Technical Comments on Equities in Today’s News

Biovail Corporation (NYSE:BVF $13.70) upgraded by Credit Suisse from Neutral to Outperform. Biovail currently has a positive technical profile. Intermediate technical trend is up. The stock trades above its 200 day moving average and this morning moved above its 50 day moving average. Resistance exists at $14.15. Short term momentum indicators (MACD, RSI and Stochastics) are trending higher. A MACD buy signal was recorded today. A break above resistance implies an intermediate technical target of $16.50.

Chart courtesy of StockCharts.com www.stockcharts.com

Potash Corporation of Saskatchewan Inc. (NYSE: POT $88.46) was downgraded by Citigroup from Buy to Hold. FP Trading Desk headline reads, “Fertilizer industry under pressure: Citigroup. Link is http://network.nationalpost.com/np/blogs/tradingdesk/archive/2009/09/14/fertilizer-industry-under-pressure-citigroup.aspx Potash Corp currently has a positive technical profile. Intermediate trend is up. Intermediate support is at $80.75. Intermediate resistance is at $121.21. The support is trading just above its 200 day moving average and just below its 50 day moving average. Short term momentum indicators (MACD, RSI and Stochastics) are neutral. The stock is part of the agriculture sector that has been outperformed the S&P 500 Index since last November and currently is in a period of seasonal strength between August and December However, Potash Corp. has been an underperforming stock within its sector.

Chart courtesy of StockCharts.com www.stockcharts.com

Mosaic Co. (NYSE:MOS $51.05) was downgraded by Citigroup from Buy to Hold. Mosaic currently has a positive technical profile. Intermediate trend is up. The stock trades above its 50 and 200 day moving averages. Its 50 day moving average recently has proven to be a short term support level. Intermediate support is at $39.35. Intermediate resistance is at $59.29. Short term momentum indicators (MACD, RSI and Stochastics) are neutral. The stock is part of the agriculture sector that has been outperforming the S&P 500 since last November and currently is in a period of seasonal strength between August and December. Mosaic has slightly outperformed the Agriculture sector since last November.

Chart courtesy of StockCharts.com www.stockcharts.com

Delta Air Lines Inc. (NYSE: DAL $8.44) raised third quarter margin expectations. Delta currently has a positive technical profile. Intermediate trend is up thanks to a break above resistance at $8.27 this morning. Support is at $5.40. The stock trades above its 200 day moving average and recently moved above its 50 day moving average. However, short term momentum indicators (MACD, RSI and Stochastics) are overbought (e.g. RSI at 71.14%) implying that intermediate upside potential likely is limited from current levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Tenet Healthcare Corp. (NYSE:THC $5.88) raises its full year forecast. Tenet Healthcare currently has a positive technical profile. Intermediate trend is up. The stock trades substantially above its 50 and 200 day moving average. THC has consistently outperformed the S&P 500 Index since last April. Short term momentum indicators (MACD, RSI and Stochastics) continue to trend higher, but are substantially overbought. With intermediate support at $2.46, downside risk is significant.

Chart courtesy of StockCharts.com www.stockcharts.com

Sprint Nextel Corp. (NYSE:S) is a rumored takeover candidate by Deutche Telecom. Sprint has an improving technical profile. This morning the stock broke resistance at $3.99 on higher than average volume and moved above its 50 day moving average. Intermediate trend changed from negative to neutral. Intermediate support is at $3.47. Intermediate resistance is at $4.91. Short term momentum indicators (MACD, RSI and Stochastics) are trending higher from oversold levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Campbell Soup Co. (NYSE: CPB $32.50) was downgraded by Bank of America/Merrill Lynch. Campbell Soup currently has a positive technical profile. Intermediate trend is up. The stock trades well above its 50 and 200 day moving averages. On balance volume data shows that the stock is being accumulates. Intermediate support is at $29.81. Resistance at $31.60 recently was broken and the stock quickly exceeded a short term technical target at $33.50. Short term momentum indicators (MACD, RSI and Stochastics) are substantially overbought and have rolled over. Accumulation between $29.81 and $31.60 is preferred.

