Stock Market Comments for October 30, 2008

October has seen higher volumes but index values have trended more or less sideways. This includes the TSX Comp, SP500, DJIA and Nasdaq indexes. The Nasdaq sticks out a little because the volume has an obvious decreasing trend.

There are several possible scenarios for what is going on, but in my experience...all of them forecast lower lows for all indexes. As always, the timing of the lower lows is uncertain and temporary increases can happen before we see the lower lows.

SP500 Index Bear Fund

Here's another Exchange Traded Bear Fund. This one is for the SP500 US Index. It ended today at $39 per share. The large degree of fluctuation is due in part to the times 2 leverage on the fund. If the index drops about 5 % the fund will rise about 10 %. This works both up and down. Its a very convenient way to short the market. It trades just like a stock.

I'm expecting the SP500 index to go lower, perhaps a lot lower, and if true the shares of this fund will rise above the last peak of $45.

Agrium Inc. (TSX): Expected to Go Lower

Once in a while I come across an interesting short term chart pattern that turns out to be a good forecast of things to come. Agrium, a Canadian stock, has been falling in price like most everything else. It now has one of those patterns. Agrium recently hit a low of $36 after peaking near $116 back in June 2008. At $36 it was down $80 from the high for a loss of 67 percent so far.

The chart is now saying to me that there is a very high probability that it will go below $36. The obvious pattern here is the decreasing volume pattern as the price moves more or less sideways near $40. One way to conceptualize what is happening here is that the number of buyers who are willing to pay this price, at this point in time, are running out. Once these "bottom guessing buyers" have their fill the price can easily resume it's downward travel.

If I was really gutsy I would short it now but I'm staying with shorting the TSX 60 Index. Its more of a sure thing.

US and Canadian Stock Market Milestones

Many of us are wondering....How deep will the Bear Market go? How bad might it get?

So far we have only seen about a 40 % loss in the major market indexes. The extreme I have seen so far is the Canadian Venture (penny stocks) Index. It was cut by about 70 percent at the low in October.

My review of a handful of Canadian Mutual Funds, mostly TD funds, indicted that fund values have been reduced by 30 % or greater more depending upon the fund. Dividend stock funds have suffered the least so far. Small Cap Funds and Energy Stock Funds reached lows near a 50 % loss in October. All funds have rebounded a little since the October lows.

I have no way to estimate the ultimate Bear Market low at this time but I can see a few scenarios. As the Bear goes deeper and deeper some of the possible "least severe" scenarios are off the possible list.

The Stock Market is governed by rules, but the rules allow it a great deal of flexibility, and at any point in time it has more than one possible future. This makes perfect sense since the people who will buy or sell next week, next month or next year have not yet made those decisions.

I follow both the US and Canadian Stock Markets. They are quite similar. I have used the Elliott Wave Principle to evaluate the markets for many years. This knowledge allows me to periodically "take the pulse" of the market to determine where it might go in the future. It has allowed me to call many important market turns, frequently on the same day they happened. Most recently, it allowed me to see "the possibility" of a big downturn in the market back in late 2007 and I sold all of my stock market related long positions well before the recent large drop in the markets.

So now, like everyone else, I look for signs of a bottom. The best I can offer at this time is a few milestone market levels. From a technical standpoint, the US Markets are ahead of Canada in their decent. They have already passed one important milestone and are approaching the next. If the DJIA breaks below the late 2002 low near 7,100 then a much deeper Bear could occur. In one scenario, it may then be in the process of correcting the entire history of that Index, back down to much lower levels.

The Canadian TSX (Toronto Stock Exchange) still has one more "less severe" option. Here, there are two milestones close to 6,000. If the TSX Comp breaks below 5,700 then it could be a much deeper Bear Market.

We can look for "bottoms" occurring above these milestones, and on occassion, just above them. Its limited information but its better than just guessing, or listening to the news media pundents who attempt to relate current events as the only factor in market moves. The truth is that the current Bear Market is a normal retracement of portions of Bull Markets that have lead up to it. The real question is... where did the Bull Market start, the one being corrected by this Bear Market?

As time goes on, if the market creates patterns I can recognize, and I'm paying close attention rather than out enjoying the outdoors somewhere, I may be able to see a possible bottom forming. Stay tuned for updates.

TSX Composite Index Forecast October 15, 2008: I Expect the Bear Market to Go Lower

I just finished my most recent analysis of the TSX Comp Index, as well as the charts for POT (Potash Corp) and RIM (Research in Motion). All three are telling me the same thing. The Bear Market has not ended and the next leg down could be a relatively strong one.

Forecast Details
TSX Comp Index, at 9,625 points, going below 8,851.
POT at $98, going below $85.
RIM at $69, going below $58.

These forecasts are about $10 moves for the stocks and about an 8 % downward move for the index.

As always, the market will do whatever it needs to do and nothing is guaranteed. The timing is uncertain for these events but I'm expecting sooner rather than later. It may have already started downward.

SP500 Index

The US stock market is currently down by about 43 percent. It is approaching the lowest level of Bear Market that began in 2000. If the index breaks below that level this will be a large red flag. In comparison, the TSX Composite Index in Canada is down by about 40 percent. However, it is not yet close to breaking below low of the 2000 Bear.

TSX Bear Fund

Not all mutual funds are dropping like stones these days. This Bear Market fund is bought and sold like a stock without any minimum holding period. It is a convenient way to short the market. It has a leverage factor of times 2 so it moves up nicely when the TSX 60 Index drops. The TSX Composite and TSX 60 are very similar charts.

This is the only investment I hold today for the stock market. I just sold the last of my long position mutual funds (TD Energy) yesterday. I took a $500 loss on this last small long position but expect to make it back later when the market is closer to the bottom of this Bear Market. Until then the rest of my investment money is safely put aside in things like money market funds and bond funds. I'm betting on a significantly deeper Bear Market. Time will tell if this is correct.

Apple Computer Forecast Oct. 3, 2008

Apple Computer is currently at $97 per share. There may well be a double top pattern completed here. This particular top pattern is a pretty good one with lower volume under the second top and strong volume on the break below the neckline located near $120. These types of patterns are often very reliable forecasting patterns. This one indicates a target price of $40. It could go lower. I know it's hard to believe being able to forecast a $50 price change. If your skeptical, try putting a note on your calendar to check on the price say 6 months or a year from now.

Stock Market Comments October 1, 2008

I'm expecting the TSX Index (at 11715 today) to continue lower before this Bear Market has ended. POT (at $136.5) and RIM (at $71) are two of the key stocks on the index. They both appear to be set up to go at least somewhat lower before the ultimate lows are reached. As usual the timing of the lower lows is uncertain. Wait for it.

The US bailout plan, if approved, will not prevent this. At best it can only delay the inevitable for a short period of time and perhaps not even that.

I was visiting False Creek in Vancouver by boat not long ago and took this photo of the Science Center building.