The Canadian market – Quick Comment November 20, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

I would like to say a few words about risk management. At this point in the game, the reward has been “fabulous” to say the least at least for those who recognized early in the game the change of the major trend.

As the TSX bullish % is suggesting, one needs to not be greedy here even though I am still projecting the TSX just above 13,000 and focus on protecting capital if the psychology of the crowd changes. This can happen on a dime. So please be prepared because this market may be running out of gas for awhile.

But what will be the signal? A break below 11,500 should be enough to expect a more significant correction than the ones we have seen throughout this uptrend leg. Why? Just look at these three different (Boxes are quite different in the first two while the third is an intraday chart) charts. They are all saying the same thing and this is a rare occasion:

The Long term traditional Point and Figure chart (box 50 rev 3)


Please “click” on the image for a larger view

Remember that this is the long term trader’s point of view. We have a broadening formation that can move either way and thus is somewhat unpredictable. Our channel methodology is on a count of +4 which is still positive. Support is 11,500 [EY-80] which would score a -1 and a breakdown from double bottom at 11,350 would score a more convincing -2. But do I want to wait until then. No, because:

The Intermediary term user defined Point and Figure chart (box 25 rev 3)


Please “click” on the image for a larger view

This is the intermediary term trader’s point of view. As I write this the market is trading around 11,500 which is support. This guarantee that we will have a reversal into a column of “O” which means that we will have a lower high and a score of -1. The double bottom breakdown would give us a score of -2.

The Short term intraday Point and Figure chart


Please “click” on the image for a larger view

This is the short term trader’s point of view. We already have a lower high which gives us a score of -2. A breakdown below support would be a -3 which is quite strong for this investment horizon.

The important point here is that time frame agree on the risks and you should be aware of that.


Pierre Brodeur ( The Word )
therealword@gmail.com

The Canadian market – Weekly Comment November 15, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

This week, I don’t really have a lot to say about the market at least “technically”. I has behaved as expected and I hope you positioned yourself long when we had that breakout I alerted you to a few weeks back.

I will therefore cover the long and short term trend and discuss flag strategies in a bull market.


The Long term traditional Point and Figure chart


Please “click” on the image for a larger view

The correction that many have been expecting for months is happening right now. It is not a correction by amplitude (i.e.: -10% or -15%) but rather a correction by time. There is no double top here as I have read elsewhere. We have a plain vanilla holding pattern with buyers at the bottom and sellers at the top. This will go on until we get a breakout from this pattern. But this new base is building a lot of energy either on the upside or the downside. I believe the upside will eventually win because of the current favorable technicals.

What has changed is that the upswing in column EV is so powerful that one can expect a price objective of 13,150 which is a repeat of the previous down leg low projection of 13.200.

As long as channel support at 11,250 [EV-85] holds, there are no reasons to worry especially since the rising MA50 is near

The Short term intraday Point and Figure chart


Please “click” on the image for a larger view

In the short, we do have a downtrend with lower highs and lows. The market closed at channel resistance of 11,400 & a breakout Monday would give a score of +2 suggesting that a breakout above double top of 11,450 should be bought. Only a breakdown below channel support of 11,275 would trigger some hedging as I am currently long and have been buying on the pullback when I received my first positive signal (+1 at [EV-104] when the low of 11,325 stood strong near the end of the day Friday.

Looking for Flags

In my twitter comments, I have recently been talking about stocks that are in flag formations. In a bull market, many stocks correct their uptrend in an orderly way with flags which are usually continuation patterns, at least in my book. I love to buy flags because they correspond to my approach of buying “value” when it is offered to me. I also buy into breakouts but the long and short targets must be high enough to provide me with a good risk return opportunity. On a very short term view, this is what a flag looks like in Point and Figure:


Please “click” on the image for a larger view

If you are a short term trader and you follow the point and figure raw discipline, you would have sold on the first breakdown at $21.50. But I don’t use a pure P&F discipline because there are many whipsaw signals and I don’t like my broker to become rich on my too many trades, a lesson I learned years ago.

We need to look at the psychology of flag formations by using the traditional point and figure chart below for the same stock:


Please “click” on the image for a larger view

First of all, I will not discuss the interesting formation that I highlighted in blue. Perhaps another day. You can see two flag formations for this stock. On the first one we actually had a lower high and lower low. That does not always happen. The lower low always happens but not the lower high.

