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It is hard to know what to make of
the volatility of a day like yesterday. The market opens with a gap lower,
around 9:50, as DC suggested they are getting close on a budget deal. The market
European banks are weak and anxiety
over tapering is up again this morning after ADP was stronger than expected. For
Canada, the BoC announces policy today and for the Canadian dollar that has been
Global manufacturing reports have
been a bit stronger for November and crude oil responded accordingly from recent
oversold conditions. We do not think for a minute that this is the end to the
What a phenomenal 52 week run! The
S&P 500 is up about 28% Y/Y and about 27% YTD. For some perspective, rate of
change is a terrible measure of potential extreme conditions. More often than
Black Friday, green
tape, blue volume, yellow signal…proceed with caution as the market likely
continues to melt up. Volatility should start to increase next week with NFP and
concerns growing over t...
The TSX has a bad day when energy, financials, and materials fall together. Yesterday was the first such day in quite a while. It looks like some profit taking is hitting the banks, some more than other...
Bank earnings start next week and for the TSX bank sector that has been on fire, it probably marks a take profits phase. One analyst yesterday suggested that all the banks would miss targets and that re...
The markets are making new highs and
the internals are getting relatively worse. That does not mean we sell
everything, but it does point to late cycle behaviour. Divergences like this can
last for 6...
So perhaps a little
confidence that Yellen is likely to get the nod as Fed chief might have stirred
animal spirits yesterday, but that is really not news is it. Slightly weaker
ISMs could be a reason...
Since the May high of
1687, we have seen 3 hiccups of about 5% each; a steeper hiccup is due on the
three steps and a stumble principle. Judging by the post FOMC minutes
volatility, the markets are s...
It feels like a calm before the
storm kind of moment. In the big picture, there are all sorts of divergences,
the most glaring in recent weeks is the underperformance of small caps (IWM)
relative to ...
Apparently Carl Ichan inspired a bearish engulfing day by suggesting that he is cautious of a big correction in equities. Looking at the tape, the market started to come off around 2:30 and the headline...
prices continue to cool, the energy sector stocks have only seen a modest
correction in recent weeks and are at the same level as the March ’13 peak. As
long as the overall market tone i...
Major divergences are continuing to build (small caps not making new highs and fewer stocks are participating), but the prospect of a continued stimulative Fed is driving the bus. We learned that the Fe...
The TSX is a lot like
the Leafs this year—moments of brilliance, but lots of inconsistency and
tendency to fade late in the game. The Leafs faded late, but the TSX did not
yesterday. The grinding bid...
Counter to our signs
of stability comment, crude oil broke down further on the back of the IEA
forecast update. Energy stocks are hanging in, but are weakening and that trend
should continue. The rat...
WTI futures appear to be stabilizing
in the $93-95 range, but potential remains high for a dip below $90 in the next
few months. The spread to WCS widened out to -$42 last week—the worst ever!
The two major TSX corrections in March to April and May to June were directional and fairly aggressive. That should generally not happen to the TSX unless both financials and energy correct simultaneous...
Minor support levels broke yesterday in almost all indexes and sectors. This should be the initial phase of a minor 3-5% peak to trough correction somewhere around 1700. With NFP likely to be skewed by ...
The current topping process seems to be more like the August peak than the October peak; this is a more traditional rolling top sort of pattern. Yesterday, the S&P 500 had the chance to make new hig...
The financials are over 35% of the
TSX. If you were not overweight the sector this year you underperformed
miserably. If you were overweight Canada this year, you underperformed mostly
everything in ...
WTI was weaker
yesterday, the S&P 500 energy sector (XLE) was responsible for most of the
gains in the US market, and the TSX energy sector was flat. There are far too
many inconsistencies in the...
The US market has an overwhelming
dip buying mentality. While many pundits are suggesting another dip is likely,
everyone wants to buy it. In fact, we do not recall reading a “bearish” outlook
in a l...
We saw more evidence yesterday that
the market is working off its overbought condition—we do not expect a correction
to take the market much below the rising 50-day average (1694). The two previous
bearish (AAII) sentiment is about as wide as we have seen it in years.
Overbought conditions are evident in many indicators. Negative divergences are
evident in many indicators. And ye...
