Concerned about the sell-off?

Below please find an excerpt from the latest Market Comment by Ron Meisels and Olaf Sztaba. To read a full text and receive the latest investment ideas please register for a free-trial at na-marketletter.com

Our recent Market Comments applauded the bullish action but warned about “the seasonal chills” that could hit the market, which could eventually lead to a much-needed “traditional autumn scare.” Indeed, following the mid-September failure to reach new highs, the North American markets succumbed to corrective forces. From the start, triple-digit tribulations hit the market and very quickly spooked participants.

This 180º turn has been captured by the latest investors’ sentiment data. The AAII shows that after months of bullish dominance, both sides have reached near equilibrium – 35.4% for the bears and 41.8% for the bulls. This change speaks well for this market’s ability to control investors’ enthusiasm. It also suggests that those who were worried about the end of this bull-run may take a deep breath for now. The bulls are just quitting too easily to indicate a major top.

The plethora of technical indicators, including the Net-Day index and the smaller number of 52-week highs, suggest the market reached oversold levels indicative of a turnaround (similar conditions were present near the January, February and August lows).

As always, individual stocks may differ in their technical status. Some early leaders have already reached their objective for the correction – in most cases it is the 200-day moving average. They may spend the rest of the month building a short-term base for further gains once the market catches the seasonal fever. Other stocks may use this time to continue the pullback toward their objectives. Watch for our upcoming list of buying opportunities in key sectors (to receive this list, register for a free trial at na-marketletter.com).

The autumn correction is doing its job. Indices and stocks are pulling back to their 200-day moving averages, support levels are being tested, the bulls are in retreat and the wall of worry is rising up again. An ideal conclusion to the current correction would be a fear-induced sell-off, finished by a sudden reversal.

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Technology Stocks Are in a New Secular (multi-year) Bull Market

In a recent piece, “Waiting for Godot,” we presented cyclical and technical evidence that the technology sector has already begun a new secular (multi-year) bull market – similar to the one that took place in the 80s and 90s.

The most compelling evidence comes from an abundance of huge base patterns in technology stocks such as Cisco (CSCO-N), Intel (INTC-T), Sierra Wireless (SW-T) or Teradyne (TER-N). Not only do these stocks have base patterns that could support significantly higher targets, but many of the names have already broken out from these patterns.

To take an advantage of this once-per-decade opportunity, we have started a new publication, NA-Marketletter Technology. Since its inception, our subscribers have already profited from numerous breakouts such as Intel (INTC-N, +28.2%), Sandvine (SVC-T, +42%) or Sierra Wireless (SW-T, +49%). Every week we publish new reports on stocks which could rally for many years to come.

We have just published reports on NVIDIA (NVDA-N) and Teradyne (TER-N).

To read these reports and others, sign up for a free trial at www.na-marketletter.com

 

 

Intel (INTC-Q) had a strong up-move

On April 8, 2014 we added Intel (INTC) to our BUY list at $26.91. Then, we published a report on the stock, which identified a major breakout from a large base formation and suggested an initial target of $35. The breakout did occur and the stock had a sharp rise to $34.65 for a 29% gain.

Here is our initial report on Intel available for NA-Marketletter Subscribers on June 13, 2014.

intc

Chart courtesy of stockcharts.com

Intel had a major breakout.

Intel has been trading within a wide horizontal trading range mostly between $10 and $26 for more than 12 years (see dashed lines). The recent rise to $27.96 (A) confirmed the breakout from this large area of accumulation and signalled the start of a new up-move with significantly higher targets.

Technical indicators including the rising 40-week Moving Average and the positive MACD confirm the bullish status. Use any weakness as a buying opportunity. Only a decline below $25 would suggest additional consolidation is required.

Technical measurements provide an initial target of $35 (a 25% appreciation potential from current levels). Significantly higher targets are also visible.

 

Please go to NA-Marketletter for the latest on Intel (INTC-Q) and other technology names. We just published reports on Advanced Micro Devices (AMD-N) and EMC (EMC-N).

 

 

Waiting for Godot

If you based your investment decision only on the financial media and market pundits, you would most likely shy away from the market. After all, “The market is overbought,” “The state of the economy doesn’t support current stock prices” and “The next market crash is just around the corner.” The market should undergo a serious correction at the very least. But should it?

