Market Showing Signs of Fatigue ?

Many large cap stocks ended the week unchanged or somewhat higher than the midweek dip indicated. This could be a warning sign that many sectors are headed for a retracement. The energy sector which has been particularly strong in recent weeks took a major hit mid week and one must be careful proceeding further. Could be a good time to take some profits and reduce positions awaiting a pullback as re-entry point. The few stocks in this category which still show some possible up-leg include Canadian Natural Resources (CNQ), Suncor (SU) & Talisman (TLM).

The precious metal sector has also been difficult to guess with stocks moving in different directions than both gold and the US dollar. Stocks showing further strength in this sector include Barrick (ABX), Goldcorp (G) & Iamgold (IMG).

Financials have been showing renewed life of late, most prominent being Scotia Bank (BNS), CIBC (CM), National (NA) & Toronto Dominion (TD). These can be considered holds. Royal (RY) would be deemed a long term accumulate. TSX Group (X) has come down over 10% since the announcement of the merger with the London Stock Exchange and would be considered a midterm buy.

Telecom Stocks worth still accumulating include BCE & Telus (T).

Speculative Buys (or “Purchase with Caution”) include Agrium (AGU), Potash (POT), Research in Motion (RIM), Silver Wheaton (SLW) & Teck Resources (TCK.B). These five stocks will do very well over the mid to long term but they might suffer further weakness beforehand. I did however purchase Agrium (AGU) this week at $90.03. After a hair raising journey down to $86.56, the stock ended the week at $92.69.

Long term recommendations on current weakness include: Kinross (K) and Rogers (RCI.B). Probably wise to lighten up and await opportunities.

The Continued Political Impact on Market Performance

The ongoing unrest in the Middle East will continue to provide for strong gains in the energy market. However, one should always note that natural gas producers would not necessarily be included in this list owing to abundance of reserves here in North America. Irrespective of cold winters, natural gas prices do not appear to be going anywhere for quite some time (at least in comparison to petroleum). Some big gains in top producers this past week include: Top value pick last week Nexen (NXY) +13.37%, Suncor (SU) +10.01% and both recommended last week Canadian Natural Resources (CNQ) +9.38% and Talisman (TLM) +8.89%. Low level Middle East unrest is always good for oil prices.

Precious metal stocks can also benefit from unstable political times however the rise in the US currency based on improved US economic forecasts can dampen this. Three of five stocks recommended last week increased substantially including: Barrick (ABX) +8.54%, Eldorado (ELD) +6.44% & Iamgold (IMG) +5.84%. Kinross (K) remained flat while top pick Agnico Eagle (AEM) dropped marginally by week’s end after having increased 4.6% by mid week.

Opportunities unfolding: Based on rumours of softening Chinese demand for grains, fertilizer stocks took a hit by week’s end after hitting new 52 week highs earlier. Agrium (AGU) which also announced a fire in one of their American plants dropped 4.46% for the week, while Potash (POT) lost 4.30%. Any rumours of decreases in Chinese demand for natural resources should be viewed as a rumour that should be capitalized upon. The continual influx of citizens moving from rural to urban areas and growth of the middle and wealthier class means that Chinese demand for building materials, energy and food stuffs will not diminish anytime in our lifetime. Teck Resources (TCK.B) has suffered two straight weeks of more than 6% losses and should be watched carefully for an entry point.  Often recommended in recent weeks, Research In Motion (RIM) received a strong buy rating and should be purchased on any weakness. Keep an eye on the political situation for buying opportunities.

 

A Market Dictated by Politics

The political events in Egypt can signal two possible market directions. Usually it would indicate that things calm down and energy and precious metal stocks fall back on the reassuring news while other sectors including financial, industrial and consumer move forward.. However, unique to this event is the possible spillover effect on other neighbouring countries which could only result in the opposite outcome if only temporarily. Monday should be a pivotal day in providing us with a better picture of the direction.

Market guru Jim Cramer of CNBC’s Mad Money predicted on Friday that gold will go much higher and should represent up to 20% of an individual portfolio. His top three picks in this area are Agnico Eagle (AEM), Barrick (ABX) & Eldorado (ELD). Agnico Eagle represents his (and my) favourite as it has lots of potential reserves coming to market from politically safe countries.

Hot Stocks usually remain hot: the following stocks hit 52 week highs on more than one occasion this past week. This would indicate their momentum strength going forward:  Agrium (AGU), Scotia Bank (BNS), Iamgold (IMG), Lululemon (LLL), National Bank (NA), Potash (POT), and TSX Group (X). However, both Iamgold and TSX Group dropped over 6% after hitting the last high so take heed.

Possible Value Plays include: Nexen (NXY) closed down 7.18% this past week, while Teck Resources (TCK.B) closed -6.12%. The telecoms were also down in weakness. Of particular note are BCE & Telus (T). Other stocks closing at the weekly low include: Canadian Natural Resources (CNQ), Eldorado (ELD), Kinross (K) & Talisman (TLM). Stocks closing near their weekly low include: Agnico Eagle (AEM), Barrick (ABX), & Iamgold (IMG). Best to wait for political events to decide which direction to take on energy and precious metal stocks.

Trades I made this Week include: I bought and sold Potash (POT) twice and Agrium (AGU) once for profit. I purchased Teck Resources (TCK.B) on weakness at $58.75 and $57.90 in two separate accounts. I sold a very large position in Research in Motion (RIM) at $66.75 after holding it since December and January for an average purchase price of $62.95. I bought and sold it again on Friday for profit and repurchased a small amount at $65.99. It closed at $65.88.

Keep an eye on the unfolding world political scenario before moving forward. Have a great week ahead and good luck.

 

Market Top or Inflection Point ?

After a strong week on the market for many sectors, one has to be wary whether the market leaders have recently gone up too much too fast. Leading stocks that hit new 52 week highs include: BCE, Telus (T), Scotia Bank (BNS), Industrial Alliance (IAG), Laurentian (LB), Toronto Dominion (TD), TSX Group (X), Cameco (CCO), Iamgold (IMG), Potash (POT), Viterra (VT), Canadian Natural Resources (CNQ), Cenovus (CVE), Imperial Oil (IMO), Suncor (SU), Bonavista (BNP), Baytex (BTE), Penn West (PWT), & Vermillion (VET).  

While the TSX Composite increased 2.6% this past week, since January 1^st it’s only up the same 2.6%. Many stock increases year-to-date or strictly as a result of this past week. Is this therefore a point where stocks continue upward or retrace some steps ? No one can answer that question so the best strategy is to watch carefully for any indication.

Hot Market Sectors year to Date include: Health (+13.4%), Technology (+11.6%), & Telecom (+5.5%).

Hot Stocks Year to Date include: Viterra (VT) +29.2%, Bombardier (BBD.B) +24.2%, Potash (POT) +16.0%, Penn West (PWT) +11.5%, Telus (T) +9.3%, Research in Motion (RIM) +8.5%.

Stocks to Watch this Week: Financials: Bank of Montreal (BMO), Scotia (BNS), Royal (RY) & Toronto Dominion (TD); Energy: Canadian Natural (CNQ), Nexen (NXY), Suncor (SU) & Talisman (TLM); Agriculture: Agrium (AGU), Potash (POT) & Viterra (VT), Mining: Agnico Eagle (AEM) & Teck (TCK.B).

Keep a sharp eye for potential dips or upward indications for buying/accumulating opportunities. Good luck.