Chart courtesy of StockCharts.com www.stockcharts.com

E*Trade Financial Corp. (NASDAQ:ETFC $1.75) was upgraded by Citigroup from hold to buy. E*Trade currently has a positive technical profile. A recent break above resistance at $1.57 established an intermediate uptrend. The stock trades well above its 50 and 200 day moving averages. On balance volume data shows that the stock is being accumulated. Short term momentum indicators (MACD, RSI and Stochastics) are recovering from oversold levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Pre-opening Comments for Monday September 14^th

U.S. equity index futures are lower this morning. S&P 500 futures dropped 8 points in pre-opening trade. Traders are responding to concerns about a possible U.S. – China dispute. The United Auto Workers recently prompted the Obama Administration to impose a tariff on tires manufactured in China. Yesterday, China launched an antidumping probe into imports of American vehicles and chicken products.

The U.S. Dollar is slightly higher this morning. Commodities priced in U.S. Dollars including crude oil, gold, silver and copper are trading lower.

President Obama is scheduled to speak on Wall Street this afternoon about additional regulation of the financial service industry.

Avaya has won a court sanctioned auction to purchase Nortel’s Enterprise division.

Potash Corp is off 3% and Mosaic is down 2% after Citigroup downgraded both stocks from Buy to Hold.

E-Trade is 8% higher after Citigroup upgraded the stock from hold to buy.

Biovail added 1.5% after Credit Suisse upgraded the stock from Neutral to Outperform.

Sprint Nextel is trading 20% higher on news that Deutche Telecom is assessing a possible purchase of the firm.

Tenet Healthcare is up 7% and Delta Airlines added 1% after they raised third quarter guidance.

Economic News This Week

Inflation reports are an economic focus this week:

August Producer Prices to be released on Tuesday at 8:30 AM EDT are expected to rise 0.8% versus -0.9% in July. Core is expected to increase 0.1% versus -0.1%

August Retail Sales to be released on Tuesday at 8:30 AM EDT are expected to increase 1.9% from -0.1% in July thanks to the cash for clunkers program. Ex autos, retail sales are expected to increase 0.4% versus -0.6% in July.

August Consumer Prices to be released on Wednesday at 8:30 AM EDT are expected to increase 0.3% versus 0.0% in July. Core is expected to increase 0.1% versus 0.1% in July.

August Capacity Utilization to be released on Wednesday at 9:15 AM EDT is expected to improve to 69.1% from 68.5%.

August Industrial Production to be released on Wednesday at 9:15 AM EDT is expected to increase 0.7% from 0.5% in July.

August Housing Starts to be released on Thursday at 8:30 AM EDT is expected to remain unchanged at 580,000.

September Philadelphia Fed to be released on Thursday at 10:00 AM EDT is expected to increase to 8.0 from 4.2

Earnings News This Week

Earnings reports this week are sparse:

Adobe is expected to release fiscal third quarter earnings on Tuesday. Consensus is $0.34 versus $0.50 per share last year

Best Buy is expected to release second quarter earnings on Tuesday. Consensus is $0.41 versus $0.48 per share last year.

Oracle is expected to release fiscal first quarter earnings on Wednesday. Consensus is $030 versus $0.29 per share last year

Fedex is expected to release fiscal first quarter earnings on Thursday. Consensus is $0.44 versus 1.23. The company offered higher guidance on Friday.

Equity Market Trends

The ratio of S&P 500 stocks in an uptrend versus a downtrend rose last week to (409/37=) 11.05. Sixty nine S&P 500 stocks broke resistance (including 19 stocks on Friday) and six stocks broke support (including one stock on Friday). The ratio remains intermediate overbought.

