THE CHAPMAN REPORT FOR FEBRUARY 23, 2009

Transcription

1 THE CHAPMAN REPORT FOR FEBRUARY 23, 2009 Charts and technical commentary by David Chapman Union Securities Ltd, 33 Yonge Street, Suite 901, Toronto, Ontario, M5E 1G4 fax (416) , (416) , phone (toll free) S&P 500 trends Intermediate: DOWN Short-term: DOWN Week: DOWN S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report) - The S&P 500 fell a sharp 6.9% on the week following the previous week s 4.8% decline. - Plans to recapitalize the US banks has the market gasping for air. - All the economic indicators continue to be gloomy with few if any signs of a recovery or even a bottoming. - The stimulus package was greeted as if it was due for a Razzie rather than an Oscar. - The banking sector (see below) is leading this market lower. - The US banking system is effectively bankrupt. - The plans from the US Treasury are vague and Treasury Secretary Geithner s performance has been hugely underwhelming. He may have to go before he drags the Obama administration down with it. - The S&P 500 broke down out of a triangle pattern and broke below 800. Negative developments. - New lows are a clear possibility. - Targets are 600/ While the seasonals are supposed to be positive during this period our thoughts on a high in April are now looking like a low. - Investors should watch their positions carefully and lighten up on any profitable positions acquired over the past few months. - The DJI lows of 2002 were At lows Friday of 7226 we are within 50 points of taking them out. Expect them to fall. Technical Commentary, February 23, 2009 page 1 of 16

2 - The S&P 500 with a low of 754 this past week took out the 768 low of October We are back at 1997 levels wiping out 12 years of stock market activity. Invest for the long term? - A fall to our 600/650 targets would put us back in 1995/ There was a huge waterfall decline from the first week of March to lows in mid April 1939 before a more sustained rebound got underway into the fall. Does history repeat itself? - We have some support at 760 and could muster at least a short term rebound from there. - Key is regaining 800 and above 810 to tell us that our bearish scenario is wrong. - Instead of being a catalyst for at least a good bear market bounce Obama is proving to be the opposite. Recall we fell on the news of his election, his inauguration and on his bailout and stimulus plans. The market is just not buying it and meanwhile the economic numbers continue to be negative. Technical Commentary, February 23, 2009 page 2 of 16

3 Bonus Chart KBW Banking Index (and TSX Financials for comparison) - The US banking system is bankrupt. - This chart hammers home that reality with a collapse of almost 82% from the highs of February These are depression level collapses. We would not now be surprised at a collapse of 90% before this bottoms for good. - As a comparison the TSX Financial Index is down 57% from its May 2007 highs. - By comparison the Canadian banking system is still solvent but severely wounded from the banking collapse around the world. - The British banking system we suspect is also insolvent. - The European banking if not bankrupt is about to go under as Eastern Europe defaults. Exposure to Eastern Europe is huge in the European banks and will wipe out all their capital (what s left of it). - The message is clear Avoid the bank stocks and even look carefully at the Canadian bank stocks. Technical Commentary, February 23, 2009 page 3 of 16

4 NASDAQ NASDAQ trends Intermediate: DOWN Short-term: DOWN Week: DOWN NASDAQ STRATEGY: STAND ASIDE - The NASDAQ fell a sharp 6.1% this past week. - We broke down out of a triangular pattern. - Targets on the triangle are new lows near 1125/ Indicators are oversold sufficiently for a short term bounce. - But the breakdown signals to us that instead of an up move we could see a move to new lows. - The VXN indicator remains well below its October/November highs and below the old highs of 1997, 1998, 2001 and As well the failure to break through the 100 day MA was a negative. The 50 day MA acted as resistance throughout this recent consolidation. - The path of least resistance is the downside. - Watch any long positions closely and adhere to stops. Technical Commentary, February 23, 2009 page 4 of 16

