Timing & trends

The Bottom Line: Seasonal Opportunities Coming Right Up

Downside risk in equity markets and most sectors exceeds short term upside potential. Short term weakness will provide an opportunity to enter into seasonal plays this spring including Energy, Mines & Metals, Chemicals and Auto sectors. Energy already is showing early signs of seasonal strength.

Equity Trends

The S&P 500 Index added 18.59 points (1.38%) last week. Intermediate trend is up. The Index remains well above its 50 and 200 day moving averages. Short term momentum indicators are overbought and showing early signs of peaking.

spx

The TSX Composite Index added 68.88 points (0.56%) last week. Intermediate trend is up. Support is at 11,420.78. Resistance has formed at 12,623.98. The Index trades above its 50 day moving average, but recently has found resistance near its 200 day moving average currently at 12,509.63. Short term momentum indicators are trending down. Stochastics already are oversold and showing early signs of trying to bottom. Strength relative to the S&P 500 Index remains negative.

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Gold fell $4.20 per ounce (0.24%) last week. Support is at $1,765.90 and resistance is at $1765.90. Gold is close to completing a so called “Death Cross” when its 50 day moving average moves below its 200 day moving average (Tech Talk is not a believer in “Death Crosses, but the media will talk about it). Short term momentum indicators have rolled over from overbought levels and are trending down. Strength relative to the S&P 500 Index remains mildly positive. Seasonal influences tend to peak near the end of February.

gold

Silver slipped $0.41 per ounce (1.22%) last week. Support is at $26.15 and resistance is forming at $34.52 and near its 200 day moving average at $34.96. Short term momentum indicators have rolled over from an overbought level and are trending down. Strength relative to gold remains positive. Seasonal influences are positive until May.

silver

The U.S. Dollar added 0.22 last week. Intermediate trend is up. Support is forming at 78.36 and resistance is at 81.78. The Dollar remains above its 200 day moving average and below its 50 day moving average. Short term momentum indicators are recovering from oversold levels.

 usd

The Canadian Dollar added 0.46 cents U.S. last week. Intermediate trend is down. Support is at 95.03 cents and resistance is at 101.10 cents. The Canuck Buck trades above its 50 day moving average, but has found resistance near its 200 day moving average at 100.39. Short term momentum indicators have rolled over from an overbought level and are trending down.

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The CRB Index added 3.17 points (1.01%) last week thanks mainly to strength in the energy complex. Intermediate trend is down. Support is at 292.39 and resistance is at 324.99. Short term momentum indicators are trending higher.

crb

Crude Oil gained $6.51 per barrel (6.66%) last week. Intermediate trend is up. Crude broke above resistance at $103.74 on Friday implying intermediate upside potential to $112.75. Short term momentum indicators are overbought, but have yet to show signs of peaking. News over the weekend that Iran has halted exports of oil by French and United Kingdom companies adds to a bullish stance. Seasonal influences remain positive.

crude oil

 

Don Vialoux has another 30+ charts, analysis and guest contributors HERE

 

 



An Outlook for Crude Oil

Crude oil recently entered into a period of seasonal strength. What are prospects this year?

EquityClock.com notes that West Texas Intermediate (WTI) crude oil prices during the past 20 years have a period of seasonal strength from the middle of February to the end of July. Average gain per period is 7.5 per cent. The seasonal “sweet spot” is from the middle of February to the end of May. Average gain per period was 6.0 per cent.

Strength in WTI crude oil prices during the “sweet spot” is related to rising seasonal demand triggered by a recovery in the economy following the slower winter season. Notable gains are recorded by the transportation, construction and auto sectors. Once again, demand by these sectors is expected to rise this spring, particularly in Canada, United States, Japan, China and India.

Crude oil prices during the “sweet spot” this year are expected to be impacted by several special events that have limited supply. The price of Brent crude oil has jumped more than 14 per cent since mid-December despite a gain of only 8 per cent by WTI crude oil. Brent prices have responded to a decision by European buyers to switch from production from Iran to other sources including North Sea oil. Rising Brent prices slowly, but surely, is filtering back to WTI crude oil prices.