Bullish Percent Index for S&P 500 stocks increased last week to 84.60% from 81.40%, the second highest level in history. The Index closed slightly higher than its 15 day moving average. The Index remains intermediate overbought.

Chart courtesy of StockCharts.com www.stockcharts.com

The Up/Down ratio for TSX Composite stocks jumped last week to (116/21=) 5.52 from 3.82. Fifteen TSX stocks broke resistance last week (including five stocks on Friday) and no stocks broke support. Energy and precious metal stocks dominated the list of stocks breaking resistance. The ratio is intermediate overbought.

Bullish Percent Index for TSX Composite stocks increased last week to 74.40% from 70.05% and remained above its 15 day moving average. The Index remains intermediate overbought, but continues to trend higher.

Chart courtesy of StockCharts.com www.stockcharts.com

Despite a 2.59% gain by the S&P 500 Index last week, the Index in Canadian Dollars is unchanged in the month of September and remains below its December 31^st 2008 level.

Chart courtesy of StockCharts.com www.stockcharts.com

Ditto for the Dow Jones Industrial Average! Since December 31^st 2008, the Dow has gained 9.5%. However, in Canadian Dollars it has declined 4.2% due to strength in the Canadian Dollar and weakness in the U.S. Dollar.

The S&P 500 Index added 26.33 points (2.59%) last week. Intermediate trend remains up. The Index has developed a rising wedge pattern, a bullish pattern until the bottom trend line is broken. Then, look out below. The Index remains well above its 50 and 200 day moving average. MACD is trending lower from a short term overbought level. RSI and Stochastics are short term overbought, but continue to trend higher. Volume continues to trend lower.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of S&P 500 stocks trading above their 50 day moving average increased last week to 89.40% from 85.40%. Percent remains intermediate overbought.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of S&P 500 stocks trading above their 200 day moving average increased last week to 93.00% from 91.80%. Percent is intermediate overbought and near a record high level.

Chart courtesy of StockCharts.com www.stockcharts.com

The Dow Jones Industrial Average gained 164.14 points (1.74%) last week. Intermediate trend remains up. The Average has formed a rising wedge pattern. It remains well above its 50 and 200 day moving averages. MACD is trending lower from a short term overbought level. RSI and Stochastics are short term overbought, but continue to trend higher. Strength relative to the S&P 500 Index remains neutral. Volume continues to trend lower.

Chart courtesy of StockCharts.com www.stockchartrs.com

Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week at 86.67% and is virtually at its 15 day moving average. The Index remains intermediate overbought.

Chart courtesy of StockCharts.com www.stockcharts.com

Bullish Percent Index for NASDAQ Composite stocks increased last week to 71.59% from 69.93% and moved back above its 15 day moving average. The Index remains intermediate overbought.

Chart courtesy of StockCharts.com www.stockcharts.com

The NASDAQ Composite Index gained 62.12 points (3.08%) last week. Intermediate trend remains up. The Index also has formed a rising wedge pattern. It remains well above its 50 and 200 day moving averages. MACD is trending lower from a short term overbought level. RSI and Stochastics also are short term overbought, but continue to trend lower. Strength relative to the S&P 500 Index now is positive. Volume continues to trend lower.

Chart courtesy of StockCharts.com www.stockcharts.com

The Russell 2000 Index gained 23.09 points (4.05%) last week. Intermediate trend is up. A rising wedge pattern has formed. The Index remains well above its 50 and 200 day moving averages. MACD is trending downward from a short term overbought level. RSI and Stochastics are short term overbought, but continue to trend higher. Strength relative to the S&P 500 Index remains positive.

Chart courtesy of StockCharts.com www.stockcharts.com

The Dow Jones Transportation Average added 211.66 points (5.62%) last week. Intermediate trend remains up. A rising wedge pattern has formed. The Average remains well above its 50 and 200 day moving averages. MACD is trending lower from a short term overbought level. RSI at 71.65% and Stochastics are short term overbought, but continue to trend higher. Strength relative to the S&P 500 Index remains positive. Volume continues to trend lower.

