Tuesday, September 1, 2015

We may have lost another bellwether:

As sent to BNN Market Call August 6, 2015

The Markets – Too Many Investors on One Side of the Ship

An Unstable Ship: As investors chase fewer and fewer stocks ever higher the technical analyst can see the advance / decline line and the new cumulative new 52-week HI / LOW line failing or not confirming the advance of the broad stock indices.

Thinning Leadership: During the early stages of a bull market all market sectors participate (2009-2011) in the recovery from the bear market trough of 2008. The result is a high degree of sector commonality and broad leadership. As the current bull ages – (the later stages of a bull market) – investors tend to embrace the current “big thing” which currently is the hot – health care and consumer space. The result is we currently have the Toronto and U.S. Health Care, Consumer Staples and Consumer Discretionary sectors trading at all time highs and the Toronto and U.S. Mining, Materials and Energy sectors trading at or near multi-year lows.

They Don’t Usually Ring a Warning Bell: Recent investors in the crowded spaces of the health care and consumer sectors tend to be weak holders and can stampede out of a sector when alarmed by any injury to one of the sector leaders. The current and alarming drop of Apple Inc. below its 200 day moving average has the financial media buzzing and for good reason. Apple is basically a consumer related company and has only violated the 200 day only three times since mid 2003.

The 200-day moving average rule:
A long term up trend is in place if the price is above the 200-day MA – and the 200-day is pointed upward. A long term down trend is in place if the price is below the 200-day MA – and the 200-day is pointed downward
Today our chart is a weekly of the SMH displaying the mid July 2015 downward break of the 200 day (40-week) moving average. The SMH bottomed November 2008 about 4-months ahead of the broader stock indices.

Friday, August 28, 2015

When lost – follow the bellwether:

The term Bellwether - is derived from the Middle English Bellwether which refers to the practice of placing a bell around the neck of a castrated ram - (a wether) in order that this animal might lead its flock of sheep.

Question – lead to where? Green pastures or to slaughter?

When applied to the capital markets – a bellwether is usually an important stock or index – for example – the Russell 2000 – Small Caps, the Dow Transports – Economy Sensitive or the Semiconductors  In the US markets an important stock bellwether is The Goldman Sachs Group Inc. (GS) because it tends to lead the US financial space which in turn is a leader in all bull and bear cycles.

Goldman posted financial crisis peaks in May 2007 and October 2007 and bottomed in October 2008 about 4-months before the broader stock indices. Subsequent to the recent sell-off - the only other major correction was the April – October correction of 2011. The best way to ID Goldman’s bull and bear cycles is to apply a 26-week price channel test – because Goldman tends to trend within a 6-month price window. Our chart is the weekly bar of Goldman displaying the April 2011 and August 2015 violations of the 26-week low (6-month) price channel. Goldman is leading so be cautions

Tuesday, August 18, 2015

The trouble with the energy stocks:

The trouble with the energy stocks is minor if you’re a well financed energy giant such as the companies in the US listed SPDR Energy ETF (XLE)  where Exxon Mobil Corp (XOM), Chevron Corp (CVX) and Schlumberger Ltd (SLB) represent about one third of the sector by market weight. Just to stress the depth of the (XLE) the number ten by weight is ConocoPhillips (COP)

In contrast the fly weight Canadian energy space – as replicated by the iShares S&P/TSX Capped Energy Index ETF (XEG) where the relatively small and troubled Encana Corporation (TSE:ECA) and Crescent Point Energy Corp (TSE:CPG) rank high in a long list of small to micro cap issuers fighting for survival.

Our chart is the monthly XLE above the XEG where you can see troubles with the Canadian energy space (XEG) beginning from the October 2011 lows when the sector failed to run to a new 2014 high as did the SPDR XLE. Note also the long 10+years bullish series of higher lows on the SPDR XLE. The long series of lower highs on the Canadian sector XEG is likely due to the flawed belief that many components can return cash to shareholders and still grow their business. Clearly the Canadian energy complex is a train wreck.