Questrade

I just opened an account at Questrade. The experience was painless and prompt. I noticed one thing very quickly about their platform, that I usually research before hand.... not this time!! Where are the stops? I can't set a bracket order!!

Apparently the TSX doesn't allow stops unless they are stop limit orders. Questrade has something called VTSO, not exactly sure how it works yet. I do know that without stops, trading is riskier. IB offers stops on the TSX, probably simulated in their system. I'll have to do more research. Feel free to offer what you know if you're reading this.

What do you think is going on?

This post is not meant as investment advice, it's purpose is to spark some comments and discussion.

What's your opinion on what the market is doing? Why all the volatility? Why the melt down? Why is the US dollar going nuts? What's up with the huge drop in oil? Why are great high dividend yield blue chip stocks taking a hit? Here are my thoughts;

Liquidity seems to be the issue. Investors were, and still are worried that the firm they have their money invested in will go bankrupt, or worse, the firm they have there money in has invested in some other firm that goes bankrupt. Either way your funds would be locked up in a bankruptcy and that's not liquid. This has caused people (or those on wall street) to cash out, stocks, commodities, everything. You never saw this coming did you? Wall street did, that's why there was a huge drop to begin this mess. Read the user groups on the early questions on the put volume of some of those firms that bit the dust. People were trying to figure out if they were buying or selling puts. Looks like they were buying puts and made a huge, huge killing on the firms that went tits up.

Why is gold not going up since it is the safe haven? Cash. Everyone wants cash. The biggest cash nation, rather richest nation is the USA. That's where the credit crunch started. Funds are liquidating investments world wide causing all indexes to fall from the massive selling. Once they sell a stock in a foreign country they must then convert the currency back to USD. The USD is going full tilt in an uptrend. I think you can almost compare currencies to see where the biggest exchange of funds is happening to some extent. In Canada, the oil and commodity prices are also killing us, that impacts the Canadian dollar. Why are the commodities dropping such as metals and gold? Liquidation.

This is going to be a long healing process, not a quick snap back to the market. The volatility is probably due to huge amounts of money being moved around, not the norm for the market. To end this, the mass amounts of cash has to be moved to the US and invested elsewhere.

So what is next?
When the time comes, when all the cash is back at home in the USA, who knows what will move. The first sign will be the indexes stabilize, then slow decline in the USD, then accelerated decline of the USD against the Canadian dollar, oil will rise, and whatever the US giants invest in will rise. If a recession is coming, look for a rise in recession proof stocks. The USD will cease to rise since there will be no more buyers.

What am I going to do? I'm going to try to ride the USD higher. When it snaps the uptrend, short away. But be careful and manage risk. The market will start to settle down and into a trend when the normalcy again, weather its a bear or bull market.

That's my theory. What's yours?

The fallacy of Canadian gold stocks

A few weeks ago, I was asked to post something about the Canadian dollar. The only thing I had to say about that currency was that it is in a powerful bull trend. Given that we may be at a critical point in the Canadian market, I wanted to "clone" the latest analysis I did on my own blog believing that this might be of interest to the readers of the TSX Trends blog followers. I would like to thank Brian for the invitation to post here from time to time.

Most people will believe that investing in Canadian Gold stocks is the way to participate in the rise of Gold. This is a myth. It is not true all the time. For this to be true, gold needs to rise, of course, and the economics need to be conductive to growth. Furthermore, value (the price of a stock) is created only is profit margins are stable or increasing when a commodity increases in price. When the price of the commodity or the price of profitability falls, the price of the stock will follow. I suspect that the costs to produce gold are rising faster than the price of gold thus creating pressures on margins.

Another falsehood that I have read on the Internet in the past month or so is some people finding precious metals somewhat “overbought” on a technical basis and thus recommending shorting Canadian gold stocks. That may be the right course of action but fundamentals are the right reason to short Canadian gold stocks not the price of Gold.

Agnico Eagle is currently trading at a double bottom support around $50.00. After reaching a high of $55.00, it has been building a triangle where the short term downtrend line has been resistance. The triangle was broken down and we have the potential for a sell signal which would also break the next short term uptrend line.