Chart courtesy of StockCharts.com www.stockcharts.com

The TSX Composite Index increased 235.76 points (2.14%) last week. Intermediate trend remains up. A rising wedge pattern has formed. The Index remains well above its 50 and 200 day moving averages. MACD continues to trend lower from a short term overbought level. RSI and Stochastics are short term overbought, but continue to trend lower. Strength relative to the S&P 500 Index remains negative.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of TSX stocks trading above their 50 day moving average rose last week to 75.36% from 67.15%. Percent remains intermediate overbought.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of TSX stocks trading above their 200 day moving average was unchanged last week at 75.36%. Percent remains intermediate overbought.

Chart courtesy of StockCharts.com www.stockcharts.com

The Australia All Ordinaries Composite Index added 153.60 points (3.46%) last week. Intermediate trend remains up. The Index remains well above its 50 and 200 day moving averages. MACD is trending lower from a short term overbought level. RSI at 71.11% and Stochastics are short term overbought, but continue to trend higher. Strength relative to the S&P 500 Index remains undetermined.

Chart courtesy of StockCharts.com www.stockcharts.com

The Nikkei Average gained 257.22 points (2.52%) last week. Intermediate trend remains up. A rising wedge pattern has developed. The Average remains well above its 50 and 200 day moving averages. MACD is short term overbought and trending lower. RSI and Stochastics are neutral. Strength relative to the S&P 500 Index remains undetermined.

Chart courtesy of StockCharts.com www.stockcharts.com

The Shanghai Composite Index added 128.19 points (4.48%) last week. Intermediate trend is up. The Index remains above its 200 day moving average, but below its 50 day moving average. Resistance is at 3,478.01. Support is at 2,639.75. MACD bottomed at a short term overbought level. RSI is neutral. Stochastics are short term overbought, but continues to trend higher. Strength relative to the S&P 500 Index remains negative.

Chart courtesy of StockCharts.com www.stockcharts.com

The London FT Index rose 159.77 points (3.29%), the Frankfurt DAX Index improved 239.59 points (4.45%) and the Paris CAC Index gained 136.13 points (3.78%) last week. Charts courtesy of StockCharts.com

The U.S. Dollar dropped 1.48, broke support at 77.43 and resumed an intermediate downtrend last week. Next support is at 75.89. MACD continues to trend lower. RSI and Stochastics are short term oversold, but continue to trend lower.

Chart courtesy of StockCharts.com www.stockcharts.com

Conversely, the Euro added 2.76 points, broke resistance at 144.36 and resumed an intermediate uptrend last week. MACD continues to trend higher. RSI and Stochastics are short term overbought, but continue to trend higher.

Chart courtesy of StockCharts.com www.stockcharts.com

The Canadian Dollar gained 0.83 last week. Intermediate trend remains up. Resistance is at 93.95 and in a band above 96.69. MACD is trending lower from a short term overbought level. RSI is neutral. Stochastics are short term overbought, but continue to trend higher.

Chart courtesy of StockCharts.com www.stockcharts.com

Commodities

The CRB Index added 3.54 points (1.43%) mostly due to strength in precious metals and remains below its 50 day moving average. Resistance is at 269.10.

Chart courtesy of StockCharts.com www.stockcharts.com

Crude oil added $1.70 U.S. per barrel last week despite a sharp decline in Friday. Short term momentum indicators have rolled over and are trending lower.

Chart courtesy of StockCharts.com www.stockcharts.com

Crude oil is approaching a period of seasonal weakness at the end of September.

Chart courtesy of SeasonalCharts.com www.seasonalcharts.com

Gasoline prices slipped again last week. Seasonal influences for gasoline are similar to seasonal influences for crude oil.

