Golds are leading the way as the only sector to be in.

IT’S A DEPRESSION!

This past weekend, visiting our local Chapters book store, we were struck with the large display up front of books telling us about the new depression, how we got there and how to survive it, books about the Great Depression and a host of others. Bemused by the entire display, we decided to purchase I.O.U.S.A. One Nation. Under Stress. In Debt (Addison Wiggin and Kate Incontrera, John Wiley & Sons, 2008). I.O.U.S.A. is also the name of a documentary film that was recently shown both in Canada and the USA and was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival. The book comes from the folks who bring us The Daily Reckoning.

It should come as no surprise that there are those out there who believe we are headed into another Great Depression. It is also no surprise that there is an even larger body that are in denial of the collapse that has taken place and there are those still issuing rosy forecasts of a short painful downturn followed by a quick robust rebound.

Our original thoughts on this collapse were that it will be a long drawn out affair but not necessarily a full blown depression. That might still be the case but there are now growing signs that this could indeed turn into a depression irrespective of the attempts of the monetary and fiscal authorities to bail us out with massive spending plans and interest rates plunging to zero. There has been a number of write ups of late from what we would refer to as mainstream economists citing numbers that would support more the likelihood of a possible depression.

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

• For the third consecutive week the S&P 500 closed lower.
• Despite the lower close the S&P 500 twice reversed back to the upside after being down
  earlier in the day. One could construe this as somewhat positive.
• Despite the (finally) inauguration of Barack Obama the market greeted the new President
  with a large raspberry.
• Despite testing the 800 area the zone has thus far held thus telling us this is an area of
  support.
• Resistance is at 840 and then 880.
• Above 880 the final major resistance is at 900/920.
• 920 defines what might be the neckline of a multi month head and shoulders pattern.
• A solid breakout over that level and if the H&S pattern is correct we could project up to
  1200. Remember the H&S pattern is a potential pattern.
• A breakdown under 800 would suggest we could fall to 660/700 and see new lows below
  the 741 November lows.
• Recall that in 2002 the market made a series of three lows – July 2002, October 2002 and
  March 2003. This time the time frame is tighter October, November and now January but there are some similarities. The crash low was October just as the July 2002 lows was the crash low even if the following low did go lower .
• Indicators have been rising since the July low which was also the high for the VIX
  indicator.
• The weekly MACD has crossed to the upside and the recent pullback has not as yet
  pulled it back under.
• The commercial COT for the S&P at 47% is mildly bearish.
• The S&P 500 is at critical support. A further failure here could potentially send us to new lows. A recovery of resistance at 840 and 880 would be very positive and above 900 we could be poised to breakout for our much anticipated first quarter or so rebound.

TSX INDICES

It was a bad week for the markets. The TSX Composite fell 3.3% and 10 of the 14 sub indices closed to the downside. The TSX Financial Index saw slight new lows and lost 9.8%. The big performer was the Golds with a big 10.4% jump and they have officially given us an intermediate buy signal. Let’s hope it can hold. Golds are leading the way as the only sector to be in.

Despite the pullback the TSX Composite managed to have the MACD indicator stay positive. We got a crossover a couple of weeks ago and it is holding. If we turn up again it will be quite positive.

The other positive sectors were Materials (no surprise given that the Golds are a major component), Information Technology (usually an early leader), and Consumer Staples (again no surprise as the food stuffs are the staples of a recession).

All other sectors were down and the Energy sector continues to have difficulties. They fell 12.2% a nasty drop. Still the patterns on the energy sector continue to look positive. [read more...]