A Notable Reversal Day

Author Larry Berman

Posted: 9 Aug 2012 re-posted from etfcm

Just as the TSX looks like it can exceed recent highs, we see a notable reversal day. In this case, a good open near the highs of the day and a close at the low of the day reversing most of the previous day’s advance. Recall the bulk of Tuesday’s advance happened during the holiday Monday, so Tuesday’s gains in the TSX were mostly playing catch up. So like we have seen for the past few months, the TSX probably drifts back towards the trend of recent rising lows. Nothing to worry about in the grand scheme at this point, just more trading noise.

The most notable reversal was in the overbought energy sector. Our view is WTI has no business being at $95 when supply and demand fundamentals point to $85 as a reasonable average price given subpar growth for the next few years coupled with increasing domestic supply. The insurers are reporting sloppy earnings and banks are not going to be any better. The TSX remains stuck in the mud for a while.

 

Nat Gas Stocks Remain Relatively Cheap

Author Larry Berman

Posted: 7 Aug 2012 re-posted from etfcm

The S&P TSX should play a little catch up today and it is clear that the price action in the past few months has been confusing to say the very least. We expect more choppy markets in the coming months with crude oil leading to most of the choppiness, and gold adding to that theme as well. In the next few months, we are sellers above 12,000 and buyers below 11,400 and see little scope for a strong move beyond either side of that range.

Nat gas stocks remain the relatively cheapest part of the TSX and make some sense for investors to accumulate on weakness in the coming months. We do not see a robust recovery for a while, but the longer-term risk reward is compelling in the sector. The fact that they have not moved much and nat gas has bounced from the $2 area, suggests that the market does not believe just yet.

 

Gold Equities Likely Disappointed Today

Author Larry Berman

Posted: 1 Aug 2012 re-posted from etfcm

If historical patterns repeat, and we know they do, gold equities are likely to be disappointed for a few days following the FOMC not adding more QE today. Although most economists surveyed think they will add more QE at some point, the Bernanke has clearly stated that they want to see things get a bit worse before they act.

World oil process weakened again yesterday as WTI struggles to hold above $90 while the XEG put in a notable bearish reversal pattern, perhaps capping the near-term upside for the TSX. If gold and energy look weaker, it is hard for the TSX overall to do much on the upside.

 

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.

 

TSX Trading Cycle Remains Positive

Author Larry Berman

Posted: 19 July 2012 re-posted from etfcm

The trading cycle for the TSX remains positive, which means traders should be in a buy dips mode. However, the relative cycle confirms that the TSX is still one of the weaker markets in the world. All will know that for the TSX to perform well it needs energy, golds, and base metals to perform well. Over the past few months, these stocks have been decimated.

There is little doubt that the TSX is quite oversold relative to other markets in the world, but in the very short run, it continues to lack a material bullish catalyst. Even the recent strength in WTI crude oil bouncing from $78 to $89, and nat gas from a dip below $2 to coming close to $3, has not managed to excite investors. Seasonals for gold stocks turn up for the next six months, which should help significantly, but there is little clarity in energy where the fundamentals remain soft at best.

TSX Tests Downside & Buyers Appear

Author Larry Berman

Posted: 29 June 2012 re-posted from etfcm

The TSX tried to test downside support yet again yesterday and buyers showed up. It appears that at least for now, the energy (XEG, ZEO) and financials (XFN, ZEB) sectors have hit a minor bottom, which should mean the TSX has also hit a minor bottom.

Support for Europe’s banking sector should be viewed by the global market as a relief. This should stabilize the markets for a while or at least until we see Q2 earnings, which increasingly runs the risks of disappointment. We now look for a relief bounce back towards 12,000, but we would be very surprised if we were able to get much more.

Twist Extension Doesn’t Impress Commodities

Author Larry Berman

Posted: 25 June 2012 re-posted from etfcm

The fed did extend twist and commodity prices were not impressed. The TSX has some material headwinds when it comes to the 30% weight in the energy sector given the clear slowing global economic picture. Major support for WTI in the $75 could be tested in the next few months, but it should hold as the global economy is not falling off a cliff.

Gold will be hit and miss for the next few months with QE3 being dangled by the Fed. Look for the sector to do well on disappointing economic numbers and weaken if numbers are a bit stronger. The banks will bounce around with the US financials and the fate of the global banking risks, but do face some earnings headwinds too.

 

The Market Gets Excited About Central Banks Coordinated Intervention

Author Larry Berman

Posted: 17 June 2012 re-posted from etfcm

The fact that the TSX underperformed so miserably yesterday made little sense to us. The tape in the US clearly showed that risk was back on as the market gets excited about a global central bank coordinated intervention for European debt and that Greece will vote with a bias to remain in the EMU. That should mean the market losses some anxiety at least and starts to focus back on earnings, which will be no picnic to be sure, but better than focusing on the world’s banks falling apart.

The European banks are trading stronger this morning and have not made lower lows this week—a notable sign of stability. If the ECB comes with a big bazooka, the improvement in psychology could last for a few months as it has in the past. It seems like this time, the band-aid solution actually makes some sense if they can pull it off. We just might be surprised at how high the bounce could be and how long it could last. For the TSX though, we really need to see the world growth outlook improve for commodities, and we fear 2013 will hit the US pretty hard, so it’s a bounce in what likely is a continuing bear for global growth.

 

Watching the Spot Gold Market Closely

Author Larry Berman

Posted: 17 June 2012 re-posted from etfcm

There is little doubt the world looks fragile. China is slowing, Europe is in recessions, the latest data in the US suggests slowing and all are looking to the central banks of the world for another jolt of adrenaline. Chatter is picking up that there is a bazooka like support coming for pan-European banks and euro debt.

We are watching the spot gold market very closely here, as it is pushing up against a declining trendline that has turned the rally back down in recent rally attempts. A close above $1642 likely points to a rally up to at least $1725. It probably happens into next week’s FOMC if the whispers are sniffing at the right type of central banks interventions. There should be enough juice to get the market to bounce here, but for the TSX it’s just a bounce, not likely the beginning of a new broad advance. Recent longs in most sectors should look to get out in the 11,800-12,000 range.

 

Today on Berman’s Call: Using Volatility ETFs to Hedge Portfolio Risk

Author Larry Berman

Posted: 17 June 2012 re-posted from etfcm

The market is giving very mixed signals, but the internals suggest that at least a short-term trading low is likely developing. For the longer-term money looking to the buy dividend trade, this is most likely NOT the bottom of the current down cycle, so have some patience. Sentiment is not terribly bearish and the higher dividend paying stocks like REITs, Utilities, and preferreds have not been thrown out with the bath water.

In almost every major trading low we tend to see a wholesale liquidation, which we have not seen yet. We suspect there will be a big enough band-aid put loosely on Europe should Greece vote to remain in the EMU. We expect the FOMC to extend the twist next week, which should help build some support around current levels, but bounces are likely quite limited to established resistance zones 11,800-12,000 for the S&P TSX. It could be a bit higher if the ECB shoots a bazooka to support Spanish bond yields.

Rick Santelli Epic Rant!

He definitely has a point – what is the Fed afraid of… http://video.cnbc.com/gallery/?video=3000176936