Sunday, October 28, 2012

A compelling story

Last Tuesday at mid-day the Dow and the TSX Composite were down over 200 points on earnings disappointments from several large U.S. multinationals, but there were some positive technical conditions in place at the week end.

The Dow, the S&500, the Russell 2000 and the TSX Composite are all trading above their 200 day MAs and, all their respective 200 day MAs are still pointed upward. The NYSE advance / decline line is still in trend. Important stocks like INTC, MSFT, YHOO, ORCL, TXN & AMZN have bounced above their 20 day MAs. Bellwether ETFs like the SMH and the PPA bounced above their 20 day MAs.

I still think lumber is tuning out to be the next-big-thing. (Toronto Star business October 27, 2012) The following is an interesting opinion of The Campbell Group, LLC which is a vertically integrated, full-service timberland investment advisory firm. They acquire and manage timberland for investors. “Timberland investment offers many attractive benefits to institutional investors including, risk/return payoff, portfolio diversification, and solid cash flows. (and) Timberland has a low correlation to other major asset classes, including stocks and bonds, and is negatively correlated to real estate.” Common sense would suggest that the bullish opinion on timberland is conflicted but, compelling enough not to ignore.

Our chart is that of the monthly closes of the TSX listed West Fraser Timber Co. Ltd. (WFT) spanning about 12-years, plotted above the monthly closes of the S&P/TSX Composite Index. West Fraser Timber is a North American integrated wood products company which produces lumber and would be sensitive to lumber prices and the returns on timberland. The S&P/TSX Composite Index represents the long term performance of the broader stock market.

A quick examination of the respective trading peaks and troughs of West Fraser Timber are quite different for the most part, than the trading peaks and troughs of the S&P/TSX Composite Index. This apparent lack of correlation is indeed too compelling to ignore. 

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