Earnings on average
have been better than feared. The market seems to be expecting the Fed to
suggest the economy and job growth is still far too weak to begin QE tapering
today (ADP was soft relativ...
We noted yesterday that the TSX had some overbought readings. Specifically, the daily RSI hit 80 last week and was at 75 after Monday’s softer day. The past 5 buying stampedes were all followed by a cor...
The buying stampede for the TSX in
the past two weeks has been impressive. It probably means that the previous
resistance range 12,700-12,900 should now offer very strong support in 2014. The
The strongest seasonal period for the broad market typically starts in late October, but in the second year of a presidential cycle, we can expect another two dips in November and December if history is...
The correction in the energy sector appears to be underway. We expect energy prices to remain soft for the next quarter or two generally staying below $100. WTI spread to WCS widened out again yesterday...
NFLX is the prime
example of what can happen when investors become irrationally exuberant over a
story; up about 10% at the open and down about 10% at the close. This chart will
likely serve as an ex...
Breadth was soft, volume was soft, most sectors were weak. Not surprising after such a stampede in recent days. While the earnings potential suggests a probe above 1800 is possible into yearend, there a...
We were wrong, the TSX hit 13,000 before it hit 12,000. So now what? The banks are extended, that has not changed. Crude oil markets are weakening, that has not changed either. Gold popped yesterday and...
So the can has been kicked. We can see a scenario where the market rallies to new highs on earnings and then starts to struggle again as we approach the delayed and difficult decisions that Washington n...
Yesterday’s gain in
the TSX came completely on the back of the gold sector. The small gain in
financials and the small loss in energy netted out and like most days, nothing
else matters much. Canadia...
The market continues
to expect a deal soon. We expect that Congress will push the envelope and miss
the Oct 17th deadline. And the sun will come out Oct 18th and the debt will not
default. Some think...
Volume was not great given the price
and breadth movement. Often, a stampede like that exhausts within a few days or
less. Will they, won’t they is a mugs game; impossible to know when they will
So here we go…Congressional leaders are going to have high tea at the White House to show constituents they are trying. They know the drop dead date is some time after Oct 17th, so expect this to drag o...
The line broke, the
recognition trade is here. Historically, when an important trendline (a year or
more) breaks, it signifies a correction follow-through that can last days to
weeks (we can’t know e...
Reid says this, Boehner says that,
markets says…get it right boys or you will pay. We believe this will go on
longer than the Oct 17th soft date when the US cannot pay its bills. The fact
that it is ...
When a market trend is strong,
support levels do not break and resistance levels do; as we look around the TSX,
we see more support levels breaking than resistance. That does not mean we run
out and ...
The S&P 500
closed below the 50-day avg it has been flirting with for a few days. It is not
a line in the sand, but there is a major support trendline at 1665 that is a bit
more important from th...
The uncertainty factor is high. We
just completed the first leg of our tour across Canada. We met over 1000
investors; lots of cash and uncertainty. This certainly does not feel like a
top. Gold did ...
Everyone now knows
that in the past 12 instances when the government shutdown, the market was up an
average of 11% over the next year, so this market seemingly has no fear-often
that is dangerous. Ou...
The S&P 500 opened below the
50-day average and investors used the weakness to buy. By the end of the day, we
closed right on top of the support level. It looks like the government will shut
The most immediate
support for the S&P 500 is around the 50-day average (1680), which has been
broken on each of the two previous corrections this year. A break this week
would most likely accele...
According to Obama,
Republicans are trying to blackmail him over the Affordable Care Act and he will
not allow it. Not unlike with Syria, he has drawn a line in the sand in his
speech last night and ...
are evident in the number of NYSE stocks making new 52-week highs with the
market. Back in May, the number of stocks making new 52-week highs peaked at
536. At the August high, th...
The Russell 2000 attempted a break
above the post FOMC highs and failed. The S&P 500 at the time was well over
1% lower than the similar high. Small caps have been leading and relatively
bought 5% of the Ukraine to farm. The feed the world trade has not disappeared
because of a temporary drop in potash prices. This should be a subtle reminder
that the massively growing wor...
The market appears to
be failing to breakout; it closed Friday right on the previous high suggesting
this is likely a make or break week. When a market makes a new high and then
promptly moves back b...