5 U.S. GOVERNMENT BONDS US TREASURY BONDS Intermediate: UP Short-term: DOWN Week: UP US BOND STRATEGY: STAND ASIDE - A wide ranging week leaving us with a spinning top doji (high high, low low and a close and open very close to one another). - Bonds remain a short especially on another break down through 125^24. - Indicators on the weeklies are pointed down. - Our bond model is on the sidelines. - The short term trend is firmly to the downside. - The commercial COT for bonds was 56% down from 57% a mild negative. - This past week s economic numbers continue to paint a grim picture. The Empire State Manufactures Index was negative vs. negative 22.2; Housing starts were 466 thousand units vs. 560 thousand units; Building permits were 521 thousand vs. 547 thousand; Industrial production fell 1.8% vs. a decline of 2.4%; Capacity utilization was 72% vs. 73.3%; initial claims 627 thousand vs. 627 thousand; Philly Fed vs ; and is inflation dead PPI +.8% vs. -1.9%, core +.4% vs..2%; CPI +.3% vs. -.8%, core +.2% vs. flat. The positive leading indicators rose.4% vs..2%. Technical Commentary, February 23, 2009 page 5 of 16

6 - This week s numbers include Consumer confidence (36 vs. 37.7), existing home sales 4.81 million vs million, new home sales 329 thousand vs. 331 thousand, Q4 GDP preliminary -5.4% vs. -3.8%, Chicago PMI 34 vs. 33.3, Michigan Sentiment indicator 56.5 vs and especially watch for the Case Schiller Home Price Index % vs % and durable goods -2.3% vs. -2.6%. - Ten year bonds were 2.78% vs. 2.89%, 2 year Notes.96% vs..97%, 2-10 spread 182 bp vs. 192 bp week rate of change M %, M2 +17%, One year rate of change M1 14.9%, M2 9.6%. These continue to be high and unsustainable without triggering potential major inflation. - Currency in circulation jumped a big $4.6 billion this past week and is up $77.2 billion on the year. - Inflows from official foreign and international institutions was $15.3 billion and up $445.9 billion on the year. - We note that the Fed holdings of Mortgage backed securities jumped $55.7 billion on the week and term auction credit jumped another $34.7 billion. - All of these plus the huge deficit requirements will weigh heavily on bonds into the next year. While short term rates will stay at or near zero the yield curve will continue to steepen. Technical Commentary, February 23, 2009 page 6 of 16

7 CANADIAN GOVERNMENT BONDS CANADIAN BONDS Intermediate: UP Short-term: UP Week: UP CANADIAN BOND STRATEGY: STAND ASIDE - Canadian Bonds were up on the week. - The spinning top doji left on the charts (high high, low low and opening and closing close to each other) is a sign of hesitation. It may be signalling a top but we can t confirm that until we break down through support near 125 and then under Resistance is solid up to the old highs 128/ Canadian wholesale sales fell a sharp 8% the largest decline on record and the most since CPI continued its downward spiral - The key economic number this week is retail sales (expected down 2.7% to 3% vs. down 2.4%). - We believe Canadian bonds are continuing a topping process. Our bond model is on the sidelines although if one notes from our ETF s the systems are still long (slightly different systems). Technical Commentary, February 23, 2009 page 7 of 16

8 GOLD, SILVER, US$ & CDN$ intermediate term trend short-term trend week trend strategy Gold up up up HUI neutral up up stand aside Silver up up up TSX Gold Index up up up long - hold US$ Index up up up CDN$ down down down - A solid week for both gold and silver as both rose roughly 6.4%. - The metals continue to outshine all with Gold is up 13.4% and Silver up 28.4% on the year thus far. - Gold broke above $1000 for the first time since last March Technical Commentary, February 23, 2009 page 8 of 16

