Amazing resilience!

November 11, 20114 Comments

It’s astounding how resilient the markets have been lately–especially in light of the goings-on in Europe! Greek default potential and referendum? Piece of cake! Impending doom for Italy? No problem! China may not come to the rescue? No worries!

The S&P 500 has come close to or tested the breakout level (now support level) of 1220 after the above news events evoked panic amongst the masses. Interestingly, these panics have lasted only a day or two, and have been followed by equally wild rebounds. The chart below shows you the insane selloff and rebound patterns that have characterized the markets over the past 30 days. The continuous strength of the market to test and rebound off of support suggests to me that we are in for a solid rally over the coming months. To back the markets’ amazing resilience up, we have a neutral environment for  most sentiment indicators (bulls aren’t too bullish, bears aren’t too bearish!), neutral momentum oscillators (neither overbought or oversold), positive seasonal influences, and a reasonable number of positive earnings reports and economic indicators coming in at or better than expected. I remain short termed bullish (out to December or January) and longer termed bearish for the markets.


CNR vs. CP

I was on BNN Market Call last Wednesday where I had a couple of viewers call and email about CP Rail’s prospects. I normally don’t like to blog about individual stocks, but given the significance of these positions in both institutional and retail investors holdings, I thought I’d make an exception today. I must disclose that I hold personal and client positions in CNR, and recommended it on the show as one of my top picks. Let’s take a look at the two charts to see why I like CNR over CP. As you will see on the chart below, CNR has reached a new high and is in an uptrend. Its relative strength to the markets (not shown) is positive. A bullish crossover by the 50 day MA through the 200 day MA occurred this month. It is somewhat overbought according to MACD, so it might be expected to pull back a bit, but the basics of its chart are bullish.

CP Rail, on the other hand, has not passed through its old highs. I’m using a weekly chart for CP to give you a better view of the overhead resistance at around $68. The moving averages haven’t crossed yet, and the stock is currently consolidating rather than moving higher in a meaningful way. CP has some upside potential to the high-$60’, but I’d rather own the one with no overhead resistance. Here’s the chart:




  • Keith, it seems to me that the main beneficiaries to the dumb Obama non-decision on Keystone XL are the railways and both CN and CP are in a good position (and maybe that’s why Buffett bought Northern Pacific).

    I like your pick on CN but it is seriously overbought. I think I would wait until is comes back to the 20 day MA or even the 50 day MA. But the 50 MA may take some time.

    I very much enjoy your blog and get a lot out of it. Thanks.

    • Thanks Fred
      –and yes, you will notice I did mention that MACD (on chart, circled) indicates CNR is overbought. Again, given the potential for a pullback of some sort, it still has a marvelous looking chart for the intermediate and long term.

  • wonder what you think of a guy like David Chilton who says that those that do best just buy stocks and don’t even look at them for years and don’t ever trade them. Seems counter to what you are saying

    • I respect David Chilton–he’s brought financial planning to the average Joe, and encouraged saving/investing. Interestingly, over a very long period of time (20 years), he is right–but markets move in phasesover shorter periods of time. We have been in a sideways phase for 10 years, and likely will remain choppy/sideways for 3-5 more years if history repeats itself (and it does!). Thus, my belief is that the buy and hold camp must exercise much, much more discipline than most human beings I have met are capable of. Picture looking at your investment statemet over the past few years–how happy will you be if you were a buy/hold investor? Further, why not try to add some alpha by rotating through favorable sectors and holding cash when risk appears higher?
      Read my new book “Sideways” to get a better handle on why active management makes sense in sideways market phases. When the bull market breaks out again–perhaps in 3-5 years–the buy/hold strategy will make more sense.
      Hope that helps!


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