In bull markets, for stocks that are more volatile than the average, you will often live through false sell signals which are called bear traps. The stock broke out above double top at $20, made a new high at $23 and then corrected back with a double bottom ($18.50) sell signal at $18. That’s a bear trap and in my model, I always look for those and more often that not, if I own the stock I will not sell on this signal. Typically because specialist love to make money on your back, my stop is always below the first breakdown point.

At this point, you can see that the stock reverse back up to a high of $20 and closed at $19.49 Friday. You can “feel” the pressure from the bears that are now anxious to sell at this stage. The strategy is therefore to pick up the stock at or near the current support of $18 if the risk return ratio is positive (pre-requisite: resistance of $23 is far enough and longer term target is achievable $29).

What happens he we get another breakdown below support at $18?

-1- I will have a current cost between $19 and $18
-2- I will not sell on the second breakdown at $17.50
-3- The flag is still in effect until the stock reaches $17.00 at which point you need to exit this trade.
-4- I loss somewhere between 7% and 8% on that trade.

But the reality is that about 70% of the time, the breakout will be on the upside and that is why I trade flags on bull markets.

Hopefully that answered some e-mails I received…

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

And in the final MINUTES of the day ...

The Bulls took over control and we have a very strong breakout...!



Remember, you are aware before the crowd...
and my old chart now looks like this:



Pierre Brodeur
therealword@gmail.com

Quick Comment November 5, 2009

We are in a battlefield and Point and Figure clearly shows the line of attack (or defense) depending on your point of view. For the record, I am still bullish but that does not really matter, does it?

The following chart shows that all this week, the BEARS have been protecting their territory as Bulls have been unable to cross that famous bearish resistance line. That's what I am watching like a hawk right now.


Please “click” on the image for a larger view

A CLEAR break above 11,150 will determine that the bulls have won the battle, A breakdown below the triple bottom at 11,050 will be bearish in the short term.

Why am I bullish will you ask?



Please “click” on the image for a larger view

The chart above shows that the recent uptrend from the low of 10,750 was so dramatic that
level 12,000 can now be reached as shown by the projection.

Interesting...!

Pierre Brodeur
therealword@gmail.com

The Canadian market – Weekly Comment November 1st, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

Thursday’s rally from a bottom of 10,825 to 11,075 was interesting but not impressive because there has been a lot of technical damage in the short and intermediary term while the longer term demand is somewhat below current market levels and catching up.

-1- The 20 days moving average (11,310.53) is quite above current levels and is now declining. There is no rush to buy for the short term trader.

-2- When the 50 days moving average (11,203.76) was broken, the whole world knew that the intermediary trend was now down. Readers of this blog learned that before when the short term bullish support line was broken at 11,375.

The Short term intraday Point and Figure chart


Please “click” on the image for a larger view

We are now under the major influence of a bearish resistance line currently at 11,350 (Large red arrow). The last signal was given Friday and was a double bottom (10,825) breakdown (small red arrow) which was subsequently reversed with an upswing that closed at 10,900.

For a swing trader like myself, this is not a pretty picture and there are no special reason to do anything until the market tells me to. That will happen if the market is able to break above channel resistance at 11.025 (white X in a blue background). We shall see Monday…

The Long term traditional Point and Figure chart


Please “click” on the image for a larger view

I have more to say on the longer term chart above because it evaluates what institutions are thinking and I definitely listen to their message. There are many observations on this picture:

-1- Friday, we received a second longer term sell signal when the market broke below double bottom (10,850) support. This breakdown is actually quite important to me because my initial price objective of 10,850 [EG-93] was also broken. That means that I now have to take column ES and make a new projection of 9,400 [ES-122]. That feels like the movie “2012” and as a bull, I have to notice the risks at this stage of the game.

-2- Perhaps the price objective is too aggressive but it is telling me that any major event (which I will discuss later) from today on would produce a larger correction which would probably retrace about 50% of the last up leg. Look at the Fibonacci 50% retracement level on row 120. That could become the most likely target.

-3- But some will say that the famous 200 days moving average near 9,900 [Row-112] is the preferred level of support for this bull market. I can accept that argument as well. If we use that as the most likely scenario, we are 8.8% away from that area and the correction which started with a top of 11,600 will have been about 15% total. So we would be about half way in this intermediary down trend.

