Suncor – is it ready for a new up-leg?

Many large Canadian Energy stocks such as Canadian Natural Resources (CNQ-T), Encana (ECA-T), Husky Energy (HSE-T), Imperial Oil (IMO-T) or Suncor Energy (SU-T) have been building huge base patterns for the last few years. Some of those stocks have recently broken out (CNQ, IMO) and others are on the verge of such breakouts (ECA, SU). Below please find our latest report on Suncor (SU-T). For more stock reports and the latest Energy Comments please visit www.na-marketletter.com

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Chart courtesy of www.stockcharts.com

In our previous publication (www.na-marketletter.com, August 22, 2013 – $34.85) we reported a breakout from a large “W” formation (dashed lines) and the start of a new major up-leg. Soon thereafter, Suncor rallied to a high of $38.56 (A) and then settled in a narrow trading range between $35 and $38 (shaded area). A sustained rise above ±$39 would suggest revived investor interest and confirm the resumption of the right arm of the “W” pattern.

Technical indicators including the rising 40-week Moving Average and the MACD (lower panel) confirm the bullish status. Only a sustained decline below ±$35 would be negative.

Technical measurements provide targets of $44 and $49. Higher targets are visible.

 

Many buying opportunities in the right stocks and right sectors

After staying bullish for all of 2013, our late-December Market Comment said, “The New Year may bring a pullback.” Then in early January we forecast: “A significant correction is on the horizon.” In anticipation of a pullback we have closed a number of profitable positions.

Indeed, the anticipated pullback arrived in late-January and immediately sent the U.S. indices toward the 200-day moving averages. While others turned bearish, we viewed the pullback as a buying opportunity.

We added numerous positions such as Ballard Power (BLD-TO), Cequence Energy (CQE-T) or RF Micro Devices (RFMD-Q), among others. These stocks have already produced considerable gains for our subscribers: +35%, +12% and +21% as of today.

Also, our focus has shifted to the Toronto market – traditionally a late-stage performer. Many stocks in the Energy and Resource sectors – which we recently termed the “tail-end goodies” – are in basing formations (e.g., ECA) or have broken out (e.g., CNQ, HSE and CCO). Even the Golds may participate in, at the very least, a reflex rally as part of a larger base-building process. Some analysts are advocating selling Canadian and buying U.S. – our work suggests that the opposite strategy might lead to relative out-performance this year.

We have recently added numerous Energy, Resource and Gold stocks to our BUY list and we continue to add new positions. The current market still offers great buying opportunities; however, investors must be extremely selective. To view our most recent Market Comments, including New York and Toronto targets and the latest BUY lists, please visit www.na-marketletter.com

 

Stock Report: Alliance Grain Traders (AGT-T)

This report was published at www.na-marketletter.com on January 7, 2014 (AGT-T, $16.63).

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Alliance Grain Traders is on the verge of a breakout. 

Alliance Grain Traders had a sharp decline from $30.86 to $10.16 in 2012 (A-B), a recovery rally to $15.17 (C), stayed in a trading range between $11-14, and then in a higher range between $14 and $17 (dashed lines). 

A sustained rise above $17 would signal the start of a new up-leg toward our next target of $21. Only a decline below $15 would suggest a negative development. 

A sustained rise above $17 would suggest a target of $21 (a 26% appreciation potential from current levels). Higher targets are also visible.

 

Could Energy stocks go nuclear?

The recent news about a deal with Iran has triggered a barrage of comments and predictions. While the media paints today’s decline in Energy stocks as a reaction to this deal, others race ahead to pronounce their downward targets for oil and oil stocks. In the end everyone agrees – it’s bad news for the Energy sector so sell, sell, sell! But really?

Fundamental analysis tells us how rational investors should behave while technical analysis tells us how actual investors do behave. If you put aside all emotions, opinions and expectations and look closely at the market reaction to this news, you might arrive at an entirely different conclusion.

The Energy sector, as measured by the XOI index, has rallied more than 10% since the October lows. It is trading above its rising 50- and 200-day moving averages and even above its short-term and rising 21-day moving average.

The news, which supposedly should depress Energy stocks hasn’t had much effect on the sector, if any. What gives?

Once again, the market has proved that what others think about how investors should react to this news differs from how actual investors behave. It pays to pay attention to price!

Of course, some could claim their victory as the market and Energy stocks are in dire need of a pullback (Exxon Mobil, for example). However, given the recent breakouts in some Energy stocks, any pullback should be viewed as a buying opportunity. The price action tells us that Energy stocks may well be the sector that leads this bull market by its nose to its conclusion.

Don’t take our word for it. Look at the price action.

 

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Chart courtesy of StockCharts.com

Sentiment Readings Suggest Investors Have Become Complacent

Since the start of this bull market we have cited the doom-and-gloom mindset and widespread bearishness as the main drivers of this bull market. Indeed, this five-year-old bull market has been climbing the wall of worry and defying all the sceptics. Our Market Comments have repeatedly presented the bullish case and provided investment ideas that produced significant gains.

Unfortunately, many investors suffering from post-2008 trauma have succumbed to the “another crash around the corner” mentality. Our price-based evidence of higher highs and higher lows and rising 200-day moving averages was very often met with “the market is ahead of itself,” “there is another crash around the corner” or “the economy is not doing well.” So far, this bearishness has been music to our bullish ears.

Last week the US indices and newly rejuvenated S&P/TSX Composite reached new bull market highs. In the last five years, such records were met with a cold reception by investors but this time the new highs were welcomed with open arms. Such a change of heart is cause for concern.

