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Toronto Stock Broker David Chapman
February 12, 2009

A breakout over 900 would confirm the low.

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.


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...]

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