Editor Note: Money Talks highly recommends that you make a regular trip to this monday morning site to this Don Vailoux monday report where he analyses an astonishing 40 to 50 Stocks, Commodities and Index charts and, provides a “Bottom Line” and some very interesting commentary.
– a few of the 40+ charts and commentary below. Full site HERE
Platinum was notably stronger. It gained $15 U.S. to $1,486 per ounce on two announcements. Late last week, the Securities & Exchange Commission approved trading in Platinum as an Exchange Traded Fund. Demand for Platinum for collateral for the ETF is expected to increase at least temporarily. This morning Toyota announced plans to increase its production by 17% in 2010. Platinum is used in auto catalytic converters. ‘Tis the season for Platinum to move higher from the end of December to the end of May! Platinum is testing resistance at 1,514.90 U.S. per ounce. Intermediate upside potential on a break above resistance is $1,657 U.S. per ounce.
The S&P 500 Index added 24.01 points (2.18%) last week. An upward intermediate trend was confirmed on Thursday when the Index moved above resistance at 1,119.13 to reach a 14 month high. Once again, its 50 day moving average proved to be a reliable intermediate support level. Short term momentum indicators are overbought, but have yet to show signs of rolling over. Seasonal influences remain positive.
The TSX Composite Index gained another 291.21 points (2.54%) last week. Intermediate trend remains up. The Index is testing resistance at 11,816.33. Its 50 day moving average has proven to be a reliable intermediate support level. Short term momentum indicators are overbought, but continue to trend higher. Strength relative to the S&P 500 Index remains negative. Seasonal influences remain positive.
The U.S. Dollar was virtually unchanged last week. Short term momentum indicators are overbought and showing early signs of peaking. (e.g., RSI briefly moving above 70% and falling below that level on Thursday, an RSI sell signal). Significant overhead resistance exists at 79.51 and its 200 day moving average at 79.34. Money flows triggered by year end transactions by international corporations during the last two weeks in December historically places pressure on the U.S. Dollar. Thereafter, the U.S. Dollar tends to move higher into April.
The Canadian Dollar gained 1.39 cents U.S. last week and moved above its 50 day moving average. Short term momentum indicators are recovering from slightly oversold levels. Rumors continue to circulate that Canadian Dollars are being purchased by the Russian and Chinese central governments in order to diversify their currency reserves away from the U.S. Dollar. Technical signs of a move above or below its three month trading range between 92.16 and 97.69 cents U.S. are lacking.
Short term momentum indicators for gold and silver are oversold and recovering. Both are near the top of a previous trading range where support normally appears. A short term roll over of the U.S. Dollar is contributing to their strength. Growing economic demand for silver is an extra benefit. ‘Tis the season for silver to move higher!
The Bottom Line
‘Tis the season for equity markets to move higher until at least early January! Enjoy the ride. Take advantage of strength to take seasonal profits in sectors such as natural gas, agriculture and Canadian financial services. Add to sectors on weakness that recently entered their period of seasonal strength including small cap, silver and platinum.
An Outlook for the Investment Industry during the Next Decade
The past decade has been described as a nightmare decade for equity investors. The U.S. stock market is about to post its worst performance for any calendar decade in nearly 200 years. Since December 31st 1999, the S&P 500 Index has declined 23.2% and the Dow Jones Industrial Average has fallen 7.8%. Returns by the TSX Composite Index were better, but were realized despite an extraordinary period of volatility. The TSX Composite gained 41.3% since its close December 31st 1999. Will North American equity indices fair better in the next decade? The answer is “Yes”, but not without more pain during the first half of the 2010 -2019 period. Fortunately, changes in the investment industry and new investment styles will offer profitable opportunities for the astute investor throughout the next decade
Why more pain in the first half of the next decade? North American equity markets have a history of moving in alternate long term cycles lasting an average of 16 years. These cycles tend to be generational: the 1930 to 1950 period was the post depression era, the 1950 to 1966 period was the baby boom era, the 1966 to 1982 period was the skeptical era and the 1983 to 1999 period was the technology era. The baby boom and technology eras were characterized by relatively consistent strong equity markets. The post-depression and skeptical eras were characterized by exceptional volatility, but virtually no returns. The current 16 year period is following the pattern of the post-depression and skeptical eras. The current era started in 2000 and is expected to last until 2015. North American equity markets are scheduled to record another six years of high volatility and low returns.