Concern about political instability in the Middle East also is an influence. Iran has threatened to close the Straits of Hormuz if attacked. International concerns about Iran’s nuclear program likely will continue to escalate this spring. On Wednesday, Iran denied a rumor that oil shipments to six European nations had been halted due to recent plans taken by European nations to discontinue purchases of crude oil from Iran by July.

On the charts, the technical picture on WTI crude oil prices is positive and improving. Intermediate trend is up. Support is at $95.44 and resistance is at $103.74. Crude oil recently bounced from near its 200 day moving average at $94.59 and broke above its 50 day moving average at $99.32. Short term momentum indicators are recovering from oversold levels. A break above resistance implies intermediate upside potential to $112.75 per barrel.

Investors can participate in seasonal strength in crude oil directly or indirectly. The direct method is to accumulate futures and Exchange Traded Funds that track the price of crude oil. The best known and most actively traded Exchange Traded Fund is United States Oil Fund LP (USO $39.18). In Canada, Horizons offers several currency-hedged Exchange Traded Funds trading in Canadian Dollars that are directly related to crude oil futures. The indirect way to invest in crude oil is in “oily” stocks.

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oil seasonal

 

Don Vialoux is the author of free daily reports on equity markets, sectors,

commodities and Exchange Traded Funds. . Daily reports are

available at http://www.timingthemarket.ca/. He is also a research analyst for

Horizons Investment Management Inc. All of the views expressed herein are his

personal views although they may be reflected in positions or transactions

in the various client portfolios managed by Horizons Investment Management.

Mining Juniors – Massive Gains – A MUST READ

Junior Detour Gold Corp up eightfold since late 2008, Ventana Gold Corp up nearly hundredfold before a takeover. 

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Detour Gold Corp chart above

 

Peter Grandich: On January 2, in my “2012 Outlook”  I posted this commentary on what I know and believe about the junior resources industry. I thought it was so important, it is now a permanent link (on Peter’s navigation bar) called MUST READ.

Here is another article I consider a “must read” about junior resource stocks by Martin Mittelstaedt

Junior miners: The big score – and the big risk 

Detour Gold Corp. has risen eightfold since late 2008, buoyed by exploration success at an Ontario property. Ventana Gold Corp. rallied nearly hundredfold on the strength of a Columbian mineral find, before it was snapped up in a takeover last year.

With these kinds of outsized gains, investors can be forgiven for wondering where they might find the next Detours or Ventanas, companies able to turn a small grubstake into some very serious money.

The trouble is, junior explorers, while offering dramatic gains, pose a bewildering problem: The extreme difficulty of stock selection. Small mining outfits are the most common type of security listed on Canada’s two equity markets. There are about 2,100 junior mining companies in the country, outnumbering bigger mining companies with actual producing mines by nearly 10 to one.

To help investors along, here are some stock-picking tips from the pros – mining analysts whose job is to steer their clients into the most promising of the juniors.

 

….read the tips HERE

 

 

 

 

7 reasons why the Chinese are Paper Tigers

A theme being discussed more and more is the idea China is going to save us from the monetary mess in which we are now firmly ensconced.  But based on my understanding, it will likely be several decades, if ever, before the Chinese currency seriously challenges the US dollar for global reserve currency status.

“Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent’s fate.” – Sun Tzu

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However, it is not to say there won’t be a different global monetary solution in the years ahead.  It will depend on whether or not there is a repudiation of US debt.  If so, I think some new order will take place, along the lines of what Keynes’ talked about — the Bancor.  He knew early on the dangers attached to a dominant world reserve currency.  [Mr. Triffin, aka ofTriffin’s dilemma fame, warned the US would be facing structural current account deficits as far as the eye could see in its role of world currency reserve supplier.]  Thus, these two were very aware of the danger of global imbalances before it became popular in this cycle. The Great Depression was a valuable teacher for them.  

Of course history tells us global monetary systems are more haphazardly morphing events than they are planned occurrences.  All we have to do is watch the G-20 to see how difficult serious, multi-global planning can be; heck, those guys can hardly decide on what wine to serve and the order of photo ops.   

The handoff from pound Sterling to the US dollar was an unplanned evolving event that accelerated after WWI.  There was no great planning when President Richard Nixon took us off the gold standard and ushered in the error of floating rate currencies.  The gold was draining out of Fort Knox, something had to be done.  Game over.  Dirty float for a couple of years, then no pretense whatsoever of anything backing the currencies of the world’s major powers.  Just faith!  No pretense was justifiable; from that point onward money was a store of value.  Purely a unit of exchange it became.  Case closed.  