9 - While there is resistance at these levels Gold is telling us that we are going to move higher. - Major support for Gold is now down near $950 and we can t rule out a test of that level but that is our worst case scenario at this time. - There is resistance for Gold here and up to around $ Silver is now breaking above its 200 day MA and next has resistance at $15. Major resistance would be seen at around $16.25/$ Indicators are overbought but we remind everyone that in a strong bull market indicators can remain overbought for some time. - A negative is the Gold commercial COT at 24% down from 25% the previous week. Long contracts fell 4,000 while short contracts rose 4, The Silver commercial COT was steady at 31% with the long contracts up Despite the negative commercial COT for Gold the market does not appear to be in a good uptrend and price spikes cannot be ruled out before a more meaningful correction sets in. - Gold does have positive seasonals from roughly November to February. Note last year s high was in early March and we are approaching that anniversary. - We do appear to be on a fifth wave up from the lows seen in November. - Major cycle lows should not be seen until later this year. - We also believe now that the lows in November were quite possibly the 8.5 year cycle lows and that we are now in the early stages of the next up cycle. - Weekly indicators are in an uptrend are showing no signs of being overbought. - Gold and Silver have become defacto currencies given the weakness in the financial markets. We remain very positive going forward. We view all major pullbacks from here as buying opportunities. Technical Commentary, February 23, 2009 page 9 of 16

10 - The Gold Bugs Index (HUI) was up 3.3% and the TSX Gold Index was up 3.8% on the week. Gold stocks were about the only bright spot on the week. - It was an odd week as the TSX Gold Index closed below its opening levels while the HUI closed above. - The HUI has reached potential major resistance at the 40 week MA and the 4 year MA. - We do note, however, that the TSX Gold Index is well through those points. - The TSX Gold Index has recouped over 75% of its decline a positive sign that tells us that we should see new highs above March The HUI on the other has only recouped roughly 50% of the March 2008/November 2008 decline. - On the dailies the HUI is at the 200 day MA resistance and is struggling to break through this level. - Support can be seen at 300 but major support is at Above 330 the next major resistance is The TSX Gold Index support is at 325 and Resistance is at We remain bullish but recognize that the current resistance zones could bring us a short term set back. We wouldn t be overly concerned unless of course we broke down under major support zones. The prognosis and the nascent uptrend is in place. Technical Commentary, February 23, 2009 page 10 of 16

11 Canadian Dollar - Despite the down week for the Cdn$ it had the feeling of an up week as we closed well above the opening level. - Support down to 78 continues to be solid. - Resistance is at 81 but above that level we would rise to resistance. - The commercial COT rose to 57% from 55% a positive development. Technical Commentary, February 23, 2009 page 11 of 16

12 US Dollar Index - The US Dollar spiked upwards but the end of week gave back most of the gains finishing with a small gain and closing below its opening week levels. - This type of action is typical of potential topping action. - Resistance remains up to about 90 and still remains a potential target. - Support is at 86 and The US$ continues to exhibit topping action. - The commercial COT for the Euro jumped to 55% from 52% a positive sign. - The commercial COT for the Japanese Yen jumped to 34% from 28%. - A break of 85 on the US$ Index would send us down to 82/83. Technical Commentary, February 23, 2009 page 12 of 16

13 OIL & GAS intermediate term trend short-term trend week trend strategy Oil down neutral up Natural Gas down down down New lows XOI Index TSX Energy Index down down down Accumulate down down down Accumulate - Oil prices were up on the week but Natural Gas prices fell to new lows. - Both oil and gas prices remain below the cost of production for new production. - Supply is the problem right now. The weekly EIA report oil supplies fell.2 million barrels but are up 45.3 million barrels from the previous year; gasoline supplies rose 1.1 million barrels but are down 11.6 million barrels from the previous year; distillates fell.8 million barrels but are up 18.3 million barrels from the previous year. Technical Commentary, February 23, 2009 page 13 of 16

