Timing & trends
Each year traders try to navigate their way through the financial market and turn a profit. But this is difficult.
The stock market provides market participants with several opportunities each. With all the holidays and climate changes the market as a whole along with specific sectors typically have seasonal rallies and sell off in price.
As May approaches many of us are starting to figure out how to play the “Sell in May and Go Away” potential move.
I cannot help think stocks will start to struggle as indexes test new highs and key resistance levels. The good news is that when money is flowing out of one investment it typically flows into another which provides us with an opportunity to make money.
Risk capital has been flowing into stocks recently but with the stock market over bought on a short term basis traders will start to protect their capital and move to specific sectors within the market to protect their capital.
Utilities have been underperforming all year and are not being talked about by anyone. This is a contrarian signal that it will likely become the sector of choice as fear creeps into the minds of market participants.
The chart below shows price of this sector is trading at the key 200 day moving average which should provide support. Also the bullish chart pattern is pointing to higher prices.
It Is The Season For Utilities!
The chart below clearly shows where price is trading today and what is likely to happen over the next 2-3 weeks as we enter May.
It Is That Time Again – Conclusion:
In short, US equities continue to be in a long term bull market. It is best to remain net long stocks as the odds of a trend continuing is more likely than not.
So I feel a great way to get involved in the market here is to get long the utility sector through the exchange traded fund XLU.
This is just one of many ways to play the market between now and the first week of May… If you would like to learn more or receive my personal trades join my newsletter today www.GoldAndOilGuy.com
Chris Vermeulen
The U.S. market has been soaring hot for nearly seven years.
On the other hand, the Canadian market has been ice cold.
In the last five years, the TSX has climbed 25% while the S&P 500 has climbed over 70%.
Yet, the TSX Venture has done nothing but drop since its peak in 2011, losing over 70% of its value.
For many of you involved in the Canadian capital small cap markets, I don’t need to tell you just how bad things have been. Some of you may have already left for greener pastures.
But for you retail investors who may not completely comprehend what’s been happening, this Letter is a snapshot of the reality our small cap market is facing.
Nearly two years ago, I wrote a series of Letters about the potential demise of the Canadian public small cap capital markets.
Via “Why the TSX Venture is Failing“:
“Most of you probably invested in a company listed on the commodities-focused TSX Venture within the last year, which means most of you probably lost some money.
On a year-over-year basis, the TSX Venture is down 30%, trading volume down around 25%, and transactions are down more than 45%.
While the commodities and precious metals market have slumped due to falling prices and rising costs, many of the companies that have fallen have not dropped because of core fundamentals.
The TSX Venture as a whole has succumbed to more than just a down-dip in metal prices or the rises in costs of production and exploration. This letter is intended to address some of the issues that have led to the crash of the TSX Venture.
These issues include how the big banks are forcing juniors out of the market, just like they have in the US, and also how one regulation has turned into a death spiral event leading to other regulations that collectively are crushing our Canadian market.
…This downturn has forced both investors and smaller institutions out of the market, leaving room only for the big boys to play.
The Canadian investment market is being changed to reflect large institutional firms that are only looking for yield products. Independent brokerage firms are drying up because funding for junior projects are drying up as investors have lost too much money to want to play again.
Much of the money remaining is now being filtered to bigger banks and bigger companies.
Juniors on the TSX Venture don’t stand a chance.
For the average junior, it costs on average around $200,000 just to maintain their listing and legal fees to keep up with regulators. That means a small junior, who just raised a million dollars, will need to take 20 cents out of every dollar to comply with security regulations.
It’s no wonder why analysts are predicting that at least 500 companies on the Venture will run out of money before the year is over. Many of these companies have less than $250,000 in the bank. Considering that it takes around $200,000 a year just to comply with regulations, there is a great chance that the analysts are right.
All of this is leading to the demise of the TSX Venture if things don’t change. All over the country, there are town hall meetings to address the issues. But who’s listening?”
It’s been two years since I wrote that piece, and sadly things have unfolded as predicted: the Canadian speculative small cap market is practically non-existent – except for a few exceptions. I’ll talk about these exceptions in an upcoming Letter.
How Bad is Bad?
One look at the TSX Venture, Canada’s small cap speculative market once thriving with capital, and you can see just how bad things have become: less liquidity, less volume, bigger spreads, and hundreds of stocks trading at less than five cents.
What’s worse is that many of the companies listed may not have the capital to pay even their auditors, which means hundreds of companies listed on the TSX Venture may not survive beyond this year. Many of them might have already crumbled if it weren’t for some leniencies granted by the exchange on which they trade on.
This is especially true for the mining and resource community, which just so happens to make up the majority of Canada’s small cap market.
In January, the TMX Group published its monthly financing statistics and noted that the TSX Venture Exchange listed 56 issuers in 2014 compared to 76 in 2013. What it didn’t talk about is the amount of companies being delisted.
But that’s not hard to find out.
Here are the total listings for the TSX Venture by year:
Based on those numbers:
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- 60 companies disappeared from the TSX Venture between March 2013 and March 2014.
- 119 companies disappeared between March 2014 and March 2015.
Since the beginning of this year, 57 companies have already delisted from the TSX Venture, 50 have been suspended, and only 12 new listings have been added.
We’re not even halfway through the year, and we’ve already witnessed almost the same amount of delistings for the TSX Venture than we did between all of 2013 and 2014.
….continue reading HERE (scroll down to “We are not alone” & “David & Goliath
The US dollar index has fallen around 3 per cent since its high the beginning of March. This past week saw the best weekly performance for the Canadian dollar in the last four years. Obviously the two events are related as one currency’s strength is another’s weakness; moreover, the question is whether the Canadian dollar is rising on its own merits, the US dollar rally is over or taking break, or perhaps, a combination of both.