Please “Click” on the image for a larger view

This set-up looks like the TSX composite index set-up of a few days ago. A break below the low of $47.00 would confirm an intermediary downtrend with 2 lower highs ($55 and $54) and 2 lower lows ($47 and $46).

The conflict between the fundamentals of a firm and the price of the commodity it sells is illustrated in the following chart which relates the price of the stock to the price of gold.

Please “Click” on the image for a larger view

It is quite clear to me that fundamentals have taken over recently as investors are no longer willing to pay premium prices if they believe the economy is going into a recession.

This phenomenon is not unique to Agnico Eagle. Here is the picture for other Canadian gold stocks:

Please “Click” on the image for a larger view

For those who prefer to invest in a diversified portfolio of Canadian gold stocks, the Barclay’s Gold iShares provided the following tracking error to Gold!

Please “Click” on the image for a larger view

If you are using Horizon’s Gold Bull and Bear funds as a tool to participate solely in the rise and fall of the price of Gold, you will be sorry. This is tracking the performance of Gold stocks, not gold. You need to be aware of the fundamentals of the industry as well in order to make the correct bet.

Please “Click” on the image for a larger view

And the correct bet may soon be available to you in a not too distant future. Wait for a breakout at $14.25.

Please “Click” on the image for a larger view

There are two links on the right side of the page which will send you to Danny Merkel and Merv Burak’s web sites. They do a great job of following precious metals although Merv has another site where he posts his gold thoughts. I highly recommend these sites for a more thorough analysis of that sector.

In Conclusion:

Canadian Gold stocks have been leading the pack in the recent market uptrend. Even though the market appears to be topping into a new downswing, gold stocks have been resilient as their relative performance is still positive. That may be starting to change.

The Word

therealword@gmail.com

The Canadian market – Week in Review 30

Last week, the TSX composite had just broken down below support at 13,750 and was in a column of O after consolidating in a trading range between 14,000 and 13,750.

This week, it bounced off support at 13,550 (purple line & arrows) which was the previous June 27 low, and established a brief column of X before closing the week with a new column of O at 13,565.24.

Evaluation: This is the last significant support level before it reaches the long term bull trend line at 13,400. A break to 13,500 (orange square) would give us a target of 13,400 and a break to 13,350 (red square) would allow us to declare a new bear market. The support level at 13,350 (purple line), the May 1st level, is no longer relevant because the long term bull trend line prevails. Note that the rising 200 day moving average is currently at 13,277.47, a level which is lower than the trend line…! The bulls need to return to the game soon, or the game will be over.

The TSE Bullish % gave a serious warning when it crossed the 70 level downward and established a new column of O. This was a signal to change our strategy from capital appreciation to capital preservation. It gave a second signal when support at 60% was broken (red square with an 8 inside). This is a preliminary sell signal suggesting raising additional cash or hedging your portfolio.

Evaluation: We now stand at 54% which happens to be a previous resistance zone. Sometimes a previous resistance becomes a support. We shall see. The next significant area to watch is now the 50% level. Moving below with the TSX composite breaking the long term trend line would confirm that the trend has changed to a bear.

Nowhere to hide.
We present below, an evaluation of all the sectors of the Canadian market. Columns E to H evaluate the absolute trend for each sector:

-1- Health care is in a bear trend
-2- Consumer Staple, Technology and Utilities are in a bull trend and still rising (in a column of X).
-3- All other sectors are in a bull trend, and correcting (in a column of O).

Columns I to K evaluate the relative strength for each sector. In the legend below we sorted the different conditions by providing a score from +2 to -2.

-1- There are only two sectors with a Buy in a column of X or a score of +2. They are Consumer Discretionary and Materials.
-2- We have one sector with a Buy in a column of O or a score of +1, Industrials.
-3- All other sectors have rolled over with the worst score, -2, not very encouraging…

What precipitated the “correction” in the US is the relative weakness of small cap stocks in that market. The Russell 2000 index broke its long term uptrend line in July after a double top at 855 and is now trading at 755. Looking at the Canadian MidCap and SmallCap markets, we do not have the same situation.

