The Canadian market – Weekly Review 20

As we get closer to our objective of 15,300-15,350, we remind ourselves that we are in a blow-off stage which has the following consequences and attributes:

-1- This has been a continuous climb from 13,900 to the current close of 14,984.20. There have been some minor pullbacks on the way, but not enough to solidify this uptrend.

-2- This climb to heaven is a search of a resistance. That happens when support is known (currently 13,850) but there is blue sky ahead in terms of no double top to rely on. Since 15,000 is a magic even number, there is a good chance that some selling will provide that pause that refreshes. However, the longer we wait, the harder the correction could be. So keeping our finger on the profit taking button would be a wise move at this stage, at least until a new higher support level is known.

-3- Given that 13,850 was an intermediary low, we should have by now been able to refine our target for the TSX by creating a price objective off that low. But that cannot be done because we do not have a new column of “O” yet. In those conditions, I become rather uncomfortable. If we did, would you believe 17,150?

Please “click on the image for a larger view

My “ideal stocks” universe keeps growing every day. However it does lack diversification of ideas as most come from the oil and mines sectors. Such concentration does increase your risk as what goes up will have to come down. So buying from that universe gets more involved every day.

I cannot in good conscience highlight a stock of the week at this time. The current swing is overdue for a correction and good ideas will come during the forthcoming pullback.

I am still bullish, mind you, but many of my valuation indicators are getting over extended:

Let us take the TSX Hi-lo: it is at 84% right now. How much more can it go up to? 100%.

The Bullish % has just crossed the 50% threshold. Look at the chart. When it does that, it typically will take a pause that refreshes before continuing into overbought territory.

Stocks above their 200 days moving average just crossed 50% as well. A pause is due there as well.

Have a great week.

The Word
therealword@gmail.com

The Canadian market – Weekly Review 19

While the media entertains you with the market being just a few points from an all time high, let us pause for a few minutes and reflect on the future of the world…!

You won’t get any deep thoughts from me on that subject. I don’t have any. I observe but never think. I’m a robot, right!

From my perspective, the major events of the week were as follows:
-1- All moving averages turned back up and are increasing again. Of course, these are lagging indicators, but they are comforting nonetheless.
-2- There are now 71.5% of Canadian stocks trading above their 50 day moving average. We are in the overbought zone. The low was 8% in August 2007.
-3- There are now 47.5% of Canadian stocks trading above their 200 day moving average. That is far from the high achieved in May 2007 at 78%. The low was 17.5% in January 2008.
-4- The Bullish % is climbing slowly and closed at 49.25 Friday. No excesses here either. And capital appreciation strategies are still the name of the game.
-5- The following sectors are bullish:
Income and Energy Trusts
Consumer Discretionary
Energy
Financials
Industrials
Mining
Technology
Telecommunication
Utilities

-6- The following sectors are bearish:
Consumer Staples
Global Gold
Healthcare
Materials ( mainly because of Gold)
Real Estate

So if you only do one good thing, avoid the bearish sectors and focus on the bullish sectors only. I know, everybody is very bullish long term on Gold and Gold stocks. So you want to pick the bottom? Go ahead, but you are on your own. And be prepared for a lot of aggravation before we get there…

Today, we show the standard Box 50 Revision 3 Point and Figure chart for the TSX composite index. I have highlighted in yellow the areas I want to bring to your attention.

-1- Our target price is the 15,300-15,350 area as discussed numerously in the past.
-2- Have you noticed the power of this bull? Every time it corrected, new buyers were buying the dip. Quite amazing! But it may be over extended in the short term. Another pause is required or this thing will blow off without reaching our target.

Please “click on the image for a larger view

-4- The market is trading 450 points above its 20 day moving average. It should back down towards that area before resuming the uptrend.
-5- Most longer term moving averages have resumed their uptrend. The spread between the market evaluation (14,600) and these moving averages is between 1,000 and 1,100 points.

All this to say that the profits have been incredible so far. But in the short term, if you are a trader, prices may go lower before they go higher and may represent another buying opportunity…

Now I’m of to my garden. Today I will seed the grass because I have a major grub problem and live in a city where using chemicals is illegal. On to another challenge!

Have a great week.

