THE CHAPMAN REPORT FOR DECEMBER 22, 2008

Transcription

1 THE CHAPMAN REPORT FOR DECEMBER 22, 2008 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: NEUTRAL Week: UP S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report) (bottoming) - S&P 500 up about 1% on the week. - Another wide ranging week with a narrow opening and closing once again suggesting hesitation. - We still appear to have completed a five wave down structure from the May 2008 highs and a possible ABC pattern from the October 2007 highs. - Continue to form what appears as a potential head and shoulders bottom pattern. A firm break above 920 has measuring implications towards A possible double top on the VIX indicator could suggest a break down towards the 20 level. - With the background news continuing to be supportive for the markets we still expect a breakout and run to at least into the 1050/1100 level. - If a rally can get going a break through 900 would be positive and focus us on 920 as the next point. - Failure to break through 900 suggests that the recent trading range will prevail with the low end of the range down around Below 840 would spell trouble and a further test of the lows. - We suspect that the market will be ETF driven rather than particular stock driven. Volumes have been high there recently. Technical Commentary, December 22, 2008 page 1 of 16

2 - With the option expiration out of the way the odds favour that the recent trading range will be broken. - We are into the positive seasonals which do extend into January. The January effect of course tries to dictate market direction for the year. Last year January was down. - The January effect has a.741 batting average meaning the direction of January has predicted the direction for the year more than 7 out 10 times. Since 1950 the record has been 94% accurate. - The first five trading days are also important for January as they have an 86% record of predicting the direction for the year. Last year they were down. - Key pivot point in time is January 6. - Second one around January 20 which is inauguration day. - The record post election however has not been good with 9 out of the last 14 post elections years posting losses through the first 5 days. - Since 1880 the 9 th year of the decennial has averaged 9% gains and there has been 9 up years and only 3 down years. In all cases down 8 th years have been followed by up years in the 9 th year. However, since this is a post election year the record of post election years is the worst one of the 4 year Presidential cycle with down years 55% of the time. - This year marked the 4 th time this decade that we have had a down year. The worst decade was 1901 to 1910 where 6 out of the 10 years were down years. The Great Depression of the 1930 s saw only 5 out of the 10 years as down years. - With a loss thus far this year of 35% for the DJI the year as a whole promises to be the worst year since The record for the worst year was 1931 when the DJI lost 52.7%. - Since the DJI started in 1881 only 5 years have seen losses in excess of 30%. 1907, 1920, 1930, 1931 and This would be the first 30% loss since Technical Commentary, December 22, 2008 page 2 of 16

3 Technical Commentary, December 22, 2008 page 3 of 16

4 NASDAQ NASDAQ trends Intermediate: DOWN Short-term: NEUTRAL Week: UP NASDAQ STRATEGY: STAND ASIDE (Bottoming) - The NASDAQ put in a good 1.5% up week outperforming the S&P The VXN indicator has made what appears to be a double top projecting down to around The NASDAQ appears to be making a potential head and shoulders bottom. A breakout over 1600 could project up to 2100 and the 200 day MA. - Resistance continues at 1600 with support now at 1510 as the range has been narrowing over the past week. - A break back under 1510 would suggest a retest of the lows below Daily indicators continue to improve. Technical Commentary, December 22, 2008 page 4 of 16

5 U.S. GOVERNMENT BONDS US TREASURY BONDS Intermediate: UP Short-term: UP Week: UP (NEW ALL TIME HIGHS) US BOND STRATEGY: LONG (caution) (Indicators at extremes) - The US Treasury bond market has gone from wow to oh my god. - Record highs on the US Treasury Bonds are becoming normal. Never have we ever seen anything like this. - This is the 7 th consecutive week to the upside and the bonds have gained $29. - The 10 year Treasury note yield has fallen to 2.13 per cent from 2.60 per cent. The two year Treasury note has fallen to 0.74 per cent from.78 per cent. The 2-10 year spread is now at 139 bp vs. 182 bp the previous week. 30 year Treasuries are 2.55 per cent. - Indicators continue to be at record extremes. - The FOMC met this past week and cut the Fed rate to per cent. Yes zero, 0, nada. Money is free. With no further room to lower rates the FED will now have to put more emphasis on open market operations with the purchases of assets. - One month TBills are 0. Three month TBills are.05 per cent which is well next to zero. - Of course prices continue to fall as the CPI lost 1.7 per cent the second consecutive record decrease. The mantra has become deflation the monetary authorities worst fear. Technical Commentary, December 22, 2008 page 5 of 16