The latest sentiment data paints a troubling picture. The number of bears declined to a mere 15.5% – the lowest number this year and one of the lowest readings in the last five years. At the same time, those with bullish views stand at 52.6%. This extreme discrepancy suggests investors have become very confident and most likely fully invested. The recent excitement and accompanying vertical advances in some stocks such as Facebook, Tesla and Twitter show a growing appetite for risk. Such complacency is usually the harbinger of a pullback.

Such a near-term pullback would be a healthy way to shake some holders and over-confident bulls off their benches. For those who seek an opportunity to beef up their portfolios at “Black Friday” prices, a healthy correction would certainly be a welcome event.

There are still many investment opportunities in this bull market, especially in the Energy sector. For more info please see our latest Market Comment and investment ideas at www.na-marketletter.com

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Chart courtesy of Phases & Cycles Inc.

 

 

Toronto had a major breakout

Despite months of rising markets, the bears have found it increasingly difficult to change their tune. If one wondered if there was yet another excuse investors could find to be negative, the political circus filled this void perfectly. Doom-and-gloom preachers reappeared just in time to help induce a small correction from mid-September to early-October. However, as anticipated, the maturation of the 105-day cycle put an end to the correction. Not only were the distance objectives reached, but the cycle low also arrived on schedule near the projected October 11th maturation date. Not bad for what some call a “tea leaves” exercise.

 The markets certainly provided us with impressive action as we entered into a new 105-day cycle: The DJIA immediately rallied 324 points and was followed by another up-day. This all happened despite the threat of the US default and the abundance of “financial Armageddon” scenarios in the media. Such strong behaviour in light of political chaos is a classic bull market at work.

Action in Toronto.

For the last two years, while the U.S. indices have been reaching new highs, the S&P/TSX Composite Index has been locked into a horizontal trading range with the ceiling at 13,000. During this time, we have said repeatedly that Toronto is most likely to come alive in the final upleg of this bull market (Leg 5). Such a breakout has now occurred and it puts the Toronto market at the forefront of this bull market.

The DJIA and S&P 500 may take a back seat. In fact, many leaders of the previous up-legs (Legs 1 and 3) may well slow down and underperform the market making way for new leaders to fill the gap. Therefore, stock selection will become vital. The first signs of market segmentation are already visible in many stocks. For example IBM (IBM-N; a leader in Legs 1 and 3), has recently violated its 200-day Moving Average and started a new downleg, as we predicted (see IBM-4, September 13, 2013). On the other hand, stocks such as Bombardier (BBD.B-T) or Suncor (SU-T) are just joining this bull market. They may well become the leaders of the final up-leg.        

There are many investors who worry that “it is too late to get in”. Two areas of the market where investors may find plenty of buying candidates are in the Energy and Technology sectors. Both sectors have underperformed the market in Legs 1 and 3 and both have a large number of stocks with massive, multi-month base patterns which, if confirmed by breakouts, could produce significant gains.

In sum, the market has not only shown an impressive resilience during the political commotion but has also responded well to the forces of a new cycle. It all bodes well for the market going into the festive season. Some back-and-forth activity is still an option for a while, as the new 105-day cycle evolves, but technical and cyclical evidence points to higher targets for both New York and Toronto. The latter, in particular, should take over the bullish torch from its U.S. counterpart and run with it until the end of this bull market.

Investors, however, shouldn’t stay complacent. It is time to review portfolio holdings very carefully. Take profits in some tired names (leaders of Legs 1 and 3) and inject some fresh blood into portfolios. Watch for our upcoming reports and additions to our List of Trade and Investment Ideas.      

   

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There are many opportunities to profit in the Energy sector

While major US indices have been making new highs almost daily, the Energy sector (as measured by the XOI and SPTEN indices) continues to refuse to participate in this historic rally.

While this kind of situation might cause investors to give up on the sector, our last Energy Update offered an antidote to such a malaise. Instead of worrying about the sector performance as a whole, investors should concentrate on the strongest names that have already broken out and joined this bull market.

In our “Open Positions” list we had numerous Energy stocks that experienced breakouts from their lengthy base patterns followed by major advances. Natural Gas Services (NGS-N) and Western Refining (WNR-N) were some of the few Energy names that stood out from the others. They broke out from their base patterns and had robust rallies. As a result, we took profits in these stocks, +50% and +53% respectively.

In the last few weeks, there has been a fresh wave of breakouts among Energy stocks. Here is one stock that has recently rallied above its major resistance:

 

    Essential Energy Services (ESN-T, $2.87)

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Following a sharp decline to $0.89 in October 2008 (A), Essential Energy Services settled into a horizontal trading range roughly between $0.65 and $1.35 (see dashed lines). In September 2010 the stock had a breakout from this area of accumulation, rallied to a high of $2.32 (B), had a two-way pullback (C) and then another rally to a high of $2.62 in March 2012 (D). Subsequently, the stock settled into a symmetrical triangle formation made up of lower highs and higher lows (see solid lines). Then, in May of this year the stock rallied above the upper boundary of the triangle, reached a high of $2.72 (E) and eventually settled into a smaller horizontal trading range (see shaded area).  

The recent rise to $2.87 (F) constituted a major breakout and the start of a new up-leg.

Technical indicators, including the 40-week moving average, the VSI and the MACD (see lower panel) confirm its bullish status. Only a sustained decline below $2.45 would reverse the positive status of this stock.

Technical measurements provide a target of $3.50 (a 21% appreciation potential from current levels). Higher targets are also visible.

For more investment ideas, including the list of stocks that are in the midst of breakouts, please register for a free trial at www.na-marketletter.com

 

 

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