All clear according to the financial sector

During the great 2007-2008 financial crisis the shares of asset manager / investment dealer Canaccord Genuity Group Inc  (CF) peaked at $27.50 in mid 2006 and bottomed at $2.87 in mid 2008. During the same crisis the shares of asset manager / investment dealer GMP Capital Inc. (GMP) peaked at $28.75 in mid 2006 and bottomed at $3.03 in mid 2008. In both examples these were stunning losses - in the order of 90%

The experienced technical analyst (the older guys) will track the asset managers or financial related issuers because they tend the broader equity markets. Also in Canada we had the August 2007 failure of Coventree Inc. and the Dundee Bank ABCP 2007 panic. In the U.S. we had the March 2007 collapse of New Century Financial Corporation, an obscure real estate investment trust that originated mortgage loans in the United States through its operating subsidiaries. In a publication dated February 13, 2007, cycle expert Ian Notley predicted "Mortgage Lenders / Financials: Cyclic tops and bears are originating."

Our chart today is that of Canaccord plotted above GMP Capital (weekly data) clearly displaying breakouts up and out of symmetrical triangles – note also the 5-wave count in the triangle – a bullish sign for the broader equity markets   

Opportunity in the TSX Energy laggards:

Did you miss the recent rebound in the TSX energy sector? The Shares S&P/TSX Capped Energy Index Fund (XEG) is a basket of 53 stocks related to the energy sector to include the oily producers, the gassy producers, the oil field service companies and the integrated producer / refiners. The oil field service companies (Energy Equipment & Services) is only 7.28% of the sector by weight – but no energy bull ran run without participation from this group as listed below

Calfrac Well Services Ltd       CFW

Canadian Energy Services     CEU

Enerflex Ltd.                            EFX

Ensign Energy Services Inc   ESI

Mullen Group Ltd.                    MTL

Pason Systems Inc                PSI

Precision Drilling Corporation PD

Savanna Energy Services      SVY

Secure Energy Services Inc.  SES

ShawCor Ltd                           SCL

Trican Well Service Ltd          TCW

Trinidad Drilling Ltd.                TDG

Note that CFW, PSI, PD, SES and TDG have just printed new 52 week highs

The chart displays two laggards in the oil field service companies group - Savanna Energy Services (SVY) and Trican Well Service Ltd (TCW) – both just rebounding up from a rising 40 week moving average – could be a low risk way to play.

ShawCor Ltd. My one and only stock pick

As usual I looked at the new 52 week high / low list for clues as to where the money is going – and once again energy stocks dominate the TSX 52 week high list.

ShawCor Ltd (SCL) stands out for several reasons - it is also at an all-time high, it is not well known, it is in the right space (energy infrastructure), the technical picture is bullish with positive money flow and a youthful bull cycle just underway. Even better – I don’t own it so my opinion is free of conflict and self-serving bias.

Gassy stocks leading the way:

I always look at the new 52 week high / low list for clues as to where the money is going – and in particular when we are in a corrective phase. Technically there are a few rules that apply to the new 52-week high / low list – the most important is the first new 52-week high will not be the last. So always seek out stocks and ETFs that have made their first appearance on the new 52-week high list such as the BMO Junior Oil Index ETF (ZJO) about 12 months ago at $20 (now $29)

Yesterday out of a total of 23 new 52 week highs (TSX – excluding warrants and other noise) there were 16 energy stocks – quite a message during a global sell-off in he major stock indices. The money seems to be still going into the energy stocks and in particular the gassy producers. Note the chart displaying two gassy producers a weekly of Delphi Energy Corp. (DEE) plotted above Crocotta Energy Inc. (CTA) – note that Delphi is leading Crocotta by several months. Other gassy laggards are DTX, LRE, PPY, SRX, TLM, TET, TBE and WCP – some homework suggested on these names.

The gold miners’ correction may be over:

According to Elliottwave International Elliott waves often correct in terms of Fibonacci ratios. They explain in their new eBook How You Can Use Fibonacci to Improve Your Trading, which explains what you can expect when a market begins a corrective phase.  The classic Fibonacci retracement percent number (%R) is 61.8% but 50% (not a Fibonacci #) is common.

Basically a retracement is a correction that follows a meaningful advance – so in example of the gold stocks we had a trough in late December 2013 – a subsequent advance through to a mid March peak and then a sharp two week correction. When I look at the TSX precious metal complex I observe that most miners have corrected – or retraced about 50 per cent of the January 2014 through February advance.

Note the chart displaying two baskets of junior gold miners – the BMO Junior Gold Index ETF (ZJG) and the Market Vectors Junior Gold Miners ETF (GDXJ:US) with both correcting (or retracing) about 62% of the December March advance – opportunity now for those who missed the December March advance..

The problem with the S&P500

Last night I was a presenter at the KWGC Region Chapter of the Canadian Society of Technical Analysts (CSTA). I always enjoy speaking to my peers. The event was well attended and my presentation focused on my experience as a sub-advisor to the Union Securities Hybrid Portfolio Program – in particular how I used technical analysis to select 5 companies that became the target of take-over bids.

During the Q & A period – I was asked for my views on the US stock market. I paused for a moment and then said – correlation, there is too much sector correlation – the high sector correlation has virtually stalled the healthy process of sector rotation which now makes the S&P500 more volatile – and perhaps dangerous over the short term.

Note the chart displaying three sectors that in “healthy” markets operate somewhat inversely – but that is not true to-day – we have different birds-of-a-feather flocking together – eventually a condition with a bad outcome.