-4- Whichever option you believe in, you must now watch the bullish support line which is currently at 10,650 [Green arrow at EU-97] because if that is broken we really will aggravate the situation. The institutions will decide, they always do. It is now clear to me that they have been using the double top levels (see the upper purple dashed line at the top of the chart) to distribute stock aggressively. Somebody has been buying at 10,900 [EK-92]. Will somebody start buying now that we are a value levels near 10,800? We shall soon know if the institutions that have a lot of cash to spend are willing to arrest this downtrend or whether as a group they have become cautious. 10,650 is the natural area where the bulls will open their purse. We will know this week if they will win the game.

The risk profile suggests prudence.


Please “click” on the image for a larger view

I would like to leave you with the TSX bullish % chart which clearly shows that the market has been trading in overbought territory for quite awhile now. But what is more important is that we are currently in a column of O which means that we should avoid equity risk and protect our capital at all costs. If you follow me on twitter, you know what my current Asset Mix is currently. In essence, I am fully hedged after spending the week with a large short position which I covered in the last 10 minutes Friday because the odds are that bargain hunters should come in Monday in the short term. But if the bullish percent value drops below 70%, I think my “2012” movie scenario will become more likely…!

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

The Canadian market – Weekly Comment October 24, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

First of all, please be advised that for a strange reason the system no longer alerts me when a reader posts a comment. That explains why I have been late replying to your comment(s).

Last week, I focused on the longer term picture of the Canadian market. The market had closed near a double top of 11,500 and we evaluated the bullish and bearish scenarios. Subsequently, the market decided to issue a second buy signal with a double top (11,500) breakout at 11,550 which for now can be considered a bull trap because:

-1- It never reached our channel resistance projection of 11,600 generating a third (-3) signal. Remember that I am constantly measuring the strength of the short term trend with the channel methodology.

-2- After the breakout, it promptly reversed into a column of “O” and established a new higher low of 11,400. This actually generated a new +1 channel signal when the market moved up Thursday back to the breakout level of 11,550.

But Friday, the market reversed down again and that will only show up on the chart Monday if the downswing continues. So now the critical points are Support at 11,400 and resistance at 11,550 and since the market is moving + or – 156 points a day, Monday should be the critical day to see who has control.

This week, I would like to focus on the shorter term trend because that is really where the action is. The next chart measures the activity of the less influential short term traders who will have to cope with a very dangerous situation Monday.


Please “click” on the image for a larger view

The danger comes from the short term bullish support line being at 11,350 [DV-101]. All day Friday, I had my fingers very close to the “hedge” button. By that I mean that when a short term trend is confirmed, I do not sell my long positions because we are in a bull market and my stop loss process will take care of the specific stock situations, but I purchase Horizon double beta shorts to freeze any capital gains that I have on my longs. The market played with my nerves but never broke to 11,350. Why is that level so important to me? We would have a second double bottom (11,375) breakdown (the first was at 11,475 [DT-96]) which would suggest that lower prices might be forthcoming. But that is a weak signal but enough to start hedging.

The real signal would be a breakdown below 11,350 because:

-1- It breaks the bullish support line

-2- The bullish line breakdown is CONFIRMED by the very close double bottom (11.375) breakdown just above.

-3- The channel support (white O in blue background at DV-101 did not support the downtrend demonstrating that the bearish short term traders have taken control of the situation.

Remember that Friday’s lower top at 11,550 [DU-93] confirmed the new short term downtrend. If that bearish scenario materializes Monday, it will also shatter our first short term downside projection of 11,350 [DR-101] and the new live down swing from 11,550 to 11,375 in column DT will now become the new base for a downside projection of 10.975 at DT-116.

But some market participants will get nervous when the 20 days moving average at 11,368 is broken and a lot more people will start unloading stocks at 11,117 which is where the 50 days moving average (where most market participants evaluate the intermediary trend) is currently.

These are interesting times and for the record, I “hope” that the Fibonacci 50% retracement level at 11,300 will hold as support as I mentioned last week. But the risks are increasing and traders and investors should be aware of these levels because the prophets of doom may be vindicated for a short while if we get very bad earnings reports next week. On the other hand, the bulls have not given up just yet as Friday’s close is the ideal bargain hunting area for the bulls. They have a lot of pumped liquidity to invest and many of them are Americans who believe in the future of Canada.

