajor resistance is clear at 870 and then again at 900.
• IOnly above 900 do we have a real chance of turning this market bullish and achieving our
  targets up near 1050/1100.

TSX INDICES

The TSX fell 3.7% this past week continuing a pattern of up and down weeks that we have witnessed over the past several weeks. Seemingly we are just spinning wheels sitting just 6.9% off of the November low weekly close. The high was made into the first week of January and we are now down 4.5% from that high weekly close. Still what this could be is a B wave after the first wave up out of the November lows. So it may not be as bad as everyone thinks.

Only 4 sub-indices had up weeks and it was the usual suspects. Gold, Materials, Telecommunications and Consumer Staples. The worst performer on the week was the very weak Financial Index down over 8%. Another group up on the week was the TSX Venture Exchange. Indeed that exchange is making a lovely rising pattern and that is very bullish. So for the brave, the speculators and those that love to roll the dice it may mean some good news coming for your favourite penny stock. We are encouraged.

A note on our strategy since some have been asking. This response covers the strategy column for both the TSX Composite below and the ETF’s. Our strategy and market timing is based off of the intermediate signals only. So until the intermediate signals turn positive and give us a buy signal our strategy will remain in stand aside mode.[read more...]

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

• Last week there was a bullish close on Friday. The omen was good and the follow
  through this week saw the best gains in 6 weeks.
• On Friday we were up despite the background bad news (the jobs reports). Rallying in the
  face of bad news is a positive development.
• We are making higher lows. This has been the third thrust to the downside in the past five
  months with lows seen in October, November and possibly in January/February.
• Given the potential for the third important we are reminded of the market making a series
  of three low in 2002/2003 in July, October 2002 and March 2003.
• A breakout over 900 would confirm the low.
• We are making a potential large head and shoulders bottoming pattern. The neckline is
  around 900. The potential H&S pattern has measuring implications to the 1100/1200 zone.
• Support is developing in the 800/820 zone.
• IThe VIX indicator remains in very oversold territory hovering around the old 1997, 1998,
  2001 and 2002 highs (lows in the markets). The double top formation is still pointing to an ultimate target of around 20 on the VIX.
• Indicators have continued to improve and have been making positive divergences.
• Cycles are still pointed up and this rebound could continue in an irregular manner into
  April and even into July 2009.
• This is a bear market rebound and not the start of a new bull market.

TSX INDICES

The TSX Composite put in a solid 3.6% up week led by the Metals & Mining sector who was up just over 20%. Ten of the fourteen sub indices joined in the rally with only Consumer Staples, Health Care, Income Trusts and Utilities failing to join the rally.

We believe this could be the start of our long awaited first quarter rebound. We managed to close over the 13 week MA for the first time in five weeks and for the first time solidly since July 2008. Golds continue to lead the way but we are now getting buy signals at least off of the dailies for Information Technology (we added some stocks below), Industrials (Bombardier BBD.B is looking interesting), and Metals and Mining (we added some there as well). Material stocks are perking up and we added Viterra to our picks below.

The CDNX Venture Exchange is clearly showing signs of life and for those who have been following it they will know that a number have made some good moves in the past few weeks. Our old favourite Explor Resources (EXS/V) has more than tripled from the lows and we are awaiting news hopefully next week. This is not atypical of what these little juniors can do. They are extremely volatile and were hammered on the downside (below value in the ground and even in some cases below cash value) but they can also recover very quickly. We haven’t added any to our portfolios below preferring to keep officially to the bigger cap stocks of the TSX. And adding those that will pay us with dividends..[read more...]

IT’S A BAILOUT WORLD!

If anyone had any doubt about the enormity of the financial crisis gripping the world, look no further than at the amazing conversion of Canadian Prime Minister Stephan Harper and his Finance Minister Jim Flaherty from small c, small government, fiscal conservatives to big spending, big government, deficit hawks. This is not a comment on the actual merits of the budget; merely a note that Harper and Flaherty have joined the bailout world, even if it seems to be with some reluctance.

Trying to get a handle on the size of the bailouts everywhere The Toronto Star printed a “bailout primer” the day after the budget. While it covers only five nations it is illustrative. We summarize much of it below. All figures are US$ billions.

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

• For the fourth week in a row the S&P 500 closed lower.
• The S&P closed down on the month 8.6%. The DJI lost 8.8%.
• According to the January effect barometer the direction of January determines the
  direction for the year.
• Since 1950 the record is 91.4% accurate.
• Down Januarys indicates a down year.
• Up Januarys indicates an up year.
• In 2008 January was down. 2008 was down.
• In 2007 January was up. 2007 was up (very slightly).
• They also say the top 10 performing sectors in the S&P 500 in January outperform over
  the next 11 months.
• So you might want to own – materials, industrials, consumer staples, utilities, healthcare,
  technology, and telecommunications but definitely avoid financials and insurance.
• February is not known to be a good month for markets often the weakest in the
  November to May period.
• S&P continues to make might what be a head and shoulders bottom.
• But we caution the downward sloping neckline could also be a descending triangle.
• We got over some resistance at 840 and even 860 but failed to hold it.
• Support lies at 800. A break under 800 would seriously have us looking at the November
  lows again and possible new lows.

TSX INDICES

The TSX Composite put in a meager .8% up week with 7 of 14 sub indices closing up on the week. The gain on the week was not thanks to the Gold sector which after making new highs closed lower on the week. While this constitutes a reversal week it doesn’t necessarily mean the run in the Golds is over. Key will be the next few weeks. They just finally gave their buy signal only a week ago and reversals just after getting the buy signal is not unusual. It has been quite a run from the lows. We will watch closely.

The small up week saw ups this week from Consumer Staples, Financials, Healthcare, Information Technology, Real Estate, Telecommunications and Utilities. If the advance is to continue we need some leadership there. In particular we need the financials moving higher. Healthcare and Info Tech may be an indication that the rally will broaden further.

The TSX Venture Exchange enjoyed another up week gaining 2.7%. The venture exchange is showing some outperformance signs of late .Certainly the beat up junior mining sector which never gave up its solid fundamentals needs a reprieve here. Might need some more work on forming what may be a bottoming head and shoulders pattern.

We continue to remain optimistic on the market going forward despite the steady stream of negative news in the background. Possibly with the market trying to eke out gains in the face of the relentless negative news is a sign of this growing positiveness.[read more...]