The Word


therealword@gmail.com

Stock of the Week #5 = Cameco [CCO.TO]

Warning: You should at a minimum investigate the fundamentals of the company and should at a minimum review the monthly, weekly and daily charts on your own. This is not intended as a recommendation to purchase or sell in any way. I don’t do that for a living anymore. If anything, it will alert you to securities which are on my radar screen.

I typically look for stocks which trade above the long term bullish support line. I want the stock to out perform the market and be a best in class in its sector. I also monitor other traditional indicators which I have tweaked with my own variable inputs. Given that my investment time horizon is that of a swing trader, it’s shorter than the typical investor if the buy and hold type still exists. I generally monitor PPO, OBV, ADX and of course RSI to confirm or infirm my intuition.

I rate Cameco a 10 out of a possible 10.

Please “click on the image for a larger view

This stock is at the end of its accumulation stage. Market participant’s opinions differ as shown by the triple top breakout at $40, which was also a bearish trend line breakout, and immediately followed by a quick reversal and breakdown at $35. This is the stuff of the final stage of accumulation before a big move which may have begun with the second double top breakout at $40. That’s enough to put this stock on my radar screen and in my “ideal stock” universe. In the short term, we a move above wide resistance at $41-$42 would provide for a target of $46. Longer term P and F measurements provide a target near the previous top of $59.

Please “click on the image for a larger view

Relative performance with respect to the TSE composite is positive. This stock now receives the highest score possible on this measure.

Please “click on the image for a larger view

Relative performance with respect to the TSE Mines and Metals sector just turned positive. This stock now receives the highest score possible on this measure.

Please “click on the image for a larger view

This is the trader’s view which focuses on a shorter box and reversal size. As you can see, the stock closed at $40.38 and thus Monday morning we should see a new column of “X”. But that is not guaranteed as if the market continues its short term correction; we could see more “O”s in this column. I would monitor the “correction” an on an intraday basis would take an initial position on a 2 box reversal into a column of X. At least a new support level would be established and a stop $0.25 below support would minimize the risk of this trade.

A stop loss would be determined once we have a reversal into a column of X.

Note: I had no position in CCO.TO at the time of posting.

Answers to a series of questions from Silverbear:

I do not use “fixed” stops on any of my positions. Given that I monitor all my positions all day long, when an “automatic stop” is triggered, I will re-evaluate the situation. My stops are different depending on whether I am entering a new position or I am holding on to a portfolio position. I will typically put a stop just below support on an initial position. On a portfolio position, I do not use trailing stops. If the column of “X” is getting tall, I will typically use a “hi pole” price as an intial stop or ( 8% x the beta of the stock) off the top whichever comes first. This 8% is adjusted downwards as the market becomes more and more overbought.

I never ever buy or sell before an expected P and F signal. I got burned too many times to do that anymore.

I used intraday charts only to enter correcting stocks (like CCO.TO above). I use Reversal 2 Box $0.25 for stocks trading between $1.00 and $50.00, Rev 2 Box $0.50 for those between $50 and $100 and Rev 2 Box $1.00 for anything above. And I follow those signals. All my trades are based on P and F charts.

However, I monitor the condition of stocks using traditional daily weekly and monthly charts with variables that monitor volatility, volume, momentum, trend and trend reversals.

Given Silverbear’s grappling with stops, I will make it a point to discuss this in any future post on stock picking.

The Word
therealword@gmail.com

Stock of the Week #4 = Inter Oil [IOL.TO]

Warning: You should at a minimum investigate the fundamentals of the company and should at a minimum review the monthly, weekly and daily charts on your own. This is not intended as a recommendation to purchase or sell in any way. I don’t do that for a living anymore. If anything, it will alert you to securities which are on my radar screen.

I typically look for stocks which trade above the long term bullish support line. I want the stock to out perform the market and be a best in class in its sector. I also monitor other traditional indicators which I have tweaked with my own variable inputs. Given that my investment time horizon is that of a swing trader, it’s shorter than the typical investor if the buy and hold type still exists. I generally monitor PPO, OBV, ADX and of course RSI to confirm or infirm my intuition.

I rate Inter Oil an 8.5 out of a possible 10.

Please “click" on the image for a larger view

This stock is at the end of its accumulation stage. Market participant’s opinions differ as shown by the triple top breakout at $20, followed by a bearish trend line breakout at $21, and immediately followed by a quick reversal and breakdown at $17.50. A real yoyo ride…! This is the stuff of the final stage of accumulation before a big move. In the short term, we see a move to resistance at $26-$27. A break above that would be a lot of blue sky ahead.