So, it leaves us where we are, as I shared with you yesterday, thanks to the excellent insight from Professor Barry Eichengreen.  Now I think it is time to explode the myth China’s currency will replace the dollar.  Many newsletter writers think that will happen tomorrow.  Proving once again newsletter writers never have to answer for their inflated farcicality. But even some serious people believe within the next decade China’s currency will rule.  I think even some serious people are wrong.  

Rather than turn this into a LONG essay, I will try to breakdown the reasons why I think the Chinese yuan is a very long way from world reserve currency status:

  1. It is never as simple as “the world reserve currency goes to the country with the largest global GDP.”  The US surpassed the UK in terms of total GDP back in the 1870s.  Yet pound Sterling remained the reserve currency for another 40 years or so. 

  2. Remember, the world reserve currency country is saddled with a consistent current account deficit. Thus, China must push out trillions of renminbi and renminbi-based asssets into the world economy.  Fine if your model is open and based on consumption.  Not so good if it is driven primarily by exports, as China’s is.  So we will need to see a big shift in China’s growth model.  That will be a wrenching long-term process.

  3. The reserve currency country must open its market to allow foreign investors to hold local assets.  This means China will have to make a complete change to its current political structure to allow much more freedoms for citizens (not only allow money to flow in, but allow its citizens money to flow out freely).  The system in place is not something that is likely to change anytime soon despite the window dressing.  The communist party still maintains absolute power, despite the comments from visitors that all they saw was free market capitalism during their trip to the Orwellian Hall of Mirrors.  It shows just how well the central committee is doing its job.  If you want a better insight into this issue, I strongly suggest you read, The Party: The Secret World of China’s Communist Rulers, by Richard McGregor.  I think this does a great job of showing us how the West in general is duped by the Chinese leadership.

  4. The US is becoming wealthier relative to China.  Say what?  All true.  The fact is since 1991, “the average Chinese citizen is more than $17,000 poorer relative to the average American than he was in 1991.” Per capita income for relatively large states is the best single determinant of competitiveness long term. So, until this trend changes, it is highly unlikely the US will give up the mantle of currency reserve status.  [See “China’s Century?” by Michael Beckley, International Security, Vol. 36, No. 3 (Winter 2011/12), pp. 41-78.   

  5. Even optimistic assumptions from those who should know, assuming China’s growth remains on track, suggest by 2035 up to 12% of global reserves may be held in yuan. [See Jong-Wah Lee, Asian Development Bank, “Will the Renminbi Emerge as an International Reserve Currency?”]

  6. Officially, all is good.  But unofficially, China may be facing its own debt bomb that could dampen growth for years, not just one or two quarters.  It happened to Japan.  Never say never! “The government’s official debt is only 15 percent of GDP, but it adds up quickly. Ratings agency Fitch estimates a bailout could cost 20 percent of GDP. Add the unpaid cost of the last bailout, debts at state-owned entities, local governments and pension liabilities, and a Breakingviewscalculation suggests Beijing’s debt rises to roughly 130 percent of GDP,” according to Reuters Breakingview. 

  7. The current attempts at internationalization of the yuan seem backwards.  Normally a country opens its capital account and upgrades its domestic financial system before attempting to internationalize its currency.  Instead China is offering bi-lateral exchange deals with some trade partners, and that gets a lot of press.  But that seems to be mere window dressing as countries are really taking up the credit China is offering.  And the developing offshore yuan deposits in Hong Kong may actually backfire, as the unofficial yuan rate in Hong Kong (CNH) is fluctuatiing around the official rate in China (CNY).  This may force China’s central bank to actually hold more dollars. 

So as much as it might be a good thing for the global economy to have a new reserve currency on the scene, it doesn’t seem as if it will happen soon enough to help in this cycle. 

