The Bottom Line

Chances are high that a shallow correction from a short term overbought level has started in North American equity markets. Preferred strategy is to purchase equities and Exchange Traded Funds on a pull back in sectors with favourable seasonality including silver, platinum, mines & metals, oil services, energy and materials.

A 7 chart sampling below of the 45+  Charts Don Vialoux analyses in this great Monday comment HERE.

The Dow Jones Industrial Average gained 117.29 points (1.10%) last week. An intermediate uptrend continued on a break above resistance at 10,741.98. Support is indicated at 9,835.09. Short term momentum indicators are overbought, but continue to trend higher. Strength relative to the S&P 500 Index remains negative. Seasonal influences remain favourable. Current intermediate upside potential is to 11,600. Current intermediate downside risk is to its 50 day moving average at 10,400.40.

The TSX Composite Index eased 65.84 points (0.55%) last week. An intermediate uptrend continued on a break above resistance at 12,070.20. Support is at 10,990.41. Short term momentum indicators are overbought and showing early signs of rolling over. Strength relative to the S&P 500 Index remains neutral. Seasonal influences remain positive. Current intermediate upside potential is to 12,500. Current intermediate downside risk is to its 50 day moving average at 11,647.03.

The U.S. Dollar Index added 0.94 last week. Strength on Thursday and Friday was triggered by weakness in the Euro. Resistance levels are at 81.34 and 81.47. The Index bounced from its 50 day moving average. MACD and RSI continue to trend lower from short term overbought levels. Stochastics are recovering from an oversold level. Intermediate downside risk is to the top of a previous trading range at 78.45.

Seasonal influences on the U.S. Dollar tend to peak in March and trend lower thereafter. Following is a 20 year seasonality chart courtesy of www.equityclock.com

Political events could have a significant impact on the U.S. Dollar in the months ahead. Recent actions by members of the U.S. Congress against China potentially could lead to an international trade and finance crisis later this year. Last Monday a group of 130 Democrat and Republic lawmakers petitioned Treasury Secretary Timothy Geithner to brand China a “currency manipulator” when he releases a report on the subject in April. The lawmakers are saying that the Chinese are in effect subsidizing exports by maintaining a low value of the Chinese currency relative to the U.S. Dollar. Under legislation proposed by lawmakers the Treasury Department is required to indentify countries with “fundamentally misaligned currencies” and to issue a “priority action” against them. Countries on the “priority” list could face a range of U.S. responses including a revision to dumping calculations, a halt in government purchases of goods and services and a restriction on trade finance and insurance. A prominent U.S. media spokesman said last week that the actions by Congressional members are equivalent to “poking a stick in the eye of your banker”. The lawmakers seemed to have forgotten that China is the largest holder of U.S. Treasury securities and, until late last year were the largest purchaser of Treasury issues used to finance the U.S. government’s mounting budget deficit. China owns more than $700 billion of U.S. Treasury securities. The Chinese already are responding to a growing protectionist stance taken by Congress. The February Treasury International Capital Systems (TICs) report released last week revealed that China was a net seller of U.S. Treasuries for the third consecutive month. Relations between China and the U.S. have deteriorating significantly in recent weeks due to a series of issues including the U.S. sale of weapons to Taiwan, the threat to Google’s presence in China and cyber attacks reportedly initiated in China. Chinese efforts to liquidate even a small portion of their Treasury securities could place significant downside pressure on the U.S. Dollar.

The Canadian Dollar added 0.28 last week. Short term momentum indicators are overbought and showing early signs of rolling over. Current intermediate downside risk is to its 50 day moving average at 95.87. Current intermediate upside potential is to 103.75.

Gold added $4.60 U.S. per ounce last week despite a $20.40 U.S. per ounce drop on Friday. The drop on Friday was related to strength in the U.S Dollar. Short term momentum indicators are neutral. Strong support and its 200 day moving average are at $1,044 U.S. per ounce

Seasonal influences at this time of year are random. Following is a 20 year seasonality study recently completed by www.equityclock.com

Go view the commentary and the 45+  Charts Don Vialoux analyses in this great Monday comment 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.