Chart courtesy of StockCharts.com www.stockcharts.com

Natural gas in the U.S. surged early last week, but gave up most of its gain by Friday after hitting resistance at $3.40. Momentum indicators are recovering from short term oversold levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Seasonal influences for U.S. natural gas are positive until the end of October. The period of seasonal strength in Canada is from the end of August to the end of December. Canadian contracts are influenced mainly by currency trends near the end of the year.

Gold added another $11.80 U.S. per ounce last week. It broke resistance at $1007.70. Next resistance is at its all time high at $1,033.90 U.S. Short term momentum indicators are overbought (e.g. RSI at 74.01%) but continue to trend higher. Preferred strategy is to purchase/add to positions on weakness.closer to its 50 day moving average at $949.82.

Chart courtesy of StockCharts.com www.stockcharts.com

The Philadelphia Gold and Silver Index added another 2.83 following a breakout last week. Short term momentum indicators are overbought, but continue to trend higher. Gold equity indices continue to outperform gold, an encouraging sign for both. Likely good news from the Denver gold convention this week could help gold equity indices.

Chart courtesy of StockCharts.com www.stockcharts.com

Silver added another $0.54 U.S. per ounce, broke above resistance at $16.23 and resumed an intermediate uptrend. Short term momentum indicators are overbought (e.g. RSI at 78.73%) but continue to trend higher

Chart courtesy of StockCharts.com www.stockcharts.com

Platinum finally responded to strength in other precious metals. On Friday, it broke resistance at 1,302.70 and resumed an intermediate uptrend.

Chart courtesy of StockCharts.com www.stockcharts.com

Copper continues to struggle, down another $0.02 per lb U.S. last week. Short term momentum indicators already have rolled over from overbought levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Ditto for aluminum, down another $0.02 U.S. per lb. last week!

Chart courtesy of StockCharts.com www.stockcharts.com

Ditto for lumber, down another $1.10 last week!

Chart courtesy of StockCharts.com www.stockcharts.com

Ditto for grain prices! They are testing the bottom of a nine month trading range.

Chart courtesy of StockCharts.com www.stockcharts.com

Despite weakness in grain prices, agriculture equities and their ETF in the U.S. broke to an 11 month high last week. See Market Vector Agribusiness (NYSE:M00)

Chart courtesy of StockCharts.com www.stockcharts.com

Financials

The yield on 10 year U.S. Treasury bonds is testing the bottom of a 3 month trading range between 3.29% and 3.99%.

Chart courtesy of StockCharts.com www.stockcharts.com

Conversely, the long term U.S. Treasury bond ETF is testing the top of a three month trading range between $87.00 and $96.50. See iShares T-Bond+ ETF (NYSE:TLT)

Chart courtesy of StockCharts.com www.stockcharts.com

The U.S. Financial Services remains in a six week trading range. Short term momentum indicators continue to deteriorate from overbought levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Ditto for the TSX Financial Services Index! It also remains in a six week trading range with support at 162.75 and resistance at 178.33. The Index eased 0.57 last week and is testing its 50 day moving average. Short term momentum indicators continue to trend lower.

Chart courtesy of StockCharts.com www.stockcharts.com

Other Factors

The VIX Index broke support at 23.00% to reach a 12 month low.

Chart courtesy of StockCharts.com www.stockcharts.com

The Baltic Dry Index recovered slightly last week and appears to have stabilized.

Chart courtesy of StockCharts.com www.stockcharts.com

Generally, technical indicators are short to medium term overbought. Strength last week made them more overbought. Rising wedge patterns are early warning signs.

Economic news is expected to reflect more “green shoots” this week.

Political uncertainties on both sides of the border are not helping equity markets. Wide spread public opposition surfaced over the weekend to Obama’s partisan health care plan announced last Wednesday. In Canada, the current federal government could be defeated as early as this Friday.

