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Nov 2 2013 Weekend Market Comment

Nov 2 2013 – Have you heard about TINA? Well you should TINA is driving the markets. TINA is a lot of what I was talking about in my article The New Momentum. TINA is short for There Is No Alternative and traders are talking about TINA. Right now if you are running a pension, a hedge fund, a mutual fund or a sovereign wealth fund you really don’t have a choice, the only thing that is paying a return is equities. The market is overbought, the market is tired and the market will pull back but for now money continues to flow in. The problem is that the money does not trust the market so it continues to pile in to the same 100 top trade on the street. So you have the TINA imbalance, it makes the index rise but most of the market is falling apart. 

One of the strangest place money continues to flow in, is a big bet on of all things Air Canada. Air Canada's class B shares closed at a new 52-week high Wednesday, extending an upward trend that has seen the airline's stock value more than triple in the past year. The shares (AC.B on the TSE) ended the day, up 22 cents or four per cent, at $5.72, surpassing its 52-week high of $5.52. It had climbed as much as $5.80 during the session, a level not seen since August 2008 — just weeks before the 
economy slipped into a deep recession. That is a monster move, a year ago, the stock closed at $1.80 on Oct. 30, 2012. Since then, the company has launched "Air Canada Rouge", a so called new discount carrier that began flying in July. Think of it as Westjet's union-busting business plan, executed by the same old incompetent idiots in Air Canad's management team. Well not all the same idiots, Westjet hired some of them and Westjet service has slipped a lot lately. Especially with a lot of eastern routes like Jamaica and Cozumel now hubbing in Toronto and baggage Nazi tactics replacing friendly service. As Westjet fails to differentiate, Air Canada's stock, which had already been rising slowly for months, jumped sharply in August when the airline's second-quarter results beat analyst estimates. For the busier third quarter ended Sept. 30, analysts are estimating that Air Canada had about $3.4 billion of revenue, up about three per cent from $3.3 billion a year earlier.

Some of the stocks not in favour are mid and small caps, and US financials.
Even with the S & P 500 hitting a 52 week high, the broad market Russell 2000 has had a sharp 3 day sell off.
(as always click any graphic to enlarge)

Of course the scary part is as breadth falls apart we see more stocks fall below their 50day average, we guessed this was coming last week and here it is.

I sold my position in DVY this week and made over 4% in under a month.

It is true we just hit a 52 week high on most indexes a bullish sign for sure. Also in the last hours of trading Friday there was some bizarre call buying and upward market movement. Many of our indicators are still looking positive. For example the VIX is in "over confident territory" but has not bottomed yet. 

Still you can feel the steam come out of the markets. I would not put much new money to work here, and take profits on your big gainers.

Speaking of big gainers shares of solar-panel maker First Solar Inc. FSLR +0.20% rallied 16% on Friday, leading gainers in the S&P 500 Index. Prior to 2007 Solar stocks moved with energy prices but now we have oil prices dropping and Solar hitting it out of the park.

Gold fell about 1 percent on Friday, posting its biggest weekly loss in seven weeks, as better-than-expected manufacturing data renewed anxiety that the Federal Reserve could scale back its bond-buying stimulus for the U.S. economy. The CRB index, closed down 1.04 percent to 274.9596, weighed by losses in 16 of the 19 commodities it tracks. That was its lowest reading since the end of June last year as the U.S. dollar has resurged on growing optimism about the
recovery of the world's biggest economy.

This chart shows the price of gold, but on the bottom is the dance between the U.S. dollars and Gold, right on cue, Gold sells off as the U.S. dollar becomes stronger.

Barrick Gold Corp. shares fell more than 6% to about $19 in early trading Friday after the miner launched a monster US$3-billion equity offering in an effort to repair its debt-laden balance sheet. The move was announced late Thursday afternoon, just hours after the miner said it is suspending construction of the troubled Pascua-Lama project. It is the third largest bought deal in Canadian history and follows months of speculation that Barrick would tackle its debt load. The company is carrying US$15.4-billion of debt, much of it tied to the disastrous $7.3-billion takeover of Equinox Minerals Ltd. in 2011.

Barrick is not alone, many other miners have unstable balance sheets as they rushed to re-open old mines and acquire junior miners in the 11 year gold rush. The true cost of product for an ounce of gold in a modern efficient mine is about $400 an ounce. Thought crazy takeovers and bad management some big conglomerates have a production cost near $1,200 an ounce.  As Gold prices drop there is a real concern that the big miners will not be able to stay afloat.

In mid October the price of gold bounced right at that $1,200 level and we look like we want to test that again. Even if the price of gold stays flat, the miners are not exactly having a stellar year and it does look like all stocks may pull back here. So I put a small amount of money in a very high risk trade. Please don't bet money you can't lose on this, but again I bought some DUST and just on Friday I made 2%. Of course the goal here is to re-live the run up of last July. I suggest at least an 11% trailing stop on this puppy, she moves both ways VERY fast. 

Ok so what if you want to invest in something more stable, well times are getting good for Enbridge these days.  Suncor Energy Inc., France’s Total SA and Teck Resources Ltd. gave the go-ahead to the long-delayed Fort Hills mining project, with a price tag of some $13.5-billion. Enbridge Inc. said it will spend $3-billion on pipelines for the project, where eventual output is expected to reach 180,000 barrels a day of steady income. I am enjoying about 20% growth and a sweet dividend at just under 3% yield. 

Bottom line, markets are in a secular bull run -- but short term overbought -- unless US financials bounce back -- raise cash and be ready for the next bounce.


There’s a new kind of safety dance making rounds on the Web.
Virgin America capitalized on the popularity of its older hand-drawn flight safety video by bringing in the big guns—a top Hollywood director, famous choreographers, former Olympians and a dancing nun. 

The pricey high-end production, created by Sir Richard Branson’s Virgin Produced entertainment company, made a big debut on a Times Square billboard and at the Ellen DeGeneres show this week.

But just two days after the video was released, the Federal Aviation Administration started singing a new tune. The organization announced that passengers will now be able to use cellphones from gate-to-gate. While passengers can't make cell phone calls, they will soon be allowed to play games and watch movies on their cellphones. OK gang -- once more from the top.

On another matter, don't worry about Asia overtaking the west, at least not until they master translating to English. See example (click to enlarge):