The TSX was led by the Golds

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...]