“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman

I thought we would take a look at sector performance for 2013 to get an idea of where money has been flowing. The chart below shows the performance of the S&P Sector ETFs in relation to the performance of the S&P 500. Sectors above the 0% line have outperformed the S&P 500 by the percent shown and sectors below the 0% line have underperformed the index by the percent shown.

As of yesterday, Cyclicals (dark purple line) have been the strongest performing sector year-to-date. This is a good sign if you buy into the general sector rotation thesis which underscores buying cyclicals when the economy is growing and moving money back to defensive names (like consumer staples, utilities) during economic downturns.

For those who need more logic behind this, the idea is that some companies like Ford will perform much better in a booming economy when consumers are spending heavily. These are considered cyclical companies because they tend to outperform when the business cycle is booming. Other companies, such as Proctor & Gamble, produce products (like toothpaste) which have relatively static demand regardless of where we are in the business cycle. These types of companies generally perform better in down economies.

….read more HERE

What do you get when you cross an overbought market with too few bears? Often, that combination of complacency leads to a correction. So far, all it has produced is a lot of frustrated contrarian traders.

As of October 25, Investors Intelligence (II) % Bears extended deeper into contrarian bearish territory below the 20% level with a reading of 16.5%.

…..read more HERE

Sprott USA Chairman Rick Rule, the Carlsbad, California based natural resource financier with nearly four decades of experience, joined us for a conversation earlier today on the current mining bear market, which is approaching its third anniversary. As expected, Mr. Rule was upbeat, and sounds to be making the most of the opportunities being presented to him.

“Junior capital markets may be closed but Sprott is not. We are aggressively trying to allocate capital in this market.”

Mr. Rule’s only complaint is that issuers (read: small, pre-revenue, hope and dream mining companies) still think they are entitled to financing terms of the 2003-2010 bull market. Mr. Rule said that during that period, half of Canadian listed junior mining companies were spending more than 50% of their capital on general and administrative expenses.

“The exploration industry was stupidly overcapitalized from 2003-2010. Every truly great party causes a truly monumental hangover. We’re in that phase now.”

Mr. Rule is not at all depressed about the current mining bear market, however. He thinks that the top 10-15% of junior companies have already bottomed, and notes that discoveries, such as RMC, FCU or AOI, are continuing to reward investors with five and ten-baggers.

Rule predicted it will take another 18-24 months for resource equities to fully rebound. The largest mining companies are already starting to show compelling valuations, Rule says, which will ultimately attract global capital flows.

We were able to ask Mr. Rule about a few stocks that he’s mentioned in the past, includingFission Uranium, which he feels is being held back by a weak uranium spot price. “Unless I’m wrong and the exploration becomes less predictable, I’ll own the name until it has a different symbol.”

….3 more stocks & commentary HERE

The Secret to Identifying Opportunities in the Stock Market

Immediately following the MoneyTalks broadcast on Saturday November 9th we invite you to tune in to a FREE live webinar with our friend Tyler Bollhorn. Listen and watch from one of Canada’s top independent traders. Only the 1st 500 who register will be able to login on Saturday so we urge you to sign up today.

1. Don’t Paddle Up Stream
You can trade with the trend or against it, just as you can paddle a canoe up a river or down. It is possible to succeed by fighting the trend but it is very difficult so it is best to know how to determine a stock’s trend and whether the market is optimistic or pessimistic about the company. Tyler will show how.

2. Stay Positive
You should have an approach to the market that includes strategies that have a positive expected value. Tyler will explain what this means and how to devise a positive strategy.

3. Know Your ABC’s
Be sure to understand the importance of Alpha, Beta and Correlation when picking stocks, it can help you focus on the stocks that have the best potential for market beating performance.

4. Stock’s Aren’t Risky, People Are
Stocks are unpredictable, the only thing you can control is how you manage risk. Tyler will show how to limit losses and manage risk.

5. Let the Market Tell You What to Do
Every day there are stocks telling you to buy them, you just need a tool to find them. Tyler will demonstrate how he finds trading opportunities for both long term investing and short term trading.

CLICK HERE to REGISTER

The Bottom Line

World equity indices and most sectors have entered into a short term corrective phase. Most indices were up or down slightly, typical of markets that temporarily have lost momentum after a major upside move. Preferred strategy is to accumulate equity markets and sectors with favourable seasonality on weakness in order to take advantage of the October 28^th to May 5^th period of seasonal equity market strength.

Economic News This Week

August/September Factory Orders to be released at 10:00 AM EST on Monday are expected to increase 0.2% versus no change.

October ISM Services to be released at 10:00 AM EST on Tuesday are expected to slip to 54.0 from 54.4 in September.

September Leading Indicators to be released at 10:00 AM EST on Wednesday are expected to increase 0.6% versus a gain of 0.7% in August.

Weekly Initial Claims to be released at 8:30 AM EST on Thursday are expected to decline to 333,000 from 340,000 last week

Preliminary Third Quarter GDP to be released at 8:30 AM EST on Thursday is expected to grow at 1.9% versus growth at a 2.5% rate in the second quarter.

October Non-farm Payrolls to be released at 8:30 AM EST on Friday are expected to fall to 125,000 from 148,000 in September.Private Non-farm Payrolls are expected to increase to 130,000 from 126,000 in September. October Unemployment Rate is expected to increase to 7.3% from 7.2% in September. October Hourly Earnings are expected to increase 0.2% versus a gain of 0.1% in October.

September Personal Income to be released at 8:30 AM EST on Friday is expected to increase 0.3% versus a gain of 0.4% in August.September Personal Spending is expected to increase 0.2% versus a gain of 0.3% in August.

November Michigan Sentiment Index to be released at 9:55 AM EST is expected to increase to 74.2% from 73.2% in October.

Canadian October Employment to be released at 8:30 AM EST on Friday is expected to increase 15,000 versus a gain of 11,900 in September. The October Unemployment Rate is expected to increase to 7.0% from 6.9% in September.

Equity Trends

The S&P 500 Index gained 1.87 points (0.11%) last week. Trend remains up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are rolling over from overbought levels.

The TSX Composite Index fell 61.96 points (0.46%) last week. Trend remains up (Score: 1.0). The Index remains above its 20 day moving average (Score: 1.0). Strength relative to the S&P 500 Index changed from positive to neutral (Score: 0.5). Technical score slipped to 2.5 out of 3.0. Short term momentum indicators are rolling over from overbought levels.

….40 more charts, analysis and commentary HERE