There has been some rotation into more defensive stocks this week, so I thought I would highlight Saputo this week. The chart looks set to deliver more solid gains. Saputo has a big uptrend going, but recently pulled back for about 6 weeks. When investors jumped into Financials in November, they were selling Saputo by looking at the chart. Friday price action is interesting. It gapped open, shot up, then traded near the lows to close out the week. All of the other indicators are giving positive signals. The MACD is turning up, the SCTR is pushing back above 75, the volume doubled on the breakout, and the relative strength downtrend apeears to be breaking.
Well, another year of Fed meetings and another December 0.25% rate increase with predictions for a more aggressive pace next year. So in a day where we got what we expected why did the market wobble this time? At the last Fed meeting (October), we got what we expected and it marked the November low in the markets and the US Dollar.
The market has been on a tremendous run. In Canada, the Energy sector has picked up the leadership and surged again today. The RSI suggests we are getting close to an extreme. This can still run for many months, but you need to look for selling opportunities to lock in profits and rotate into something else that might have some big upside.
The Canadian Energy sector got a major boost on Tuesday. The Canadian government allowed two existing pipelines to be upgraded but blocked the new pipe proposal from Enbridge. This announcement coincided with the OPEC meeting. This has created a significant move in the Canadian energy sector stocks.
Recently, the market has experienced a Trump Jump on the back of the overnight lows on election day. Surging forward, anyone who had either pulled back from the market or was caught watching and waiting has seen the $INDU chart up 5 days in a row since the election. But there is more. It seems regardless of the space, some of the moves have been parabolic. For some reason, the airlines have suddenly taken off in time for Thanksgiving. Marijuana legalization was on some of the voter ballots. Canopy Growth Corporation, a legal marijuana growing entity in Canada, has gone ballistic. Manulife Financial, a large Canadian insurer that wandered sideways to down for a couple of years, has gone vertical, and in the bottom right, Hudbay Minerals has gone parabolic.
For Canadians, one of the most important aspects of our economy is the close relationship we have with our neighbour, the United States. Understanding where the US Dollar is going is a large part of the Canadian investor's landscape. So today, the US Dollar Index ($USD), an index created from a basket of 7 currencies, closed above the highest weekly close in the last two years (red line) but not quite above the intraday highs. So this is a major two year resistance.
Cameco (CCO.TO, CCJ) has been in a downtrend for so long, only the most stubborn investors are still in the stock. This stock is set up for a very interesting turn of events.
A little discussion on the merits of the technical condition is warranted because the stock looks to be on a crash course in a mine shaft. The reason there is some optimism for a trade here is the volume. The last two weeks have seen more than double the average volume on both the Canadian and US side. The MACD has finally turned positive and any investors that have owned the stock earlier than August are in a house of pain. In the last twelve years, only the investors buying in the last couple of months are still profitable. It has been a 'value' trade for a while. There are very few volume bars in Canada on the chart that are this big. In the US since 2011, there have only been two other occasions. So all of a sudden, someone is stepping in to own the stock.
I have been doing some work on finding SCTR's that are beaten down for months and then start to perform. Cameco looks like a setup to this trade style. The trades still have to be managed but it can be a clue that investor attitudes towards the stock are changing. Probably the most interesting part of the chart is the push below the 2009 lows and now the volume is coming in. Of course the macro picture suggests that all the Nuclear power plants in Asia should make these uranium stocks surge for long term supply agreements. Cameco's Cigar Lake facility is one of the premiere mine sites in the world owned by a company that has a solid history for their nuclear sales relationships.
If you like bottom fishing, this is a serious target. Bottom fishing requires discipline, so understanding where the trade will go wrong is as important as putting money to work to the upside potential.
I will be hosting the Canadian Technician Webinar 2106-11-15 at 5 ET. If you would like to join me, we will focus on some of the Industries that participated in the Trump Jump, as well as highlighting which industry groups look set to be out of favour for a little while here. You may also be interested in checking out The Commodities Countdown Webinar 2016-11-10 recording. I discuss the implications of a rising US Dollar with respect to the commodity markets. I think it will be one of the bigger themes for 2017.
Greg Schnell, CMT, MFTA.