6 - The decline of course was led by another record drop in energy prices. Core CPI was unchanged. - Other numbers this past week were equally gloomy NY Empire State Index vs , Building permits 616K vs. 730K, Housing starts 625K vs. 771K, Initial claims 554K vs. 575K, leading indicators -.4% vs. -.9%, Philly Fed vs Monetary growth continues unabated latest 13 weeks change M %, M %. Year over year M %, M2 +7.7%. - The monetary base has exploded to the upside up almost 100% from a year ago. At the end of the day this is massively inflationary. - Flows from foreign official and international accounts continues to slow but was up this week by $4.4 billion with once again flows in US Treasuries up $21.6 billion and outflows from agencies continue down $17.2 billion. - Support/resistance on the US Bonds has become impossible to determine. - Many are of course claiming it is a bubble. - All bubbles burst. We just don t know where or when. - Despite the record rise the commercial COT seems to think it will continue (or else they are in panic mode as well) as it rose to 58% from 56% the previous week. - Could we see Japanese rates of 1% or so on long Treasuries? - Key numbers out this week Q3 final GDP expected -.5%, Durable goods expected -3%, Personal Income expected flat, Personal Spending expected -.8%. - It seems if you are not being bailed out you just don t rate. - Credit spreads continue to fall as the TED Spread (3 mth LIBOR less 3 mth TBills) has fallen to the lowest level in 12 weeks falling to 1.24 over. This is at least down into the levels seen prior to the recent version of the financial crisis. Technical Commentary, December 22, 2008 page 6 of 16

7 - CANADIAN GOVERNMENT BONDS CANADIAN BONDS Intermediate: UP Short-term: UP Week: UP (new all time highs) CANADIAN BOND STRATEGY: STAND ASIDE - We continue to be baffled as to why our Canadian bond model did not generate a buy signal. The last signal was seen the week of Sep 19 and it was a stand aside signal. - Canada bonds did rise this week along with the US Bonds. - Indicators continue to trade at extremes. - Canada is following the US in bailing out the auto industry (with strings attached). - With the FED lowering rates to zero the pressure is on the BofC to cut further as well. - Cdn GDP will be released this week for October expected -.3%. - Retail sales in Canada fell 1.1% in October. - Canadian CPI is 2% year over year. - A sell signal on bonds would be seen with a break under 124. Technical Commentary, December 22, 2008 page 7 of 16

8 - GOLD, SILVER, US$ Index and CDN$ intermediate term trend short-term trend week trend strategy Gold neutral up up HUI down up up stand aside Silver down up up US$ Index up down down CDN$ down neutral up Gold & Silver - With the fall in the US$ Gold gained 2.1 per cent on the week and Silver was up 6 per cent. - Gold hit next resistance at $880 then turned down. Gold also hit just above the 200 day MA before turning down. Technical Commentary, December 22, 2008 page 8 of 16

9 - Gold reversed down sharply at the end of the week but held its gains. The US$ turned up sharply in the last two days of the week. We admit this could be signalling the end of the current move. - This was the 7 th week up for gold. - Silver broke out over its 13 week MA a positive development but failed to hold over $11. - Gold has support at $830 and $810. A break under $800 could send us to $ Silver has support down to $10. - Gold has resistance at $880 then again at $ Silver has resistance at $11.60 and again at $ The commercial COT for Gold fell to 28% from 32% a negative development. - The commercial COT for Silver fell to 32% from 34% also a negative development. - Daily indicators remain positive. - Lease rates have risen making the gold carry trade expensive. Technical Commentary, December 22, 2008 page 9 of 16

