Trading observations on the SPX, energy, and China.

August 22, 20234 Comments

Here are three questions I’d like to address. Today we will consider how the broad US market, the Canadian oil producers sector, and the Chinese markets might play out over the next month or two. Each of these discussions will cover potential risks, and potential upsides. We’ll cover what I’d like to see before that reward side really shows its face. Lets get at it.

1. Where will the SPX go in the near-term?

I recently wrote a blog suggesting my targets for the SPX, and the potential timing of a the current correction ending.  Read that blog, Then, take a look at the chart below & answer these questions (heck, I’ll even provide the answers) .

  • Q-What happened after August in EACH year since 2019? Answer: markets fell.
  • Q-What month is it now? Answer: August
  • Q-What happened when a 12-period MFI sell signal was generated? Answer: markets fell.
  • Q-What did the MFI do in early August? Answer: generated a 12-period MFI sell signal.
  • Q-Should we be doubling down on your equity holdings, or should we be a little cautious? Answer: ValueTrend continues to hold 25% cash, with no tech, and a value and commodities focus in those stocks we do hold.

 

 

2, What about the oil & gas industry?

I recently noted in the comment section of this blog that evidence is showing regarding  many of the fires raging across Canada, Spain and the USA as human caused. In fact, there have been RCMP charges laid to specific individuals in addition to several yet to be caught. The problem with the rhetoric surrounding these tragic fires is the leverage by Canada’s Federal government to propagate these fires as “climate change”. This is being propagated to justify continuing carbon taxing while pressuring Canada’s most important industry.

I have spent enough time researching the BS baffles Brains plans of the WEF “Great Reset” agenda to know that crushing the energy industry in the timeframe they desire would be devastating.

But that actually can’t happen. Energy consumption, with our without Canada, will increase. This despite, and even because of, the development of renewables. Below is a consumption chart from the full report of the  US Energy Information Administration 

Note the title–yes, renewable energy is the future. But…

“OIL AND NATURAL GAS PRODUCTION WILL CONTINUE TO GROW, MAINLY TO SUPPORT INCREASING ENERGY CONSUMPTION IN DEVELOPING ASIAN ECONOMIES” – EIA

Here’s the actual amount of growth/use expected for the 3 types of energy products. Note petroleum (middle) – its use will be higher, not lower in 30 years.:

 

Will Canada be left behind? If Trudeau puts constraints on our most important industry, then yes, probably. Thankfully, Alberta Premier Danielle Smith is fighting back – she explains some of the reality – seen by the above charts. Very worthy video here – Smith presenting facts opposing the rather unrealistic goals of the Federal government. How this battle of reality vs fantasy plays out will impact our producer stocks (not to mention jobs, the economy, etc).

But lets focus on the stock side:

The Canadian producers are at an important technical impasse.  The weekly chart below shows us that moneyflow momentum is nearing, but not at, an overbought level. It’s ok to see an overbought signal if we break the sideways consolidation pattern that’s been in play since early 2022. Short termed price momentum Stochastics, and mid termed RSI, are nearing a potential overbought point. But MACD (bottom pane) looks good for the bigger picture. Note too that the XEG vs TSX panel (second from the bottom) is looking more positive.

We hold a few energy producers. They have done well as the market sold off recently. But I must admit I am chewing my nails a bit here. I suspect that if Ms. Smith is successful in holding off the political ideologists, the producers will break out. Technical resistance points always need a catalyst. A successful pushback by Smith could be that catalyst. Keep an eye.

 

3. China – news aside, what do the charts say?

Here’s the Arca China Index. No indicators, just the price. Flush the news of China’s slowing economy out of your brain for the moment. Sure, you need a catalyst, as noted above, for a resistance point to break. Perhaps China’s plan to stimulate via monetary easing will be the tool – it sure did work in North America each time governments did it. But that is not for us to say. We need to wait for a break. So lets see where that resistance might be.

The charts don’t lie. Do you see the H&S bottom forming? The neckline at 250 hasn’t broken. We bought a first leg (small) position near the bottom of the right shoulder. It went up, then failed again at the neckline. By itself, we figure its a reasonable risk/reward at 200 or so on this chart. But we aren’t committing much.  That could change…If the neckline breaks – tons of upside – 350 target!!! Basically, a 30% potential. We need to see that neckline break. Keep an eye!!

 

Conclusion

  • SPX still looks to me like a volatile place to hold your money for the time being. I’ll be happy to buy upon a proven bounce from support – aka mid 4300’s, or low 4200’s–see my last blog. Perhaps that will happen in the next few weeks. Wake me up when September ends.
  • Energy producers have a year long lid that needs to be cracked. A breakout would be very bullish. We need a catalyst. Go Danielle, go!
  • China looks like a classic bottom formation with lots of potential upside. Ooooo…so tempting! But lets not be hasty. That neckline continues to confound the bulls. Like I said, ValueTrend took a small position recently, but we won’t be getting serious about this play until the neckline is definitively broken. Stay tuned.

 

 

4 Comments

  • Interesting Chinese markets chart, as well as the MFI indicator overlay on the XEG chart. I always enjoy your write ups as they get me to think a bit differently. The CZH chart looks almost like a failed cup and handle to me, but patterns aside is definitely interesting above 250ish.

    Reply
  • Nice selection of charts Keith. Thanks.
    What is the process you use to select a particular Money Flow index? There are quite a few, aren’t they? MFI, CMF, Larry Williams uses one…
    Is there one that will highlight Money flowing from Institutions into the market VS from retailers?

    I presume of course that MFI is a leading and not a lagging indicator.

    Always enjoy your blogs.

    Mano.

    Reply
    • Good question Mano–yes there are plenty of moneyflow indicators. I have used the CMF for many years – as you probably often notice is at the top of many of my charts. My criteria is basically an indicator’s practicality for what I am trying to do. CMF is good for watching when it rounds over. But the MFI – being an RSI type swing oscillator- gives me these wonderful clear overbought/oversold signals. I start off with any indicator doing lots of visual backtesting. I fiddle with the lookback period – and see if I need to change the default to meet the time horizon I’m watching. As you know, the shorter the lookback, the more whippy–which is good when you are trying to get an idea of neartermed moves. Case in point, I used a 12-period MFI here because I am interested in what will happen in the coming weeks. Its still long enough, especially on a weekly chart, to filter out noise. The default MFI is 14-which is the default for RSI which is the formula used to calculate the MFI off of cumulative moneyflow. I usually stick with the default 14 – but in this case, I am interested in a short horizon.

      Reply

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