The U.S. Presidential cycle and seasonal influences on equity markets in the month of September continue to follow their historic trend. ‘Tis the season for equity markets to move lower. This call became controversial during the past week after major U.S. equity indices moved above their close on August 31^st. However, their 2% gain since the end of August is not significant. Indeed, the Dow Jones Industrial Average in Canadian Dollars is slightly lower since the end of August. September “ain’t over yet”. See additional comments at the end of this report released after the close on Friday on CNBC.

Cash reserves on the sidelines remain huge, but political uncertainties in the U.S. are limiting re-investment.

The Bottom Line

Swing trading strategies remain the same. Purchases of equities and equity ETFs are not compelling at current levels. Intermediate upside is limited and downside risk is significant. Most equities and indices are trading substantially above their 50 and 200 day moving averages. A return to these moving averages implies significant losses from current levels. Downside risk is expected to be tempered somewhat by continuing weakness in the U.S. Dollar. Look for a shallow correction between now and late October followed by a significant upside move into next spring.

Tech Talk’s Weekly Column in the Financial Post

(Published on Saturday and available at www.nationalpost.com )

Crash was in the charts last fall: Seasonality analysis will be vindicated, as it was last year

The September 15^th 2008 collapse of Lehman Brothers was a monumental event that will be recalled by investors for many years to come. It ranks among other infamous events in recent investment history including the collapse of equity markets following the World Trade Center attacks on September 11^th 2001 and the collapse of equity markets on October 19^th 1987. Why was the Lehman Brothers’ bankruptcy on September 15^th 2008 so important?

Unlike, the October 19^th 1987 and September 11^th 2001 events when equity markets around the world fell sharply, the September 15^th event started with a mild downside bump, followed by a brief recovery followed by a virtual collapse over a six month period. The Dow Jones Industrial Average fell 505 points to 10,917 on Monday September 15^th following overnight news that Lehman had entered into bankruptcy protection. However, equity investors did not take the news seriously. By Friday September 19^th, the Dow Jones Industrial Average had recovered to close at 11,388. Then, the significance of Lehman’s demise on world financial markets began to be take hold. World credit markets virtually froze. Most of the damage to equity indices occurred during the next month. By October 15^th, the Dow Jones Industrial Average had fallen 32% to 7,773. After several brief recoveries, the Dow Jones Industrial Average reached its final closing low at 6,547 on March 9^th. Total drop from September 12^th was 42.7%.

The TSX Composite Index followed a similar trend. On September 15^th, it dropped 516 points to 12,254. Ironically, the Index recovered 658 points to 12,912 by Friday September 19^th before the collapse began. The low was set on March 9^th at 7,567 for a total decline of 41.4%

In retrospect, investors using classic technical analysis on equity markets were given fair warning. The Dow Jones Industrial Average and the S&P 500 Index already were in downward intermediate trends prior to September 15^th. The Bear Stearns collapse in March was the trigger. The Dow Jones Industrial Average, S&P 500 Index and TSX Composite Index already had moved below their 50 and 200 day moving averages. Short term momentum indicators started to trend lower in the week after September 15^th.All major equity indices broke intermediate support levels in the third week of September.

Investors using classic seasonality analysis on equity markets did amazingly well if they had the intestinal fortitude to stick with the trade. They missed most of the downdraft in equity markets last September and October and benefitted from the recovery into spring. The classic optimal time each year to “buy the market” is at the close on October 27^th. The classic optimal time to “sell the market” is at the close on May 5^th. From the close on October 27^th 2008 to the close on May 5^th 2009, the Dow Jones Industrial Average gained 2.8%, the S&P 500 Index gained 7.0% and the TSX Composite Index rose 15.7%.