Investors have found through experience during the past decade that owning equities, Exchange Trade Funds and mutual funds for an indefinite period of time has been hazardous for their investment health. A buy and hold investment style has been dead during the 2000-2009 decade and is scheduled to be dead for another six years.
The astute investor has learned that timing the market by owning equity investments for periods lasting two to seven months provides downside protection when markets are trending lower and upside potential when markets are trending higher. A favoured way to time the market is to use a combination of technical, fundamental and seasonality analysis. The key with the multi-analysis process is to know when to sell. All equities are bought with the intention of being sold either when the original reason for their purchase has been achieved or when reasons for their purchase have not met expectations. An increasing number of astute investors and investment advisors are expected to use this strategy during the next decade.
Investors and investment advisors will become more knowledgeable about their equity investments during the next decade. Investors want to know why they own selected investments, when to add to positions and when to sell. The internet is the answer. Access to investment information on the internet has virtually exploded during the past few years and will continue to grow at an accelerated rate during the next decade.
The use of technical and seasonality analysis will expand significantly during the next decade. Using fundamental analysis alone, when making investment decisions, was significantly discredited during the stock market meltdown from September 2008 to March 2009. Understanding investor psychology plays an important role when making investment decisions. An increasing number of fundamental analysts have been willing to acknowledge that they use technical analysis to supplement their investment decisions. The media also have given more credence to technical analysis in recent years. The acceptance of seasonality analysis remains in its infancy, but has grown significantly during the past two years.
The “compliance” pendulum toward greater regulation over the investment industry will swing back to reality during the next decade. Most investment advisors are bright, articulate and creative people dedicated to serving their clients. Unfortunately, the recent Asset Backed Commercial Paper (ABCP) debacle and a few “bad apples” such as Bernie Madoff have triggered over-regulation of the industry, particularly with investment advisors at Canada’s largest investment dealers. Net result is that investment advisors are spending more time and effort to satisfy their compliance departments and their creativity has been significantly stifled. At least some investment advisors will choose to move to investment firms where creativity is encouraged within a reasonable compliance regime.
Exchange Traded Funds will continue to take market share away from the traditional mutual fund industry. Most mutual funds on both sides of the border have a history of consistently underperforming relative to their benchmarks. A major reason for underperformance is their high management expense ratios. An increasing number of independent investors and investment advisors are choosing Exchange Traded Funds with lower management expense ratios and no limitation on timing of purchases or sales. Eventually, fees to investment advisors, who buy mutual funds for their clients, will decline and management expense ratios in Canada will adjust lower, but not without significant resistance by the mutual fund industry and Canada’s major investment dealers.
The trend toward actively managed exchange traded funds will continue. The industry currently is in its infancy in North America. Their success depends upon their low cost relative to traditional mutual funds and their ability to outperform the market.
A logical source of people, who will manage future actively managed funds, are successful managers in the mutual fund industry. Successful fund managers with good track records are out there who would love to manage their own exchange traded fund instead of participating in a larger entity.
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. 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.
Impossible! That’s what institutional investors say about “Timing the Market”. Mr. Vialoux will explain that, indeed, it can be done with the appropriate analysis. He also will explain why timing the market will be important during the next decade. Buy and Hold strategies are not working anymore; Investors are looking for alternatives. Mr. Vialoux will demonstrate four techniques that can be used to time intermediate stock market swings lasting 5-15 months. The preferred investment vehicles for investing in intermediate stock market swings are Exchange Traded Funds.
Comments in Tech Talk reports are the opinion of Mr. Vialoux. They are based on technical, fundamental and/or seasonal data that is believed to be accurate. The comments are free. Mr. Vialoux receives no remuneration from any source for these services. Comments should not be considered as advice to buy or to sell a security. Investors, who respond to comments in Tech Talk, are financially responsible for their own transactions.