The Bottom Line
Preferred strategy remains the same. Short term upside potential for equity markets into October appears limited and downside risk appears significant. Downside risk for most major equity indices is to their 50 day moving average (i.e. 3-5%). Upside potential by the end of October and into next year is significant. Weakness in October will provide a buying opportunity. Sectors that will perform best after equity markets reach a short term low are economically sensitive sectors including industrials, technology, consumer discretionary and materials.

A 5 chart sampling and the Bottom Line taken from the comment plus 45  Charts Don Vialoux analyses in this great Monday comment HERE

The S&P 500 Index gained 23.08 points (2.05%) last week. All of the gain occurred on Friday. The Index broke decisively above resistance at 1,131.23. Intermediate trend changed last week from down to up. New support is at 1,039.70. Next resistance is at 1,219.80. The Index remains above its 50 and 200 day moving averages. Despite strength on Friday, short term momentum indicators are overbought and showing early signs of peaking: RSI briefly touched 70% last week and closed at 65.99 on Friday. Stochastics closed below 80% on Friday. MACD continues to trend higher, but also appears to be stalling. Intermediate downside risk is to its 50 day moving average at 1,098.64.

The TSX Composite Index added 40.03 points (0.33%) last week. More than all of the gain was recorded last Friday. Intermediate trend remains neutral. The Index trades above its 50 and 200 day moving averages. All of the short term momentum indictors recorded sell signals last week despite gains recorded on Friday. The Index tried but failed to break above intermediate resistance at 12,321.76. Strength relative to the S&P 500 Index has turned negative. Intermediate downside risk is to its 50 day moving average at 11,850.00.

The U.S. Dollar Index plunged 2.04 (1.88%) last week with all of the decline occurring after news from the FOMC meeting on Tuesday implying possibility of a second monetary stimulus package (QE2). The Dollar broke support at 80.08. Some technical analysts are talking about completion of a head and shoulders pattern implying intermediate downside risk to 72.25. Other technical analyst note that the Dollar is about to complete a Death Cross (i.e. a move by its 50 day moving average below its 200 day moving average). Next support is at 76.60. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Gold gained another $24.10 U.S. per ounce (1.89%) last week to another all time high. Upside potential based on the previous trading range is to $1,384. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Gold bullion has a history of moving higher in September, peaking early in October, bottoming in early November and moving higher until the end of December (October is the weakest month of the year for gold bullion).

Gold Futures (GC) Seasonal Chart

…..view the entire 45 Charts analysed and Don’s comments  HERE

Don Vialoux has 37 years of experience in the Investment Industry. He is a past president of the Canadian Society of Technical Analysts (www.csta.org) and a former technical analyst at RBC Investments. Don earned his Chartered Market Technician (CMT) designation from the Market Technician Association in 1995. His CMT paper entitled “Seasonality in Canadian Equity Markets” was published in the Spring-Summer 1996 edition of the MTA Journal. Don also has extensive experience with Exchange Traded Funds (also know as Index Participation Units) as well as conservative option strategies. In 1990 he wrote a report that was released in the International Federation of Technical Analyst Journal entitled “Profiting from a Combination of Technical and Fundamental Analysis”. The report introduced ” The Eight Phases of the Stock Market Cycle”, an investment concept that continues to identify profitable entry and exit points for North American equity markets.   He is currently a member of the Toronto Society of Fundamental Analyst’s Derivatives Committee.   Now he is the author of a daily letter on equity markets available free on the internet. The reports can be accessed daily right here at www.dvtechtalk.com.