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.
One of the signs of a bull market is when all the indexes are making new highs within a few days of each other. One of the signs of market weakness shows by having different indexes not confirm new highs together. So the question in the title is really asking if we step back, are we on the edge of a market precipice (Cliffside View) or are we just pulling back before resuming the uptrend (Helicopter View)? That's always a good thing to check.
Recently, the $TSX hit a new 52-week high, which we would regard as bullish. One of the problems associated with the market right now in the USA is that only the Nasdaq 100 ($NDX) is making new highs. Canada recently made a new high that coincided with the $NDX new high.
The chart below needs more discussion though. If we look at the period of August 13-15, all seven of the indexes were making new highs together. That is a very bullish scenario. Even on September 7th, almost all of the markets were recording new highs or very close, highlighted with an orange arrow. The $TSX and the Nasdaq 100 both made new highs on October 24th, but looking down across the rest of the indexes, we can see the progression lower, long before the October 24th top. I have marked the highs for each index with a green arrow. While the $TSX has not broken to new three month lows, it is an important clue for Canadian investors that a major divergence is in place on many of the US market indexes.
While the market will move widely this week on election results, the bigger picture denotes a problem. For all the bullish seasonal patterns and tendencies being discussed, October has marked meaningful highs in more than a few years. 2000, 2001, 2002 was November stalling, 2007, 2008, 2014 was November stalling, 2015 was November stalling, and now 2016. Keep in mind, US stimulus was in place for the fourth quarter of 2008, 2009, 2010, 2011, 2012, 2013, and 2104.
So while the bulls and the bankers want us running head first towards the new year, the charts now have one common thread in the US, they are all at three month lows with divergences on the recent highs. When the markets pull back together, then surge to new highs together, that is the price action we normally see in an uptrend. Currently, only the downtrend is in harmony. In September when we were pulling back, all the markets were in sync. In October, they were not in sync before pulling back.
You may remember in 2008, the $TSX went on to make new highs, while the US market was deteriorating.
Let me switch to a wider view outside of America and Canada. I like looking at the indexes for their country priced in local currency, not the US dollar ETF. An example would be looking at the $TSX shown above, it is priced in Canadian Dollars, not US Dollars. Globally, of the major market economies that I follow, only the Bovespa in Brazil ($BVSP) and London's $FTSE have made higher highs than 2015 in their local currency. Smaller economies like Mexico, Argentina and Chile have as well.
However, over 2.8 billion people live in China, India and Indonesia. Their markets have not confirmed the new highs.
Actually, the country list coming up short of the 2015 highs includes China, India, Indonesia, Russia, Japan, Vietnam, Germany, Thailand, France, Italy, South Korea, Spain, Australia and Canada. Yes, this list of countries have not taken out the 2015 highs while the US market did.
If we are in a bull market, it better show its horns very quickly. This global divergence does not resemble the big bull markets where the majority of the stock markets move higher together. While this information does not help us on a daily basis, it is pretty important to be aware of the larger dynamic on a global basis.
I recently did a few webinars, trying to clarify the market information for investors. If you are not aware of how fine that picture is, I would encourage you to watch Commodities Countdown 2016-10-27 and then the Commodities Countdown 2016-11-03. There is also the Canadian Technician Webinar 2016-11-01. I have been bullish until late September so I am not quick to jump on the bear bandwagon. But when the time comes, keeping your capital becomes more important than making money.
I will be hosting Martin Pring with a Webinar on Tuesday. Martin Pring 2016-11-08. I will also be hosting a Commodities Countdown Webinar on Thursday November 10th. If you miss any of our webinars be sure to check the Webinar Archives for watching them when its convenient for you.
Greg Schnell, CMT, MFTA.