Where are North American equity markets going from here? The classic optimal time to “buy the market” is approaching. Between now and October 27^th seasonal influences are neutral. Most technical indicators for equity indices currently are intermediate overbought implying limited upside potential between now and the end of October and significant downside risk. Overbought conditions have surfaced because equity markets have gone too far too fast. Since March 9^th the Dow Jones Industrial Average has gained 48.8 %, the S&P 500 Index has jumped 56.6% and the TSX Composite Index has advanced 49.1%. Preferred strategy is to stick with cash equivalent positions until intermediate technical indicators and seasonal influences become positive.

Letter to the Editor of the Globe and Mail

A column last Wednesday by Dan Richards needed to be addressed. The column entitled, “Market timing is a trap for those who ignore the lessons of history” at best was misleading. It was a direct attack against investors (particularly fund managers) who use technical and /or seasonality analysis to supplement their investment decisions. The message was “Market timing does not work, so don’t even try”. The following comment was sent to the Editor of the Globe and Mail on Friday. Comments are restricted to 200 words, the approximate length of the following comment.

Dan Richards was right about one thing in his controversial column (Market timing is a trap for those who ignore the lessons of history- September 9). Mr. Richards stated “ Ask (veteran investors) to identify a (fund) manager who’s been able to consistently get into and out of markets at the right time over an extended period – and you’ll typically get silence and blank stares”. However, he forgot to mention that many individual investors using technical and seasonal analysis have successfully recorded profits by “timing the market” throughout the years. Unfortunately, most fund managers in Canada have not learned that lesson. Net result is that returns on their funds during the past five years have been less than satisfactory. The latest Standard & Poor’s Indices Versus Active Funds (SPIVA) report shows that average annual returns during this period were 3.23% for Canadian equity funds, -7.37% for U.S. Funds and -2.27% for international funds. Clearly, a “buy and hold” strategy for investors owning their funds has not worked. Most Canadian fund managers have difficulty understanding the significance of technical and seasonal analysis. At best, many fund managers are “closet technical analysts”. Even fewer are willing to acknowledge the validity of seasonal analysis. Canada’s fund managers are missing an opportunity to improve their returns by supplementing their investment decisions with technical and seasonal analysis.

Don Vialoux

Director of Canadian Society of Technical Analysts

Author of www.timingthemarket.ca

Thackray Market Letter: Know your buy & sells a Month in Advance

Brooke released his monthly letter on Thursday. The report was released later than usual this month because Brooke has been busy completing his next book entitled, “Thackray’s 2010 Investor’s Guide”.

His latest letter notes several interesting investment ideas including the formation of a rising wedge pattern by the S&P 500 Index and its potential bearish implications if broken. He also notes that the successful seasonal trade in gold this year may be approaching an end. He said, “Because October has traditionally been a very week month for gold, investors need to be very careful at this time”.

Brooke’s monthly letter is free. To subscribe, send an email to subscribe@alphamountain.com with SUBSCRIBE in the subject line. Also, state your first and last name, city and country.

Where’s the Market Correction? Four Ways It May Still Happen

MARKET, STOCK MARKET, INVESTMENT STRATEGY, SEPTEMBER, VALUE TRAP

Posted By: Jeff Cox | CNBC.com

CNBC.com

| 11 Sep 2009 | 05:41 PM ET

Despite its nasty reputation, this September has not triggered the long-awaited stock market selloff.

Though the gains certainly wouldn’t be characterized as robust, the market has more than held its own so far this month. Instead of a correction—generally defined as a 10 percent pullback—the six-month rally has largely continued.

So what happened?

Continued declines in the dollar have boosted commodity trading, particularly in gold and oil, which in turn has pushed correlated stocks higher.

Meanwhile, money managers who stayed cautious once equities started rallying are using any dips in the market as opportunities to make up for lost time.

Finally, the news cycle has remained fairly positive, with a smattering of high-profile companies such as Federal Express preannouncing that their earnings would beat expectations.

Is it time, then, to sound the all-clear?

Not quite.