This situation reminds us a famous and absurdist play by Samuel Beckett, “Waiting for Godot,” where the two main characters, Vladimir and Estragon, wait endlessly and in vain for the arrival of someone named Godot. What an absurdity it has become! For the last few months, investors and market observers have become obsessed with a correction, sitting on cash and waiting for its arrival.

It is not that the market doesn’t need a correction; of course it does. In fact, given the recent advances in some stocks and sectors, a correction would fit perfectly. Unfortunately, that is not how a bull market operates, especially the first one in a brand new secular bullish cycle. What a start to a new long-term cycle it has been! The market has been on the rise for the last 32 months without a 10% pullback – a concern for many. However, history shows that those who are waiting for a pullback to arrive shortly may well be “Waiting for Godot.” During the 1990-1997 run, the market rallied for 82 months without a 10% pullback.

It is unlikely that the market will repeat this record; however, investors must keep in mind that the current advance was preceded by a very severe bear market and it is the first major bull market in a brand new secular bullish cycle. This once-per-generation cyclical occurrence may well provide the stock market with a very strong tailwind.

Given this favourable cyclical setup, why are investors shunning stocks? Investors’ severely damaged psyche might play a role. During the 2000- 2010 period, the stock market underwent a secular (long-term) bear market sprinkled with two huge sell-offs. Such a long period of volatility and distress has certainly had an effect on investors. Many abandoned investing altogether, some became extremely cautious about the market, while others subscribed to the notion of “another crash is just around the corner.” The recent study published by the Financial Analysts Journal shows that investors are keeping the lowest percentage of their portfolios in stocks in over half a century! It is even lower than in the late 1970s, just before the 1980-2000 super bull began.

While for some these statistics could be alarming, given the early stage of a new secular (long-term) bull cycle, it is not unusual. In fact, over the next decade, along with rising stock prices, public interest in the stock market should rise as well – as happened in the late 80s and 90s. Those who recognize this change and invest in stocks early should reap the most benefits.

While resource-based stocks (hard assets) led the last long-term cycle, the new cycle has a new leader – technology (soft assets). The majority of tech stocks underwent a ten-year repair process, which consisted of: (1) a complete change of shareholders – from weak hands to strong hands, and (2) building lengthy base patterns pointing to significantly higher targets. Many of these stocks have had huge breakouts from their base patterns and are now leading the market advance. Given the size of their bases, one could conclude that the technology sector may well lead the current secular bull market for many years to come.

The beginnings of a new bullish secular cycle are often mistaken as a continuation of the old. Investors tired of years of volatility and sell-offs are becoming wary of investing and often miss new opportunities. However, charts don’t have emotions and they are clearly pointing to a new era (just as in the early ‘00s charts pointed to a new bull market in Gold). Technology has embarked on a new multi-year bull market. It means any cyclical (shorter-term) declines should be viewed as buying opportunities.

 

SHORT-TERM PERSPECTIVE

The advances of the last few months in many technology stocks has brought many of them away from their rising 200-day moving averages. Such a severe discrepancy can persist for extended periods in a bull market. The longer an overbought condition exists, however, the more extensive the subsequent correction. At the same time, stocks near their 40wMA should be the first choice for purchase – especially those that have recently broken out or are on the verge of a breakout. Watch this space for more detailed info.

For those of you who would like to participate in this bull market, see a new publication, NA-Marketletter Technology, edited by Ron Meisels and Olaf Sztaba. It offers investment ideas with clear entry and exit notifications, market commentary and educational articles. Subscribe today and start benefitting from this powerful new cycle.

Will this rebelious bull market surprise again?

The market comment below was published on May 23, 2014 at www.na-marketletter.com 

 

Our last Market Comment presented two possible ways out from the recent period of hesitation:

Positive resolution – the S&P 500 decisively breaks out above the 1,900 resistance. Such a move would confirm that Leg 3 of this bull market is still in force.

Negative resolution – the S&P 500 declines below the mid-April low of 1,814 and confirms the start of a correction (leg 4).

Neither of these scenarios has played out just yet. There is no doubt that this bull market would benefit greatly from a rest in the sun. We cited numerous technical, sentiment and cycle factors that point to a corrective period. In fact, the anticipated pullback would align with many analysts’ scenarios, including ours. However, there is a fly in the ointment. Bull markets, by definition, don’t like to follow well-trodden routes. This bull market in particular has shown its rebellious side by breaking all records when there’s a caution sign and putting on the brakes when nobody is watching.