14 - NG in storage was 1996 Bcf 8.4% above the 5 year average. The draw was an overwhelmingly lower than expected at 24 Bcf. - Oil broke out of a long downtrend line however the break out was not overwhelming. - NG continues in a long downward bear channel. We are now back at the bottom of the channel. - Oil prices are at resistance of $40. A break through this level could send us on the way towards $50. For the past several weeks the 50 day MA has acted as firm resistance so a break through that level would be positive. - NG remains very moribund with resistance now gathering at $4.50 and support is now $4. - Indicators for NG remain very oversold. - Indicators for Oil are rising. - The commercial COT for Oil remains at 49% but both longs and shorts rose this past week with long contract up 6000 and short contracts up 25,000 contracts. - The commercial COT for NG dipped to 60% from 61%. - We continue to believe we are in the vicinity of a bottom but good supplies and soft demand are continuing to play havoc with the price levels. - - Both the XOI Index and the TSX Energy Index turned down this past week. - The breakdown is dangerous as now the previous lows are within sight. - Indicators are oversold and potentially diverging positively. - New lows would set up positive divergences on the weekly charts. Technical Commentary, February 23, 2009 page 14 of 16

15 - Failure to break successfully above the 50 day MA on the TSX Energy Index and the 100 day MA on the XOI Index has proven to be a dangerous sign. - There is potential for the XOI to target down to target down to around 600/650 and the TSX Energy Index to target down to around 135/ Support for the XOI is around 800. For the TSX Energy Index around 175/ Resistance for the XOI is at 930/950. For the TSX Energy Index 210/ Despite fears of new lows we continue to see positive signs and view the ongoing action as accumulation. Technical Commentary, February 23, 2009 page 15 of 16

16 - DEFINITIONS OF TERMS Intermediate term trend: Of interest to investors. As long as the intermediate trend is up, investors can continue to hold. But watch the short-term trend for possible trend changes coming. Short-term trend (daily trend): Of possible interest to short term swing traders. As long as short term trend is up, one can stay long. Week trend: Direction in the past week. NH new highs; NL new lows. Topping reduce: Appears to be topping so a reduction in the position is recommended. Hold: Up trend in place. Continue to hold. Stay out: Down trend in place. Sell: Down trend under way and we have broken under the 40-week MA. Caution: An uptrend is under way but the action suggests that we should now be cautious as it could be suggesting an upcoming trend change. Accumulate: Bottoming taking place. Bottoming: Signs that a bottom may be getting underway. Buy: New up trend under way and we have broken above the 40-week MA. Neutral: Trend is indeterminate but will break out to new up or down trend but most often in the direction of the primary trend. Charts created using Omega TradeStation 2000i. Chart data supplied by Dial Data. Note: The opinions, estimates and projections stated are those of David Chapman as of the date hereof and are subject to change without notice. David Chapman, as a registered representative of Union Securities Ltd. makes every effort to ensure that the contents have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. The information in this report is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does Union Securities Ltd. assume any responsibility or liability. Estimates and projections contained herein are Union s own or obtained from our consultants. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any securities and is intended for distribution only in those jurisdictions where Union Securities Ltd. is registered as an advisor or a dealer in securities. This research material is approved by Union Securities (International) Ltd. which is authorized and regulated by the Financial Services Authority for the conduct of investment business in the U.K. The investments or investment services, which are the subject of this research material, are not available for private customers as defined by the Financial Services Authority. Union Securities Ltd. is a controlling shareholder of Union Securities (International) Ltd. and the latter acts as an introducing broker to the former. This report is not intended for, nor should it be distributed to, any persons residing in the USA. The inventories of Union Securities Ltd., Union Securities (International) Ltd. their affiliated companies and the holdings of their respective directors and officers and companies with which they are associated have, or may have, a position or holding in, or may affect transactions in the investments concerned, or related investments. Union Securities Ltd. is a member of the Canadian Investment Protection Fund and the Investment Dealers Association of Canada. Union Securities (International) Ltd. is authorized and regulated by the Financial Services Authority of the U.K. Technical Commentary, February 23, 2009 page 16 of 16