The TSX MidCap is still in an uptrend. There have been two consecutive sell signals (red squares) since it reached a top of 975. The first potential support is the old resistance zone where a breakout occurred at 900 (orange zone). After that we have support at 870 (purple line and arrows) and then the uptrend line at 860.

The TSX SmallCap is much closer to its long term uptrend line of 750. Also, there are no significant support levels before we reach that trend line. All we have are 2 previous resistance levels which may act as support. We shall see…

In conclusion, I hope this review of the Canadian market from a Point & Figure perspective will complement the information you typically use to make up your mind on the future course of the market. That is the only objective.

The Word
therealword@gmail.com

The World is not collapsing – yet!

Did I mean The Word (me!)? And I said I would not do any market timing…!
Pursuant to two requests, I am showing today the TSX composite from a Point and Figure perspective. I use this tool in order to determine the road map to my daily trading. So understanding where the Canadian market is at any given time is important. But being able to rationally make a forecast of future pressure points is also of great value to me.

First off, we are still in a bullish market as shown by the green 45 degree up trend line with the last observation on that trend line being 13,300, a very important number to keep in the back of your mind. We had a recent breakdown of a triple bottom at 13,750 (red arrow) and that is scaring a lot of people because it does confirm a short term downtrend. Technical analysis is a great tool to gauge the psychology of market participants. When we have such breakdowns, the level of anxiety goes up and investors/traders are searching for answers if not outright guidance. Such is not my purpose here. What I do know however is the following:

-1- The next level of potential support is the purple line at 13,550. It is a “weak” support zone however because it is only supported by a spread (far away) “O” which occurred in June of this year (see the 2 purple arrows).

-2- If that does not hold, we have potential support at the next purple line which is 13,350 on the chart, just 50 points above the long term up trend line level of 13,300 mentioned previously.

-3- Finally, and most important, the red square at 13,250 is the critical level. If the market trades at that level, we will have a reversal from a bull market to a bear market, and then watch out below.

How can this be used by shorter term traders in a short term downtrend? Well it’s actually pretty easy. You short at support breakdowns and ride the wave until the next support line below at which point you need to be more cautious and use your traditional decision tool to decide if you should cover or not.

All that is nice if you are a longer term investor right? But what about the “attitude” one should have in this short term downtrend especially if you don’t short? An indicator that I use to stop me from making any major mistake (it is a game where not making any major mistake will see you surviving) is the TSE bullish Percent Index.

A quick tutorial on this indicator is available here

In early July, this indicator went from a column of “X” to a column of “O”. That signals that one should be cautious and as Tom Dorsey says in his book [Point & Figure Charting], it is time to bring the defensive team on the field. The idea is that the time to be offensive and go for capital appreciation has been replaced by a period where you should focus on preserving capital. That’s were we are right now.



So why am I so calm right now with lots of time to write? Because I have my defensive team on the field, with plenty of cash to spend if and when the time is right.

The Word
Therealword@gmail.com

Filter details, and explanations

Many of the filters / scans listed and described below are taken from authors of other blogs, in the public domain. These blogs typically apply the strategies to the US markets. The results of the ‘TSX Trends’ filters are for stocks listed on the Toronto Stock Exchange (TSE). Care should be taken when trading these stocks as some can have very choppy volume, although I do use a volume filter to some degree. It should be noted that inter listed stocks exist and have higher volume that is spread out over many markets, due to higher participation that includes US markets. These stocks are not great in number though.

The spreadsheet has many columns. Each column has a ‘1’ or ‘0’. A ‘1’ indicates that the stock meets the scans criteria for the day. Here is a brief explanation of what the scans are looking for.

Up Trend – This is not actually a scan but an indication of trend. It uses the 10, 20, and 50 day MA’s. On a weekly time frame, the 10 must be above the 20, the 20 must be above the 50, and the close must be above all MA’s. On a daily time frame, the close, 10, and 20 must all be above the 50 in any order, and the 50 must be rising. The purpose of this is to indicate that the stock is in a clear trend, this may or may not be relevant to the type of trade you are looking for. Using just the price squeeze, for example, looking for a quick price move, the direction of the move would most likely be in the direction of the main trend. I also use this to identify stocks to trade similar to the way AlphaTrends trades.