Warren Buffett recently called the Fed “the greatest hedge fund ever.” It borrows money from its electronic printing press and leverages up the balance sheet making the “carry” on spread. Last year it g...
Usually a buying
stampede with a 90% upside breadth and high volume day is an imitating move that
suggests the beginning of a new leg higher. After reviewing research from two
very good breadth analy...
Some are arguing that the banks
(ZEB) are breaking out to new highs and that is a go with trade. For the
dividend chasers in Canada that have been hurt by preferred, telco, REIT and
utility names in ...
cash market did not live up to the Sunday night futures market highs and
generally volume was light and upticks appeared to be met with slightly more
aggressive sellers. Breadth was...
Brilliant! We just thought of a way to get
the S&P 500 to double in the next year. We need to find 100 politicians
(regulators) that the market perceives to be a problem for growth and have them
The rising 50-day average (106.48) for WTI has held support several times in recent weeks. A break of this average would be the first confirmation that a top is developing for the sector. A break of sup...
We are hard pressed to figure out what is keeping WTI so well bid. The Syrian conflict is not resolved, but has cooled. There are no supply threatening hurricanes on the horizon. Fundamentally, the US i...
Two failed breakout attempts above
$110 for WTI futures suggest a near-term top for the energy complex, but it has
not done anything bearish yet. Some analysts suggest that there is a $5-10
There are two analogue charts making the rounds that put the S&P 500 up against the price action in 1987 and 1998 prior to significant corrections. The TSX, banks, and energy stocks that have held u...
The TSX remains
remarkably strong (recently, not speaking to the underperformance for the past 3
years) on strength in financials (XFN) and energy (ZEG). We are somewhat
surprised, but with both sect...
To reiterate, we are not bullish for
the next few months. We expect a dip below 1600 (> 1500) before we see higher
highs. There is a growing view in the technical community that the four-year
Looks like the dead
cat bounce is developing as anticipated, though remember it is not always as
planned. Recall I was expecting this bounce last week before the S&P 500
broke lower to test impor...
rejection of the opening gap on more concerns about Syria reminds us that
September brings opportunity and investors need to have cash on hand or other
assets (bonds) to sell when the ma...
The S&P 500 (“the
market”) hugged the all-important trendline supporting the lows of the past year
every day last week. In fact, it broke from 1:00 to 1:15 and then again from
3:40 to 3:59 closin...
Since the June lows,
the TSX is outperforming the S&P 500 by about 3%, yet it is not even up 3%
on the year. Banks as measured by the equal weight ETF (ZEB) broke to new
multi-year highs. The Can...
The bank earnings are
in and surprising to most, they were much better than expected. But as always,
it is about the outlook, which increasingly is becoming challenging. In looking
through analyst co...
Hard to tell if it was the broad global
weakness yesterday or the reaction to bank earnings—we think the former—that
pushed banks lower. Some performed poorly in some categories like underwriting,
The evidence of weak tape is
“undeniable” and so too is the evidence that Syria had used chemical weapons.
This further supports the notion that any bounce that develops over the next
week or two is ...
The gold sector
continues to do some heavy lifting for the TSX and WTI continues to hang in.
There were a few bank analysts upgrading price targets and some discussion
regarding dividend hikes prior ...
Almost a bullish
engulfing pattern and almost a classic reversal except that volume was almost
anemic and there was no evidence of capitulation so in all likelihood, we get a
bounce and little else. ...
We think the FOMC minutes added no clarity to a market that needs it. That should lead to all sorts of speculation of will they or wont they for the next few weeks. Uncertainty is not good for markets, ...
Money flow definitely favoured the
buyers yesterday and seems to continue to trade off sentiment in the bond
market. Most of the interest rate sensitive positions bounced back yesterday.
Most of the levels
(trendlines and moving averages) in the S&P 500 that should have held
yesterday did not. The NASDAQ, that at one point was up almost 1% closed
negative at the lows of the day. ...
discretionary (XLY), financials (XLF), and health care, (XLV), three 2013
leadership sectors have all shown small degrees of underperformance in recent
weeks. Today is a make or break kind o...
The gold sector is
going up more than other things are going down so the TSX is hanging in despite
just about every other market in the world getting clocked yesterday. Verizon
cooled a bit on Canada...