10 HUI Gold Bugs Index and TSX Gold Index - The HUI followed its previous big up week with a gain this past week of 3.8%. - The HUI turned down at resistance just above We are however over the 100 day MA and the 200 day MA near 350 beckons. - A break below 250 would be negative and suggest the current rally is over. - The TSX Gold Index ran into resistance 300 and the 200 day MA. - The TSX Gold index breaks down under As measured by the XAU/Gold ratio and the HUI/Gold ratio stocks remain cheap. - Many stocks were breaking out of nice bottoming patterns. - As markets rise here raise stops particularly since we are at key resistance levels. - A breakout over 300 for the TSX Gold Index could suggest a run to 330/ We continue to believe that this is a B wave to the ABC collapse seen from March 2008 to October Traders should therefore not be complacent on this run up. Technical Commentary, December 22, 2008 page 10 of 16

11 US$ Index - The US$ Index fell sharply this past week to lows of A powerful rally in the past two days brought the index back to resistance near Targets from the ascending wedge triangle were essentially met at the drop to 78/79. - The 40 week MA near 77 should be final support. - We suspect that this is a correction to the sharp up move seen since earlier this year. There therefore could be another run up once this correction is finished. - The commercial COT for the Euro fell to 49% from 52% a positive development for the US$. - Technical Commentary, December 22, 2008 page 11 of 16

12 CDN$ - The CDN$ was up slightly on the week but failed to break out of what appears as a small bottoming pattern. - The CDN$ ran into resistance at the 13 week MA near Support is now at.80 but under that level we could test once again the triangle formation low near Only a firm breakout over.83 could send us to key resistance near Only once commodities particularly oil turn around might the CDN$ rally. Technical Commentary, December 22, 2008 page 12 of 16

13 - OIL & GAS intermediate term trend short-term trend week trend strategy Oil down down down new lows Natural Gas down down down new lows XOI Index down up down TSX Energy Index Oil & Gas down down down - Another horrible week for the oil and gas as both plummeted to new lows for the down move. Oil fell to near $32 making the predictions of oil down to $35, $25 and $10 look good. - All this came against the backdrop of more OPEC cuts.the market didn t care. - Still the dire predictions of oil prices are the opposite of the euphoria calls for oil to $200 and $250. Technical Commentary, December 22, 2008 page 13 of 16

14 - Natural Gas prices also fell despite colder weather. But supply continues to be solid offsetting the cold weather demands. - The collapse in oil prices has been thus far 77%. - The oil stocks continue to make higher lows a positive divergence for oil (and gas) prices. - The commercial COT for oil actually fell to 47% from 49% one of the worst records in weeks and the lowest levels since last March. Could the commercial COT be an opposite predictor as it was March/April that saw the beginning of the run to $147? - The NG commercial COT remained steady at 63% which is bullish. - Supplies this week Crude oil up.5 million barrels and up 24.4 million barrels on the year; gasoline up 1.3 million barrels and down 1.2 million barrels on the year; distillates up 2.9 million barrels and up 4.1 million barrels on the year. - NG supplies 3167 Bcf 3.7% above the 5 year average. - Gasoline prices continue to fall in both Canada and the US. Consumers are saving at least 40% and more from prices seen in the summer. - The positive seasonals for oil are approaching from late December to July. - Given the dire predictions and the depressed state of the market this might definitely be the trade for the next few months. - Oil s next support is near $30 then $25. - Natural gas s support is $5 then down to $ Oil would only give us a buy signal breaking resistance at $46. Targets then could be up to $60. - NG is at or near the 2007 lows just before a huge rally. - NG above $5.75 could take us resistance at $6. Only above $6.50 could we get a more sustained rally going. Technical Commentary, December 22, 2008 page 14 of 16

15 - XOI and TSX Energy Index - With both oil and gas prices hitting new lows this past week the energy indices fell. - Neither, however, is near their lows a positive divergence with the commodity. - The XOI continues to trade in a potential bottoming box pattern. - Support on the XOI is down to Resistance is at 1000 but above that level we could quickly run to The TSX energy index also continues to trade in a positive manner. - Support on the TSX Energy Index is down to180. Resistance is at Above 225 the TSX Energy Index could run to 250/ We continue to be buoyed by the fact that neither the XOI nor the TSX Energy Index are making new lows along with the commodities a positive divergence usually seen at lows. - We would be accumulating large cap energy stocks. Technical Commentary, December 22, 2008 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, December 22, 2008 page 16 of 16