"This is the most difficult environment we’ve ever been in. Individual clients are anxious," says Kathy Boyle, president of Chapin Hill Advisors in New York. "We see signs of speculation from some of our clients that are not connected to reality."

Indeed, the market faces any number of pitfalls ahead that could step in front of the rally. Four to consider:

1. Unexpected News From the Financial World

Yes, the news has been mostly good, or at worst better than nightmarish scenarios many had envisioned for the market.

But what if the so-called second derivative—a term analysts use to describe bad news getting better—doesn’t change and there aren’t true positive signs for investors to grab onto?

"News can trip it up," says John Buckingham, CIO at Al Frank Asset Management in Laguna Beach, Calif. "If the economic statistics don’t continue to show modest improvement, then that could be a big hiccup for investors."

Unemployment, after all, remains high, and Friday’s improving consumer confidence numbers were shrugged off by investors. Should negative sentiment take hold, it could drive the market down just as quickly as it went up.

"What happens if you get the runaway train?" adds Buckingham, who remains mostly bullish on the market but believes investors should be mindful to take profits periodically. "Our strategy is to plant when it’s the time to plant and harvest when it’s time to harvest. These days we’ve been doing more harvesting."

2. Unexpected News Outside the Financial World

Geopolitical hazards remain a strong headwind for the market, and should the situations in Iran or Afghanistan explode, or if there is a significant event elsewhere in the world, that could damage the market.

"Any big, major event overseas that shakes us up, that could be something" to unnerve the markets, says Boyle, a market bear who senses a level of nervousness from technicians that a significant occurrence is on the horizon.

Such an event could roil trade in the dollar, the sharp decline of which Boyle attributes to the market improvement.

The market also has relied on the strong demand in Treasury auctions, something else that could be disturbed by a global event. Foreign buyers have been relied on heavily to cover US debt offerings.

3. Technical Pressures

The light trading volume that has dominated the market is one indicator that the average investor hasn’t returned yet and the current levels are being driven by traders in the pits as well as computerized and high-frequency buys.

That has raised worries that the market lacks fundamental underpinnings and could tumble again if certain technical levels don’t hold up.

"You are already in the plus-50 percent return category from the March low without a pullback," says Rick Bensignor, chief market strategist at Execution LLC in New York. "The more you rally, the more you pull away from any significant support levels, the more risk you take on an outright long position."

To protect against too much exposure to the long side, Bensignor has been advising clients to use pair trades, which combine long and short positions.

For example, he’s current long the SPDR Select Energy ETF and short the SPDR Select Financial because he believes energy will outperform financials. He has a similar trade in which he’s pairing a long position in industrials against a short in consumer staples.

"By playing pair trades you take the market risk out of the picture and you have relative performance,"  Bensignor says. "If you do your analysis correctly you should make money regardless."

4. Value Traps

Advisors caution against so-called "value traps," in which investors perceive a sector or stock to be a bargain simply because its price is beaten down. That’s not always the case, and the trap can become especially enticing in a market that is still 30 percent off its historic highs.

"Roughly three out of four times, industries that are identified as value traps have failed to outperform the market in the subsequent month," Bank of America-Merrill Lynch said in a research note.

The firm noted five sectors likely to be value traps: Beverages; energy equipment and services; food and staples retailing; food products; and hotels, restaurants and leisure.

Buckingham’s firm specializes in value-based investing but says it can be a subtle distinction between determining value or a trap.

"You do need to be very cognizant of the underlying business and its potential for growth over the next few years," he says. "The expectations are your home runs will make up for your strikeouts, and you won’t strike out as often as hit home runs."

As an example, he recently bought stock in MGM Mirage , which some considered a difficult pick because of some balance sheet issues. Yet the stock has gained 45 percent in September.

"Was it a value trap or a value play? Hindsight’s 20-20 but as of right now it was a great value investment," he says. "The distinction between traps and opportunities is a fine line."

Disclosure: Mr. Vialoux does not own securities mentioned in this report.

Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

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