Overall internals and market breadth remains weak. We are not seeing much price decay yet, but we are in the internals. Typically the price decay follows…eventually. Breadth divergences at the extreme c...
Last week’s price
action in the S&P 500 is looking like a short-term trading high could be in
place. The degree of divergences in market internals is material. In the past 2
weeks, we saw the num...
The topping pattern
in May took a few weeks to develop. Bottoms tend to develop faster in a “V”
shape where tops “WMW” tend to form over longer periods with a considerable
amount of choppiness. This ...
yields started spiking on talk of QE tapering in mid to late June, we have seen
them stabilize in the 5, 10, and 30 year terms despite the persistent
speculation. That might suggest...
factoid about the gold ETFs is that despite the recent bounce, investors are
fleeing the ETF; open interest (the number of ETF units issued) continues to
decline. That reminds us that ...
Gold is trying to
make a bottom of some sort. Both sentiment and seasonals are lining up for a
bounce, but better economic numbers and talk of tapering are headwinds that do
not make the trade an eas...
The post FOMC market
reaction points to continued confusion in the market. Looking back over the past
few weeks since Bernanke gave his semi-annual testimony (July 17-18), the market
has been in an e...
Looking at some of
the global crude benchmarks there does not appear to be an imminent collapse in
crude prices, but we have likely seen the highs for the year barring anything
supply squeeze related...
Crude oil continues to make a
reversal pattern not unlike the early phase of the reversals in 2011 and 2012.
In both cases, it corresponded well with highs in global stock markets. Obama
made some no...
Crude oil looks to be
making a reversal pattern not unlike the early phase of the reversals in 2011
and 2012. In both cases, it corresponded well with highs in global stock
markets. So we know that w...
The end of a 2 plus year
bear market for gold and gold stocks will not likely end easily. We fully expect
high volatility in the coming weeks. But make no mistake, sentiment has turned
very ugly for ...
tech sector held the S&P 500 back again yesterday as it flirted with the
resistance psychology of 1700. A close back below last week’s low of 1671 would
confirm a failed breakout in our view and...
The TSX is getting
stretched. We are a bit surprised by the degree, but not considering the
breakout to new highs in the US markets. We remain long 50% in our
trading model and are looking to exit th...
Despite MSFT, INTC, GOOG
etc… taking a licking in recent days, the market keeps ticking and looks to be
grinding up to new highs. We see another 2-3% before the risk of another 10%
plus correction de...
Yesterday was the first
indication that sellers are lining up above this market, but it was not bearish
or aggressive. We remain in a 50% long position in our trading models. The
percentage of the TS...
The market has stalled
against major resistance around 1687 in the face of earnings and Bernanke, and
despite a few pushes to the downside, the markets hung in very well over the
past two days. This ...
A little bit Bernanke
risk, a little bit earnings quality and a little bit nose bleed. We suspect that
after a day or two of digesting these “ify” things, the S&P 500 can continue
to squeeze high...
As I write this
morning on my second diet coke can, I contemplate earnings from The Coca-Cola
Company, Schwab, Mosaic, Goldman Sachs, Johnson & Johnson, and Yahoo.
Basically, everything I’m going...
The S&P 500
closed at a new high and focus has turned to earnings. So far, not fantastic,
but things are just getting started. Expectations for Q2 will see a quarterly,
year on year decline in ea...
making lots of noise about slowing growth. Chinese finance minister suggested
that second half growth would be well below 7%. Slowing growth in
China is likely to be a factor for
years to c...
The US futures market
responded very well to Bernanke suggesting no tapering on his watch, so markets
may price in some additional risk over the next few days, but keep in mind,
earnings are not like...
The market is approaching
overbought status, but we are not there yet. Most indicators suggest there is
more to go and sentiment surrounding earnings seem to suggest a test of a new
high is likely as...
We remain long the XIU in
our trading model having bought the recent dip below 12,000. Like the previous
bounce, we do not expect it to get much above the 200-day average that is now
pointing down. S...
There are enough reasons
not to like the markets. We do not think (P/E) valuations are very attractive
right now to be sure. Earnings season should prove challenging (significantly
more earnings down...