ShareThisNorth American equity markets showed definite signs of technical deterioration last week. The period of weakness in the year after a U.S. President is elected from the end of July to the middle of November is repeating itself. Following is a review of the technical indicators at the end of last week:
Major North American equity indices declined slightly last week. S&P 500 eased 0.63%, Dow Industrials slipped 0.52%, NASDAQ Composite lost 0.74% and the TSX Composite gave up 0.34%.
The Up/Down ratio for TSX stocks peaked on August 7th at 3.63. Last week, technicals by TSX stocks were mixed with eight stocks breaking resistance and eight stocks breaking support.
Short term momentum indicators (MACD, RSI and Stochasics) for the S&P 500, Dow Industrials, Dow Transports, NASDAQ Composite and TSX Composite have rolled over from overbought levels and are trending lower.
Short term momentum indicators for most
Bullish Percent Index for S&P 500 stocks remains substantially overbought at 81.20%. Bullish percent for TSX stocks also remains substantially overbought at 70.05%. Both recorded slight gains last week.
Percent of S&P 500 stocks trading above their 50 day moving average remains intermediate overbought and showing signs of rolling over. Percent slipped last week from 88.20% to 86.80%.
Percent of TSX stocks trading above their 50 day moving average also remains intermediate overbought and showing signs of rolling over. Percent slipped last week from 72.95% to 72.46%.
VIX continues to show technical signs of bottoming. Last week it eased from 24.76% to 24.27%.
The
Currency fluctuations continue to have a major influence on equity markets on both sides of the border. Crude oil and gold came under pressure on Friday after the U.S. Dollar rallied. Last week crude oil fell from $70.88 to $67.51
Economic data released last week was mixed at best. Look for more of the same this week.
Seasonal plays in gold and agriculture remain intact. Preferred strategy is to accumulate on weakness.
The Bottom Line: Stay the course. At best equity markets will move sideways between now and the end of October (assuming that the U.S. Dollar continues to weaken). At worst, a correction of 10%-20% could occur (if economic conditions show signs of a slowdown in the recovery). Retain, add on weakness, to positions in the gold and agriculture sector. Sell calls against existing long term positions with expiries in October and November. Liquidate unprofitable positions that no longer have attractive technical and fundamental prospects. Take trading profits in equities and ETFs that have recorded exceptional gains since March.
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Discussions from the Tech Talk Forum:
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August 17th, 2009 at 5:52 am
hi. Don
great update,no one else gives as clear view and message about the markets as you.Over the last two years learnt a lot about the markets from you.
thankyou for everything.
August 17th, 2009 at 6:27 am
Hi Don, TLT has reversed directions all summer (rates have been creeping up). Do you have a target interest rate level? It appears that when rates hit a certain level, markets and leaders adjust commodity purchases, etc. to reduce the rate to a more …consumer-friendly level.
August 17th, 2009 at 8:10 am
Hi,
does anyone know if GAS.TO from claymore also looses value over time like the horizon beta pro etfs ie HNU.TO, someone just told me that gas.to is also a trading vehicle and should not be held long term (i want to hold it for 6 months or so to see an upside in gas prices)
Thanks
August 17th, 2009 at 9:09 am
Hi Don,
With gold breaking down today of about $15.00, and with the markets globally correcting today, do you still see the gold stocks and gold going up in September and October this year? The word in the markets seems to be that people are expecting the markets to continue lower for the next 1 to 2 months (Sept and Oct), so if this occurs, wouldn’t that mean that gold and gold stocks would be going down too?
I look forward to your reply!
Thank you Don!
Eve
August 17th, 2009 at 10:21 am
Hi Don,
I second that question about GAS….keep up the great work and hopefully you had a great vacation!
August 17th, 2009 at 10:22 am
I second that question about GAS. I was wondering the same thing myself vs. HNU. Thanks in advance Don and welcome back…
August 17th, 2009 at 1:02 pm
Eve:
http://www.timingthemarket.ca/techtalk/2009/08/17/an-update-on-the-seasonal-trade-in-gold-equities/
How big is Shanghai’s index fall for several days in a row last week contributing to the market today?
August 17th, 2009 at 2:33 pm
Hi Crispycrunch,
Thank you for the article but I know about the seasonal gold trade already – I also know though that it doesn’t always occur each Fall (last Fall, it didn’t) – so as the markets and gold seem to be heading downwards, I thought I would ask Don if he could give an informed opinion about whether the seasonal strength in gold and gold stocks for September and October will still go on for this year. This article doesn’t really help as it doesn’t take the current market conditions of the falling TSX and falling gold price into consideration. Thanks though anyway.
Eve
August 17th, 2009 at 8:12 pm
Eve, I agree with your question. Its been a question in my mind too. I would like to take part in the seasonal gold play and have not done so to this point. I mean, if I am only looking to hold gold equities, ETFs or bullion for a short term (year end), and if markets and consequently gold are expected to drop, why buy into it ? Maybe its a different story if my outlook for long term say a year or more. I understand your point and hope Don can answer the question. Thanks much.
Richard
August 18th, 2009 at 4:47 am
Eve, Richard:
My eyes are on the US dollar’s weakness or strength. The US dollar is very weak and is expected to keep falling, yet the gold prices did not rally higher in the same period (2 months or so).
I’m also watching Silver. I am thinking that silver may be a better value play against gold, but my macro viewpoint is that the markets are realizing the demand for commodities, the growth rate, and resulting inflation is not really there. At least, not strong enough to warrant gold to rise.
If gold sells off in a big way, would it be time to buy? I’d say the risk/reward parameters would be better at that point.
…We really need Don back from vacay, so we can find out what he thinks!
August 19th, 2009 at 8:13 am
mills & vince:
GAS is a straight nat.gas play, but HNU has a higher leverage, periodic rebalancing and therfore more risky & volatile. Due to huge inventory levels supply way exceeds demand for now. I’m currently holding HNU patiently. Nat gas may go down further and bottom in the fall when demand starts picking up for the cold season. I will probably add to my position when it bottoms and the trend reverses…eventually!
Don, hope you’re enjoying your vacation & looking forward to your return. Thanks for everything!