 
By Jack Crooks of Black Swan Trading

The Right Strategy & How to Execute

Nothing to Fear but Fear Itself

Trading success is only partly due to having the right strategy and good knowledge of the market. Emotion plays a big role in your ability to be profitable. A trader can know the market inside and out but if fear plays a role in their decision making, they will probably not do well. Here are five common fears that we each need to learn to overcome:

Fear of Missing Out
We have all thought about buying a stock but passed on it, only to watch that missed trade work extraordinarily well. This leads us to the fear of missing out. It may be that there was a good reason for not taking the trade, but if the trade works, we are likely to break our rules in the future. This leads us in to a downward spiral toward failure.

Our trading rules are, or should be, based on testing and experience. The rules of a trading strategy are designed to work over a large number of trades, but there will always be cases where they do not serve us well.

It is important that we do not judge the validity of our rules based on what happens on one trade. To change our rules should require that we find a new set of rules that works better over a large number of trades.

When evaluating a trade, don’t think about what happened on that trade that you missed. Rely on the results of your testing which determined your strategy rules in the first place. If a trade opportunity does not fit your rules, don’t take the trade.

Fear of a Profit Turning in to a Loss
Stocks do not usually go straight up. Up trends are filled with periods of price pull backs. It is these pull backs that often shake investors out of their stock because they fear that a winner will turn in to a loser.

You have to give stocks room to move but still have a set of exit rules which will maximize profits over a large number of trades.

One of the most common reasons we exit our winners too early is because we spend too much time watching the scoreboard. All brokerages have that page where you can see what your profit and loss is for your positions. If a stock is showing a gain that then goes down, we start to attach our sensitivity to money to what is happening and that leads to emotional mistakes.

To overcome this fear, start out by not watching the profit and loss and make sure you have a set of rules for when to exit that you follow.

Fear of Taking a Loss
No one likes losing money, but losing is part of winning for all successful traders. The stock market cannot be predicted with 100% accuracy making it impossible to always be right.
What we must do is minimize the size of our losses when we are wrong. When I make a trade, I know the price point that will make me hit the eject button. If the stock falls to that price, I am out and ready to move on.

It is important to set your stop loss point at a price that makes sense. An arbitrary draw down, like a move lower of 5%, is not based on the opinion of the market. If you put your stop loss point at a price that demonstrates a negative turn for the market, then getting out will save you from taking a bigger loss and that will inspire confidence in the long term.

Fear of Not Maximizing Profits
How do you feel when you sell a stock at a profit but then watch it continue higher? For many, this is a memorable pain that sits with them the next time they have a winner giving a sell signal. Instead of exiting, they hang on for a bigger gain, hoping for the home run winner.

It is important to hang on to your winners as long as they are behaving like winners. However, when the market tells you that the trend is coming to an end, you have to take the cue and exit the trade.

If you attach goals to the stock’s performance, you take the emphasis off of the stock and can miss the message of the market. Suppose you plan to buy a new car when the stock that you have a large position in hits $5. The trade is now about the new car rather than the stock and you will likely not exit the trade until it hits your target. If the stock never gets there, you are left with a winner that turned in to a loser because you failed to do what the market told you to do.

Fear of Not Knowing
There is a lot of uncertainty in the market and many people have a hard time dealing with that ambiguity. They end up making mistakes because they do not know how to make decisions in situations of uncertain outcomes.

Trading the stock market is not a science. We cannot say that if A and B happen, C will happen, we can only say that if A and B happen, C may happen. Since C does not always happen, many people have a hard time making that decision because their personality requires certain outcomes.

To be a successful trader, you have to think like a casino owner. We do not know what will happen on the next trade but, with good strategy testing, we can know what will happen if we do the same trade 100 times. The casino owner does not know who will win the next hand of Blackjack but they do know that if they deal 100 hands of Blackjack, they will make a profit. We have to put our confidence in the averages and expected outcomes of our actions, and not judge our success one trade at a time.

Strategy of the Week

This week, I just looked at a lot of charts to get a feel for the market. In general, it was a quiet week as investors seemed more interested in digesting the recent gains than taking new risks ahead of the Greek debt solution that is expected for Monday. North American markets are closed on Monday so we will wait till Monday to see the reaction from what happens in Europe.

My Market Scan this week was to look for stocks trading at least 1500 times in Canada or 2500 times in the US, focusing me in on the most active issues. Most charts were quiet but Energy stood out with Uranium and Oil and Gas stocks performing well. Below are two picks from those sectors.