Our last Market Comment said that the behaviour of the London stock Index, the FTSE, could provide a hint about the direction of the North American markets. In the past, London has often acted as a leading indicator. Indeed, as we write, the FTSE is in the midst of a potential breakout above multi-year resistance. If the Index follows with more upside action and confirms a breakout, it would be an extremely bullish signal for the North American markets.

Closer to home, the recent minor high in the DJIA was confirmed by new highs in the Transportation Index. While positive, this new high was achieved by a smaller number of stocks.

The markets have just completed their 105-day and 70-day cycles. It is now important to watch how they evolve. The first 21-day cycle is usually a good indicator for the rest of the 105 days. The first 21-day cycle will mature on May 30th and the projected maturation of the 70-day cycle is in early June.

According to the Investors Intelligence data the number of bulls remains quite high at 55%. We are also receiving signals that many institutional investors have more cash on hand than in 2013. This could be the result of profit taking in some sectors and the anticipation of a corrective move. If a pullback doesn’t arrive or if it is shallow, some of this money will be forced to participate in the market, further fuelling the rally.

In fact, the recent strength in Energy and Resources sectors may prove just that. After taking profits in Technology and Industrial names, investors are looking for sectors that haven’t participated fully in this bull market. This shift in investors’ interest has been visible on the charts of Canadian Natural Resources (CNQ-T), First Quantum Minerals (FM-T), Freeport McMoran C&G (FCX-N) and Suncor (SU-T) to name just a few. Some of these names may benefit from a pullback in the short-term but any weakness should be viewed as a buying opportunity. This trend toward resource-based names is most likely to continue.

At this time of year, market observers dwell on “go away in May”. While contemplating the issue, keep in mind that bull markets don’t take vacations – sectors and stocks do. Therefore, investors who choose carefully and add the right stocks to their summer portfolio may well afford to take a longer break this autumn.

Given the market’s record run, technical evidence and expectations, one would conclude that it is ready for a major pullback. However, this bull market has shown that it doesn’t play according to the script. Therefore, investors should watch for a resolution to the current impasse before taking sides. It doesn’t mean taking a break from investing.

This is the time when those who pay attention to the price action will benefit the most. Whether the general market corrects now or later, it should not impact stocks that are breaking out from large base patterns. These are most likely to lead the market this summer and provide investors with solid profits. Look for those names on our list of Trade and Investment Ideas.

 

 

 

Major changes in leadership

While watching the recent media coverage of the stock market, one would conclude that the bull market is over, stocks are overvalued and another bubble is in the works.

The problem is that this bearish stand has been in play for the last five years and investors who subscribe to it have missed out on one of the greatest bull markets in history. It is true that the stock market has gone a long way since the 2008 bottom and many stocks are already showing signs of tiredness. Nevertheless, there are still many buying opportunities.

Let us explain.  

Each bull market has a period of major changes in leadership. It comes when sectors and stocks that led the advance are tired and can no longer drive the indices higher. In fact some of these stocks have already reached their bull market highs and they may well “sleep out” the rest of advance.

Concurrently, there are sectors and stocks that have underperformed and are now coming to the fore. Armed with solid base patterns, the stocks are ready to take on a new role and lead the bull market to its conclusion. This “changing of the guard” is usually associated with increased volatility and visible disparity between stock indices.

We are in such a period now. This is a great time to reshuffle your porfolio, take profits in some stocks and reinvest them in new leaders.

Recently we closed numerous positions with significant gains such as:

  • Ballard Power (BLD-T) – closed with a 109% gain,
  • Encana (ECA-T) – with a 27% gain,
  • Polaris Minerals (PLS-T) – closed with a 19% gain, and
  • Canadian Natural Resources (CNQ-T) with a 29% gain.

There are also stocks that have had important breakouts and are on the verge of a pullback. Such short-lived weakness would provide a great buying opportunity.

  • Canadian Natural Resources (CNQ-T),
  • Savanna Energy Services (SVC-T),
  • Suncor (SU-T),

and many others…

Finally, there are many names that are breaking out or are on the verge of a breakout. For example:

  • Celestica (CLS-T) – had a major breakout from a large base (full report),
  • Essential Energy Services – has a large base, needs to move above the $3.00 resistance, and
  • SNC-Lavalin – is in the midst of a major breakout.

There are many other stocks joining this bull market that have significant upside potential. Almost daily at www.na-marketletter.com, we publish new investment ideas along with stock reports.

 

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

su

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.

 

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