TSX Exhibiting Bottoming Behaviour

Author Larry Berman

Posted: 25 July 2012 re-posted from etfcm

The TSX tried to pull off a reversal day after dipping below the 200-day on a bounce back in energy and financials. The TSX is clearly exhibiting bottoming behaviour, but the outlook as we see it is still unlikely to generate much more than another bounce while the risks of a lower low and retest of the 2011 lows is growing, as the US market stumbles and European banks head for new lows as well.

The fact that the energy sector cannot generate a material rally despite the potential for M&A and the recent $15 rally in WTI speaks volumes about the underlying confidence in the market. It does also suggest that people are underinvested in cyclicals and that when the catalyst is a good one, the markets can put in a good rally.

Promise of more QE if needed from the Fed is not enough for the precious metals at this point, but the seasonals are now positive, so a bottom is likely near. We could see one more head fake to the downside before an explosive rally.



Gold and WTI Rally While Gold and Energy Stocks Decline

Author Larry Berman

Posted: 10 July 2012 re-posted from etfcm

It’s never a good day when WTI rallies and energy stocks decline. It’s never a good day when gold rallies and gold stocks decline. Investors should get used to it. We had a caller on the show yesterday asking about the disconnect between gold and gold stocks. This is indeed one of the major conundrums of the TSX and while we are confident gold’s longer-term trend is up, gold stocks have not made any money as a group for the past 5 years, as measure by the XGD, and are down about 30% from recent peaks. We also know that the sector valuations are near the low-end of a two decade range, so there should be some fundamental value players stepping up during the second half of the year when earnings are more favourable.

We Are Likely Close to a Capitulation Bottom

Author Larry Berman

Posted: 5 June 2012 re-posted from etfcm

Gold is breaking out, financials are breaking down, energy stocks are cheap and getting cheaper, and they are selling the utilities, which likely means we are close to a capitulation bottom.

The TSX did not make a lower low last week while most stock markets globally did. This bodes well for the commodity stocks and golds in particular making at least a short-term bottom. But if we are correct and the world is slowing significantly, not just because of Europe, but because of China’s harder landing scenario, then commodities do not bounce very high unless we see a massive coordinated central bank QE effort (which cannot be ruled out).

So traders, expect markets to be tough and focus on the daily and weekly charts for reversal signals. Right now, the weeklies are oversold enough and trying to at least make a short-term bottom with the better seasonals in June and July to support the bounce. The fall could be nasty once again especially with the US political theatre likely to be major fodder for the late night circuit. How can it be funnier than Palin-McCain you ask…it’s so sad it has to be funny.


Energy Sector Goes From Manic to Panic and Back Again

Author Larry Berman

Posted: 2 May 2012 re-posted from etfcm

The TSX touched the 200 and 50-day averages yesterday on the back of another strong surge in the energy sector, while the banks remained soft. We often see banks begin to adjust a few weeks before earnings, and this time is no different. The energy sector went from manic to panic and now to maniac again in “hopes” that nat gas has made a major low. While likely very close, we see another test below $2 before a major bottom is likely to be confirmed.

For every 1% the TSX can bounce, take 5-10% of equity exposure off the table. We are quite confident that we have a date with 11,500 before we see 13,000, but following that plan, you would be nearly fully out of the TSX if by some miracle, the TSX moves higher.

Do not bet on crude oil going to $115 any time soon, but there is a big position between Brent and WTI to unwind, and forced spread trades can move markets for longer and farther than anyone can speculate. Outright shorts and hedges using HIX should be considered if the TSX reverses to the downside above 12,500.


Hope for TSX Rests in Mining, Oil & Gas in Coming Months

Author Larry Berman

Posted: 2 Apr 2012 re-posted from etfcm

The fact that Canada added 80K+ jobs matters little to the TSX. The TSX works based on what is happening other places in the world and a weak US NFP report is far more important to the TSX than Canada’s “job gains.” If the much anticipated correction for the S&P 500 is about to unfold in the coming months, then the TSX does not stand much of a chance unless oil & gas and mining stocks start to lead. We think gold stocks stand a very good change of bouncing back in the coming months, but the banks, insurance companies, and the energy stocks, significantly less.

That said, the energy stocks are now relatively cheap compared to the TSX and very cheap compared to the banks, so probably a little rotation will be seen in the coming weeks and months into some of the higher energy dividend payers. If we are correct and the European banks are due for another summer of discontent, our banks will likely suffer some collateral damage.


Impacts on the Energy Sector

Author Larry Berman

Posted: 28 Mar 2012 re-posted from etfcm

The rising costs in the energy patch and increasing stress on nat gas prices seems to be having a significant impact on the energy sector despite the fact that WTI is trading at $100+.

We saw a presentation today that suggested the realized revenue on a barrel of Oil Sands gunk is less than $70 and costs are running in the $60 range, so not too surprising that the sector is trading under a bit of stress right now. Now that WTI cannot hold the war premium it has built up, that would suggest the XEG could easily trade back to $15 all things being equal (ceteris paribus)—which of course they are not.

Gold could hug its 200-day average like it did for a few weeks last month when it was trying to rally back, which suggest the gold stocks could struggle a bit too. We know seasonals for gold stocks are not strong until summer months.


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