Very interesting indeed.

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.

The Canadian market – Weekly Comment October 17, 2009

The following comments are made in the most important context of a full fledged long term bull market trend

I think this is a good time as any to review the situation of the Canadian market. If we look at this long term chart with a box size of 50 points and a Reversal of 3, we can understand where we are and determine the Return to Risk ratio for next week:


Please “click” on the image for a larger view

A full discussion of this longer term chart follows:

-1- The main support of a trend is called the Bullish Support line and it is currently situated at 10,450 ( at [EQ-101] Green square with green arrow. If we get an additional correction, this is where the market can correct back to without compromising the bull market. We are 1,050 points away. Longer term investors would definitely be buyers at that level but I would not bet on the market going back there giving the currently known technical and fundamental information.

-2- The uptrend which started when the market made a new higher high at 11,400 [EN-82] is intact. We are currently under a first buy signal ( Double Top 11,350 Breakout 11,400 shown as a white X in a black background [EN-82] at the point where we have a blue arrow. Support is the double bottom at 11,300 while resistance is the double top at 11,500 where the market closed Friday. Immediate Support and Resistance levels are always shown as purple horizontal lines on my charts

-3- In term of moving averages which are considered by many as potential support, we noticed than the 20 days MA peaked and started its decline Friday meaning that short term momentum is fading. The 50 days moving average considered to be intermediary support is at 11,104 (blue line in column EW with the MA50 tag). The other moving averages (100 and 350 days ) are close to the bullish support line while the most important 200 days MA is at 9,826 [EW-114 in red] and pretty out of the picture and irrelevant because point and figure techniques will give us sell signals before the crowd using MA 200 realizes that the long term trend has changed.

-4- In term of the future of this bull market leg, I always use three different techniques to ascertain the risk and return of the market: Point and figure vertical projections, Fibonacci retracement levels and in the short term channel projections:

(a) – The most recent vertical projections are a downside price objective of 10,850 [EG-93] which was never achieved during the last correction with a low of 10,900 [EK-92] and an upside price projection of 12,250 [EL-65] which also happens to be a Fibonacci 61.8% correction of the previous bear market. The market is currently deciding if it intends to go back to its previous bull market peak by negotiating the Fibonacci 61.8% [EW-66] and the Fib 50% [EW-84] levels. At this time, I think the odds favor that Fib50% will be a support area for a consolidation period before the next assault towards Fib 61.8%.

(b) – On the other hand, if we look at the shorter term risks and assume that 11,600 was the peak of this first leg of the bull market shown by a Fibonacci 0% tag [EW-78], then we could expect some downside towards the Fib23.6% level [EW-98] which would act as support. A correction down to Fib38.2% [EW-110] does not appear likely because the bull support line would be breached and the whole market structure would have changed.

(c) – In the very short term, you will notice that the market is now under some bearish pressure because based on the channel projection technique, we are now under a minus 2 (-2) signal as shown at [EO-84]. What this means is that should the market reverse into a column of O next week, it will not have reached its next short term target of 11,600 illustrated as a white X in a blue background [EP-78] generating a minus 3 (-3) signal which is usually sufficient to confirm tougher days ahead in the short term. At that point, the market would be at 11,350 and initial protection of capital would be warranted. The next step would be a break of double bottom (11,300) and channel support shown as a white O in a blue background [EQ-84] threatening the short term uptrend and confirming risk control measures of any long portfolio.

(d) – Finally, a double top (11,500) breakout would confirm the legitimacy of this uptrend and a breakout of channel resistance at 11,600 would confirm the target of 12,250.

If you have followed this evaluation of the current market structure, you are a real student of the markets and I hope it will help you in developing a strategy for next week’s trading.

In other news, my research for CTAB has been redefined and is now more focused which is providing me with more time to do what I enjoy the most which is market timing this market. And it will allow me to post at least weekly again, I hope.

I have also improved the Google workbook by adding a hold spreadsheet which will help those readers who may be under invested to select securities which I currently consider HOLDs. This will be updated weekly. Of course, the “Events” spreadsheet will still be updated daily.

Enjoy

Pierre Brodeur ( The Word)
therealword@gmail.com

Notes:
You can follow my thought process, research and trades on twitter. Search username: cdnpointfigure.

All current and previous charts of this blog are now available for download at the following link.