Down Trend - This is not actually a scan but an indication of trend. It is the opposite of the Up Trend description above.

Price Squeeze – This is a comparison between Bollinger Bands and Keltner Bands, as a ratio. The ratio has to be greater than 2 to trigger this. Price usually moves strong, short term, once the range is broken.

The Rocket – This is a bounce off the bottom filter. Looks to buy stocks that have come down hard finding buyers to quickly take it for a ride up. This scan is from Stockmonster. Basically it looks for a low rsi(2) after an 8% decline over 2 days. The blog has descriptions and results of trading with the results of this scan.

The Crash – This is the opposite of the Rocket, you could say this is a bounce off the top filter. From Stockmonster.

BOBv32x – This filter finds pullbacks, go long. BOB = Blow-off-bottom. There is a good post at Woodshedder’s blog on this filter.

3C – This uses a custom cumulative TSV indicator thought up by Bull Trader of Trade Guild. I only use it as a confirmation of money flow into a stock. TradeGuild uses his 3C indicator in other ways. I have attempted to copy the indy since he will not give out the formula, it is close but not quite there yet. Don’t bother asking me for my version, until Bull Trader releases his.

MA Crossover – This uses a 4, 8 and 21 day EMA. The filter looks for stocks that hove crossed all three in one day with the close above all 3 EMA’s. The MA cross was posted on FilteringWallStreet. The link above gets you to a post where he explains how the cross over works.

Filter 1 – Read about it here. A high Average Day Range 30 (ADR30) and a low rsi(2) works best. Muddy also tells me that a very high rsi(2) also works well. He buys as soon as the price “goes green” which means above the close of the prior day.

Filter 4 – Read about it here. This looks for an 8% rise in price, then waits for the price to pull back into the “Muddy Zone” which is the area between the SMA10 and EMA30
Wait for green and put in a 3% stop, you don’t get taken out too often, according to Muddy.

Rise – This one looks for a 25% increase in price in the last month. These stocks can be held for the longer term. When used in conjunction with another filter, it gives a good entry for a long term hold for your portfolio. Muddy, Green on the Screen, used this and I understand he originally got the idea from Stockbee.

Total – A tally of all the other filters.

Short Squeeze on the NASDAQ, what about the TSX?

I asked ShortSqueeze how he finds his selections, "it's a manual process", he says. So I automated it.

So, just for kicks, shits and giggles, I ran a scan to find the highest percent short interest and highest number of days to cover for stocks on the NASDAQ. You can view the Spreadsheet online.

The Fly is looking for squeeze plays in MCHX and CORS (and others), these two are high on the list.

Here is an interesting article on short interest for Canadian stocks. It basically concludes that highly shorted stocks are more likely to decrease in price for stocks listed on the the TSX. There is not much mention of short squeezes though. There is also no mention of inter-listed stocks, leaving this report with a fairly weak and lame conclusion. Needless to say, I have been unable to find a free source of short interest data for the TSX, other than the top 20 the exchange provides for download. The squeeze is probably a better play in a larger market like the NASDAQ, more participants, more emotion.

Something new in Canada

Why?

I decided to do this blog after I got frustrated with the pattern day trading rules that govern the US markets. Basically, it does not allow excessive day trades for account under $25,000. I'm not there yet so I decided to stick to the TSX. Canadian markets are not faced with such craziness.

Who?

I'm not a big time trader expert trader but my belief is that emotions drive the market and the individual. Technical analysis can be done by anyone with a monkey brain. My approach to this blog is not as eloquent as "The f'n Fly" or pornographic as the Trading Goddess, or as technical as Alpha Trends, or as insightful as Trade Guild, or as torturous as Suck My NASDAQ. Don't get me wrong, I read all this shit every day.

What?

I'll post a screen shot of my scans every night. You do the thinking. I'm not providing target or stops, just the stocks that fit the criteria. Why is this of any value to you, the poor trader who doesn't have 25K? Because there is limited resources on the net to scan the TSX. You can't scan for "The Rocket", "The Crash", the MA breaks without passing out money to some billionaire firm.

Even Stockolicous doesn't allow Canadian stocks, what are we, the USA's red headed step brother?