Relative performance with respect to the TSE composite is positive. This stock now receives the highest score possible on this measure.

Relative performance with respect to the TSE Energy sector in recent times turned positive. This stock now receives the second highest score possible on this measure because in the very short term it has not kept up with the industry’s performance. That is usually a good time to accumulate.

Please “click" on the image for a larger view

This is the trader’s view which focuses on a shorter box and reversal size. As you can see, the stock closed at $22.21 and thus this morning we should see a new column of “O”. I would monitor the “correction” on an intraday basis and would take an initial position on a 2 box reversal into a column of X. At least a new support level would be established and a stop $0.25 below new support would minimize the risk of this trade. This stock is for the trader who can monitor it on an hourly basis. Not for the faint of heart…

A stop loss would be determined once we have a reversal into a column of X.

Note: I had no position in IOL.TO at the time of posting.

The Word
therealword@gmail.com

The Canadian market – Weekly Review 18

This week was one where widely followed and respected technicians because of the Dow Theory, declared that we were in a bull market. These same people had been warning of numerous so-called bull traps. But they are allowed to change their mind. How much money did they leave on the table waiting for the right and perhaps conservative signal?

We did not go at the same school. I have no reputation to safe guard. I am retired and therefore nobody cares. But I know for a fact that I have trained myself to look for accumulation and distribution and this week again we had more signs of accumulation as I will show later on.

Of course we are in a bull market. It is fueled by excess liquidity pumped by the various Feds of the world and the market is only adjusting to the inflation which will follow. Markets love inflation, at least for awhile…!
The only chart I need to show this week is that of the TSX Composite index. I was asked if I use P and F for intraday trading in a recent comment. The answer is yes, but not in the conventional P and F way. What I mean by that is that I do not follow the conventional rules to create that chart. The chart below is such a chart. Do you see what I see? Look at the three bottoms in the 13,850 area. That is quite impressive and it tells me that this week we saw more accumulation by the smart money. My next short term target is 14,475 en route to my longer term objective of 15,300-15,400.

Please “click on the image for a larger view

Therefore, I see no change in my outlook which has been bullish since February.

Have a great week.

The Word
therealword@gmail.com

Do you trade the Horizon Bull Bear ETF?

If you are, here is a little trick (arbitrage in fact) that will help you improve your trading entry and therefore your return.

You need to monitor both the Bull and the Bear security. These days, the bull ETF should trade at a higher absolute price if only because the bull market has been the norm.

In this example taken from today’s trading book, I look at the Horizon Oil bullish and bearish ETFs. If you need more information on this product, read this article by Danny Merkel.

The Horizon Oil Up fund (HOU.TO) is trading in the $30 - $33 range. If you use a $0.25 box size as I do for trading purposed, breakouts and breakdown will be quick to materialize because $0.25 as a % of $30 is quite a low percentage.

Please “click on the image for a larger view

On the other hand, Horizon Oil Bear (HOD.TO) is trading in the $10 to $11 range. A $0.25 move is a much greater percentage of the starting price of the day so it takes more time for a signal to come by...!

Please “click on the image for a larger view

The point here is that often you will get a signal (breakout or breakdown) from the higher priced ETF and you should trade on it by purchasing the opposite ETF, often because that fund gives you the signal you are looking for first.

In this case, HOU broke down at $30.75 almost 1 hour before HOD broke out at $11.50. Of course I had taken a position before the breakout.

This is especially useful for relatively illiquid sector or commodity ETFs. That is because you need to wait for a real trade at the designated break point for the P and F signal to be valid. That’s why I monitor the bid and ask on these securities as well.

Hope this helps. Why am I doing this, I’m not sure anymore…!

The Word
therealword@gmail.com

TSX Composite short term trend reverses down

At noon 15 today, the market broke down below double support at 13,850 confirming that the bears had taken over the short term trend. If the intermediate bullish scenario is to remain intact, the market must find support in the 13,650 area. If that fails, the downtrend will be much more serious.

At this juncture, it is prudent to have hedged any long positions with off setting short trades to protect capital over the short term.

In the longer term, the Bullish % is still positive but it has been weaker day by day.

The Word
therealword@gmail.com