1. T.UUU
The Uranium stocks were beat up by the Japanese tsunami in 2011 and it has taken almost a year for them to stabilize and start to recover. T.UUU is breaking from a rising bottom this week, a sign that the buyers are taking an interest in the stock again. Volume was strong on Friday, supporting the upward move. The stock has support at $2.65.

t.uuu

2. T.TLM
Oil made a good move to the upside this week and that helped many oil stocks look better. T.TLM (TLM) made a break of its long term downward trend line this week and looks like it is in the early stages of a long term trend reversal. Support at $11.95

t.tlm

References

 

  • Get the Stockscore on any of over 20,000 North American stocks.
  • Background on the theories used by Stockscores.
  • Strategies that can help you find new opportunities.
  • Scan the market using extensive filter criteria.
  • Build a portfolio of stocks and view a slide show of their charts.
  • See which sectors are leading the market, and their components.


    Disclaimer
    This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.

 

 

 

Market Buzz – A New Breed Dividend Payer’s

Market Buzz – A New Breed of Small-Cap Dividend Growth Stocks Lead the Charge in 2012


2011 proved to be another very tumultuous year for both the Canadian and global markets in general. But, in the wake of the 2008 credit crisis that froze capital, seriously eroded confidence in financial institutions and the ability of our leaders to act effectively is nothing new.

With Western economies awash in debt, both public and private, the great deleveraging has just begun. Volatility is here to stay in equity markets – so get used to it.

Fortunately, over the course of 2011, a number of strong themes began to emerge and gained momentum into 2012. The first being a return to dividend paying stocks. The excesses of the preceding two decades led to the pursuit of growth as a panacea of stock valuation. The promise of future growth was intoxicating for investors and the multiples applied to the growth element of a company far exceeded any premium put on a company that thought it appropriate to actually “return capital” to their investors.

In fact, there have been several periods over the past 20 years when a company was actually given a lower multiple after instituting a dividend policy as analysts then perceived the company was signaling to the markets that the company had no better use for its capital. As such, there was little growth potential left in the company and it was now a “stodgy old dividend payer.”

But this has changed. The reasons are varied and include a low rate environment, which makes dividends or distributions very attractive; distrust of management’s stewardship of capital and a need to see “cash in hand” to keep cash generation a focus; a lack of growth opportunities as the global economy grinds lower; and for Canadians specifically, a lack of alternative income generating vehicles following what was essentially the end of the business trust segment.

Our Income Stock Research performed incredibly well in 2012. What was more a surprise was that the trend did not end at with traditional cash cows such as utilities, telco’s, and pipelines etc. Within our Small-Cap research, growth companies who managed their cash flows effectively enough to paid decent dividends also produced strong returns in 2011. Included in this list are familiar names such as Enghouse Systems Limited (TSX: ESL) (initial IWB positions established in the $8.00-$9.00 range),

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MOSAID Corporation (TSX: MSD), and Boyd Group Income Fund (TSX: BYD.UN) (initial IWB positions established in the $5.55 range), which each saw their shares rise over 50% (in the case of the latter two, over 100%).

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Today, an announcement of a dividend policy or the upping of a dividend is again met with cheers from the market and we often see immediate gains – and rightfully so. What greater confidence can a management team show you as an investor than that the underlying business is generating more cash that can be paid back to you.

While growth is an essential element in our small-cap research, we have always found it prudent to invest in a basket of what we call “dividend growth stocks” and will continue to emphasize this, although not exclusively, in 2012. In the universe of investing, companies that are able to grow their dividends add an interesting dynamic to a portfolio. A growing dividend means that the income yield on the original investment also continues to grow over time.

For example, a company with a $10 share price and dividend yield of 5% will yield almost 6.7% on the initial investment after five years, if they were to grow their dividends at 6% per year. Dividend growth investors also stand to benefit from potential upside in the share price. A company that is growing their dividend in a sustainable manner will typically generate share price appreciation at the rate of dividend growth or even higher. In this scenario, if the stock in the example would appreciate almost 34% over that five year period, the company is able to grow the dividend at 6% per year. In essence, dividend growth stocks provide investors with three different sources of return – the initial dividend yield, the dividend yield growth, and the share price appreciation.

Be it in growth names or traditional cash cows, the demand for a return of capital continues to grow and we see no end to it in 2012.

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