The strong rally witnessed in the Canadian dollar this past week was reaffirmed by retail sales numbers for the
Canadian economy in the month of February, and core inflation jumping to 2.4 per cent annually in March. Not only do retail sales numbers suggest that the blow from an “atrocious” energy sector in the first quarter might be subdued (to borrow an adjective from Bank of Canada Governor Stephen Poloz), but also core inflation registering at the upper end of the Bank’s target decreases the likelihood of a subsequent interest rate cut. And it is both these factors that are obviously supportive of an economy that has been a far cry from inspirational.
As much as the aforementioned fundamentals can tell a story about the direction of currency markets, it’s difficult to deviate from the single most important factor in pricing the Canadian dollar over the last year, and that has unequivocally been US dollar strength. This trend has been challenged on multiple occasions over the last month, particularly this past week, which saw oil prices peak to their highest level in 2015. It was largely based of a report that production levels in the state of North Dakota (second largest producer by state in the US) had slipped from their peak. Coincidently, global oil production has risen to its highest level on record, over 1 million barrels/day more than February, and Saudi output was at its highest level in 30 years. However it was US benchmark prices for crude that led the global markets in regaining their footing.
The global supply story for oil has not changed. Especially from the standpoint that US production is not being cut back so much as active wells withholding production from the market, potentially awaiting higher prices, which could prompt a second wave of oversupply. This global commodity picture is one factor that could see the US dollar regain a second stage of selling pressure. The second is Europe.
This market is failing to get a grasp on the distortion being created from negative interest rates and how such a deflationary scenario is being created in Europe. The idea of negative interest rates ranging from lines of credits to business to 90 per cent of the mortgages in Portugal being based on a variable rate will eventually translate to real assets and their goods’ sector deflating. The Eurozone is transforming into a something from nothing economy. How growth and stability can be projected over the long term is a conundrum with interest rates where they are. If Quantitative Easing was an experiment in the US, it has become 10 times the gamble in Europe. As this risk plays out, it seems undoubtedly the US dollar will find a renewed round of strength.
The markets are setting the stage for dollar dilemma round 2. We have seen justifiable reasons for uncorrelated and negatively correlated assets rallying against the dollar, but the rationale is not convincing enough to buck the trend. An overused expression seems extremely applicable; simply put, this is a dead cat bounce.
Robert Levy
Border Gold Corp | www.bordergold.com
15234 North Bluff Road, White Rock, BC V4B 3E6
(Tel) 1-604-535-3287
(TF) 1-888-312-2288
(Fax) 1-604-535-3259
Two Stocks Under $15 Worth ConsideringJim Rogers Predicts HK Home Prices Down 50% Within 3 Years, Peg Abandoned
Jim Rogers said the Hong Kong real estate bubble has been in extreme, sharp correction is reasonable. A substantial increase in housing supply in Hong Kong “will be the decisive factor for the price.”
….continue reading HERE
Gold Price: Year 2000 All Over Again – How Will You Play it This Time?
Key Points:
- The US Dollar is trading roughly at the same level and trending higher as it was in 2000.
- Rising dollar is neutral/negative on commodity prices and resource stocks like gold miners.
- Gold price struggled as the dollar rose in value.
- Gold stocks fell sharply during the last year of their bear market.
- Gold stocks bottomed before physical gold by several months
….read it all HERE
Precious Metals continue to be a conundrum. While Gold has trended lower it has failed to break below $1100 as so many expect. It is very strong against foreign currencies and did not break to a new low even as the US$ index rallied from 87 to 100. On the other hand, Gold has failed to sustain any bullish momentum. The gold stocks are even more oversold and have formed some higher lows since last November. Yet, they have failed to sustain any bullish developments and are far from reaching a higher high. Only time will tell which way the sector will break and how its bear market will conclude.
There are several things in the chart below to discuss. Aside from the price action in Gold, we plot the net speculative position in the COT and Gold’s volatility index (GVZ). The immediate weekly resistance for Gold is $1220 followed by $1250-$1260, where there is a strong confluence of resistance. Support is at $1180 and $1150.
One reason Gold has struggled to get traction to the upside could be the relatively high net speculative
position. If the net position was much lower then Gold would encounter much less selling after every rally or pop higher. Whether by time or price, the speculative position needs to decline for Gold to have a better shot at sustaining a rebound.
Gold’s volatility has declined since last November and is nearing the important lows seen in summer 2014 and early 2013. Periods of low volatility will ultimately lead to periods of rising volatility. That can accelerate market moves. Keep an eye on May and June as to when volatility could begin to increase.
Meanwhile, the gold miners are looking more constructive than Gold and that should not be a surprise. The mining sector peaked months before Gold in 2011 and also should benefit from the collapse in Oil as well as severe weakness in local currencies.
The key for the miners (GDX in this case) is the confluence of resistance at $22.50. The 80-week moving average has been very important support and resistance dating back to 2010. If GDX can break above $20 then it would have a chance to test the 80-week moving average for the third time in the past 11 months. That would be the sign of a market transitioning from bear to bull.
The bear market in precious metals is essentially four years old and a change is soon to be at hand. The question is will it end through a slow transition in the months ahead or will it end soon after Gold loses $1150 and plunges below $1100? Either scenario presents an opportunity. If Gold breaks lower, that would ultimately provide an excellent buying opportunity. If the miners can rally up to the 80-week moving average then that would indicate the sector is in gradual transition from bear to bull. In either case, traders and investors will need to have some patience.
Good Luck!
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