Dow Theory Bearish Setup

Technically there are several problems with the tape with one issue being the failure of the NYSE advance / decline line to hold above the breakout of early December and the other being the current bearish setup of a pending Dow Theory “sell” signal.

There is a lot of components to Dow Theory but I will just focus on the averages must confirm part. Take a look at our Dow Industrials over the Dow Transports chart where I have marked the mid 2012 peaks at (A). Now note the subsequent rally to new highs by the Industrials to (B) and the failure of the Transports to confirm at the lower plot (B). That alone is not a Dow “sell” signal because while it sets up a negative divergence condition we still need the two averages to confirm the “sell” by subsequently dropping below the lows at (C) which is 12400 on the Industrials and 4850 on the Transports. If we get the “sell” adopt a low risk strategy through 2013.

Point & Figure Charting

I will be a guest on BNN’s Market Call at 1:00 pm December 31, 2012. The host will be Michael Hainsworth who has developed some good technical skills over the past several seasons. I hope I don’t get too many requests for Vancouver penny stocks because they do not chart well with the main driver being the “compelling story”. I am sure that most of us have been burned by those compelling stories that seem to expand in proportion to the growing losses when holding the losers.

The technical analyst will try to accumulate a stock before the story is compelling and then sell to the investment sheep when the storey is compelling. I have learned from experience that point & figure charts should always be used when bottom fishing among those out of favour stocks. A few weeks ago I accumulated some Bombardier at the $3.05 level based on the lack of a compelling story and several positives on a point & figure chart. Can you spot them?

Andrew McCreath is a Natural Gas Bear

I was business channel flipping last mid week (CNBC & BNN) and happened the catch BNN’s scrappy little Andrew McCreath proclaim “the natural gas bulls are wrong again” in reaction to a down day on natural gas prices.

I gather McCreath is strictly a fundamentals guy because I have never known him to refer to a chart. I gather he did not see that natural gas had put in a spike low in April and then rallied to be followed by a quick May correction which did not make a new low. Also the relative perform vs. crude broke to the upside and all that remained to confirm a new bull was small overhead at the mid May pivot point or as Elliott would say, the recognition point which was overcome about 6-weeks later.

Later the same day we learned that a Chinese state-owned company is ploughing another $2.2 billion into the Canadian oilpatch. Natural gas giant Encana Corp. (TSX:ECA) and a subsidiary of PetroChina announced last Thursday they have reached a deal to work together in the Duvernay, a promising shale natural gas formation in west-central Alberta. So who is right, McCreath or the Chinese?

There may be opportunity in alternate energy plays because I also see the coal, solar and uranium stocks are attracting some bids.