Toppy Commodities?

There are several cycle concepts such as magnitude, period and phase along with commonality, summation, variation and proportionality. I tend to focus on cyclic magnitude, summation and commonality. Cycle magnitude is the distance above or below the zero line (……….0) or – from peak to trough. the greater the distance above or below the zero line the more reliable the signal. Cycle Commonality is the tendency for most securities to have linked peaks and troughs and cyclic opposition is a condition of one or more issues with opposing peaks and troughs.

Cyclic Opposition is clearly at work in our US Dollar & the DBA Commodity chart with the US Dollar is currently generating an intermediate cycle “buy” signal and the DBA posting an intermediate “sell” signal. The longer end of the bond yields are also working higher which could cool the current bullish stampede into commodities. Now do know the banks would like to see an up-tick in rates so they can lend high and borrow cheap and that is why I reduced my gold exposure and moved into the BMO equal weight bank (ZEB) ETF

The Barrick Breakout?

A few posts ago I examined the failure of Barrick to make a clean break above $51 - see Gold and the Acid Test post November 8, 2010. At the close Monday Barrick on the TSX rose 4.74% on 3.7 million shares to close at $51.48 – a new 52-week high – but not quite an all time high. On the NYSE Barrick rose 4% on 12 million shares to close at $51.21 a new 52-week high but not quite an all-time high.

Today the price of gold has backed away from the November 8 peak but Barrick at 51$ (US) is threatening to pop above the November 8 peak and on the TSX Barrick at 52$ (CDN) is close to an all-time high close. On a point & figure we need a close above $53 to confirm the all time high. This would trigger a bullish stampede into the precious metals complex. Barrick is the key here because all of the big sideline cash will surely go there. Note the inter-day action on Barrick thanks to Yahoo! Business. Very bullish.

As speculators withdraw?

As speculators withdraw, the market bears awaken - DAVID ROSENBERG From Wednesday's Globe and Mail Published Tuesday, Nov. 16, 2010 the link: http://www.theglobeandmail.com/report-on-business/economy/economy-lab/david-rosenberg/

Rosenberg ”Right now, there is still an extreme level of speculative activity that is set to unwind as the appetite for risk fades away.”

I have always maintained that economists should leave the forecasting of the equity markets to the fundamental and technical analysts. After all we do not in engage in economics. Keep in mind an economist is a trained professional paid to guess wrong about the economy but - if a securities analyst gets it wrong they lose clients.

Rosenberg clearly doesn’t know the difference between a speculator and a risk taker. A speculator is a short term opportunist who may short the S&P or soybeans. A risk taker is one who wants to put capital to work because they see opportunity. Speculators drove silver to $50 and created the dot com bubble of 2000. Risk takers built the railroads, the Ford Model-T, the micro-processor and the Blackberry.

Currently the smaller companies are out performing the bigger companies and that tells me there is an appetite for risk among investors who have decided to put capital back to work because the end of life as we know it – is not likely. Our chart is the daily of two relatively new exchange traded funds of the smaller company gas producers (ZJN) and the oily producers (ZJO) – both at new 52-week highs and leading their large cap peers – say no more – say no more.

Key Reversal Day

Last week we had negative technical key reversals on several “important” indices, the Nasdaq Composite, the Russell 2000 and the TSX Composite. A Key Reversal is a one day chart pattern where prices sharply reverse during a trend. In an uptrend, prices open in new highs and then close below the previous day's closing price. The reversal can be inside the prior day range or outside (engulfing) the prior day’s range. Either way we are supposed to treat these one day events as significant turning points.

I have back-tested key reversals on daily charts and found them to be for the most part one or two day interruptions of the current trend – be it up or down. Investors are far better served by using weekly or monthly charts to identify the real trend. Our chart to-day is the monthly bar of the NASDAQ Composite spanning about 10-years. This chart is loaded with bullish technical signals. The NASDAQ has just broken up and out of an inverse Head & Shoulders bullish reversal pattern, the price is above a rising 12-month moving average, the 5/15/3 MOM is positive and the relative perform vs. the Dow Industrials is clearly established outperform. So the lesson here is to treat daily charts for what they are – no cosmic effect.

Gold and the Acid Test:

Last week we looked at the TSX listed BMO Jr. gold ETF (ZJG) plotted above the big cap Barreck Gold (ABX). With the ZJG posting a series of new 52-weeks we needed the lagging Barrick to break into the mid $50 range to confirm the current advance in the precious metals complex.

At the close Monday Barrick on the TSX rose 4.74% on 3.7 million shares to close at $51.48 – a new 52-week high – but not quite an all time high. On the NYSE Barrick rose 4% on 12 million shares to close at $51.21 a new 52-week high but not quite an all-time high. Our short term daily chart on Barrick tells us that while the Monday advance was impressive – the move was not a clear break out – note the two targets $51 and then $55. Also the money flow is not at the 2008 and 2009 peaks. The relative (lower plot) is improving but not what we need to get the confirmed break out. If Barrick fails here the current run in the gold complex could be a bull trap – stay tuned