Investment Markets Information

Stock market consolidation

The U.S. and Canadian stock market continues to work through a consolidation. Here are the signs to watch for the purpose of guiding decisions related to stocks and mutual funds.

Consolidations are a normal part of any uptrend. What matters is how severe the consolidation and whether it gets worse. By definition a consolidation is relatively shallow and healthy while a correction is deeper. When a leading market average such as the Nasdaq, S&P 500 or TSX falls by at least 10% it is considered to be a correction. Here are the characteristics of the current consolidation.

U.S. Stock Market

The Nasdaq is the most indicative market average as it tends to outperform, magnifying underlying conditions. This is a six month view, in the chart below, providing a snapshot of the uptrend. An orange box defines the consolidation which is approx. two weeks long. Notice how tight the consolidation is to the high. That's a bullish feature indicating big investors continue to hold rather than sell positions, generally.

The Stock Market's Crystal Ball

Leading stocks are historically a much better indicator of underlying conditions in the stock market. Our market metrics indicate the behaviour of leading stocks as a group is the highest ranked indicator for forecasting. Rather than look for a crystal ball into the market, investors can manage systematically by using leading stocks as the crystal ball. This unique group is the product of extensive screens or filters, designed to target the best performing stocks and their key identifiers for timing.

Not surprisingly, most leading stocks are in consolidations mirroring the market averages. Two of the highest ranked stocks pushed higher this week clearing their respective consolidations. Leaders not only lead by outperformance, they also tend to move, up and down, before other stocks. Otherwise, leading stocks are in constructive consolidations consistent with an uptrend.

Averages Look Good, Most Stocks Don't!

However, the rest of the herd in the stock market remains a concern. Since 2011, there has been a significant divergence in the performance of leading stocks versus laggards. Portfolios that have concentrated capital in anything but the top 20% of the market may be lower while leading stocks have pushed higher. Canadian investors who continue to hold resource stocks will be painfully aware of this. Furthermore, the situation is getting worse.

The chart below provides an overview of the condition of stocks in the Canadian stock market (the TSX). What is noteworthy from this indicator is the significant break down in September. While it may not be overwhelming, yet, our observation of stocks in both the Cdn. and U.S. market is as follows. The heavy selling in a large number of high quality stocks is disturbing. The market averages have been strangely strong while stocks generally perform poorly.

The TSX

 

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Livestock E.T.F. Update

This is the latest livestock E.T.F. update featuring COW, MOO, FUD and LSTK.

To say not all cows are the same would be an understatement. COW on the TSX is a very different animal than COW on the U.S. market. COW-tsx is the iShare Global Agriculture Index Fund and COW-u.s. is the iPath Dow Jones-UBS Livestock Subindex Total Return Fund. More importantly, the performance difference is significant.

The Big Moo

Both were in uptrends until early July when COW-u.s. started a downtrend. But COW-tsx continues to run, trading near the high. In fact COW-tsx is one of the best performing commodity E.T.F.’s since 2010.

iPath Pure Beta Livestock ETN (LSTK-u.s.) has been trending higher since April 2012. Bur LSTK is thinly traded and has many gaps in the price. It’s a profitable E.T.F. for the “house”, i.e. the issuer, but not very attractive for the investors and investment advisors herd.

The Cow That Runs: COW-tsx

COW - U.S.

Livestock E.T.F. LSTK

FUD

 

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Dow Stocks

The following are the 30 stocks in the Dow Jones Industrial Average (D.J.I.A. or the "Dow). Year to date performance is included.

 

 Company

  Stock  Symbol

 %  change, year to date

 Intel

INTC

+31%

 Microsoft

 MSFT

+21%

 Caterpillar

CAT

 +20%

 Merck

MRK

+20%

 Walt  Disney

DIS

 +18%

 United Health  Group

UNH

 +15%

 Home Depot

HD

+13%

 Johnson &  Johnson  

JNJ

+13%

 Cisco  Systems

CSCO

+11%

 Travelers  Companies

TRV

 +5%

 Chevron Corp.

 CVX

+4%

 3M Co.

MMM

 +3%

 International Business  Machines

IBM

 +2%

 E I du pont

DD

 +2%

 Proctor & Gamble

PG

+2%

 JP Morgan

JPM

 +2%

 Verizon  Communications

VZ

 +1%

 The Coca-Cola Co.

KO

+1%

 Goldman Sachs

GS

 +1%

 Nike

NKE

0%

 AT &T

T

 -1%

 American Express

AXP

-1%

 Exxon Mobil

XOM

 -2%

 Wal-Mart

WMT

-4%

 McDonalds

MCD

-4%

 Pfizer Inc.

PFE

-4%

 United Technologies

UTX

-5%

 Visa

V

-5%

 Boeing

BA

-7%

 General Electric

GE

-7%

 Performance is rounded off

 

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Stock market highlights

Heavy selling has been a characteristic of the U.S. equity markets for longer than many investors might realize. Today is no exception.

Charts for three stocks are shown below. A picture tells the story, revealing how downside power persists. The primary reason for heavy selling has been unacceptable earnings growth.

SeaWorld Goes On Deep Dive Mission

Former Tech. Leader Blasted Again

Bio-tech Suffers Significant Set Back

The bio-tech sector was hot for an unusually long period of time. But since the correction in the sector took hold, many have fallen by large amounts with tepid recovery attempts. For MYGN, today's decline is a decisive blow to the stock's attempt to advance a base, potentially setting up a new uptrend.

 

 

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Commentary including ideas, historical and other market indications are not investment advice. Statistics and other data may be from other sources and may be inaccurate or incomplete. See Full Disclaimer.

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