Gold & Metal Stock Recovery Opportunities Table

http://gettingtechnicalinfo.blogspot.ca/

The above chart, created by Bill Carrigan, shows the degree to which many of the gold and mining stocks have deviated from their respective 30-week moving average.  Many recovery opportunities can be found in the above table.

Canadian vs. US Financials

The distance between key technical support and resistance levels post financial crisis is and should be more notable in the financial sector than any other sector. In March 2009, it really looked like the Financial Select Sector SPDR (XLF), which more or less tracks the US financial services sector, was going to zero. It bottomed at $5.73 in March 2009 and currently stands at $13.44. It is currently trading in a downward fashion toward support at ~$12-12.50. If this support level breaks significantly, there really is no other significant technical support in between it and the bottom.

The iShares CSN S&P TSX Capped Financials Index (XFN.TO), which more or less tracks the Canadian financial services sector, appears to be in much better shape than its US counterpart but has the same support gap problem. Support exists around ~$19-20, but below that who knows? One would have to look back to 2004 to see a small trading range where some support may exist around $17.

I think both of these charts are going to be restricted to large trading ranges for months. The XLF faces tremendous resistance at $20 and will only break through it when a strong recovery is underway.

Market Drift

2004 through 2005 was a relatively boring time for the stock market. The S&P 500 stood at ~1150 give or take a few points at the beginning of 2004 and stood at ~1250 a the end of 2005. This resulted in a mere gain of ~4% per year for this 24 month period. I realize that this is much better than the ~50% decline that most markets experienced in 2008, however, modest returns and normalcy in the market tend not to excite investors.

As the slow recovery in the US continues, the markets over the next year or two will probably provide less excitement than we've been used to lately. It is possible that the S&P 500 simply moves sideways or delivers very modest gains as extremely high unmployment in the US continues to wear investor confidence and dampen consumer spending during this slow recovery period. After the very deep 1973-74 bear market / recession, the S&P 500 traded in a sideways fashion for approximately 5 years.

Of course, there will be sectors or contries that will experience more than simply modest growth. From a technical perspective, several emerging market ETFs are still clearly in uptrends. The iShares Malaysia ETF (EWM) posted new 52-week highs today.

How Low Will Japan Go?

An index to a country is what an ECG is to a heart patient. The Nikkei clearly illustrates that Japan has been in cardiac arrest since a major heart attack in 1990 following years of dietary excess.

Despite the fact that from a technical perspective it appears that all of the damage has been fully priced into Japan's economy, it is unlikely Japan will rebound dramatically anytime soon. Japan as an economy is still facing challenges greater than anywhere in the world. Their rapidly ageing population, lack of immigration, enormous debt to gdp ratio will hold their growth rate at a relatively low level for the forseeable future. Japan is a classic example of a perfect storm of problems that grind an economic system to a halt.

Putting things in perspective, Japan is simply in a really bad 20-year secular bear market that may be reaching its conclusion. It is important to realize that the run up prior to the decline that began in 1990 was faster and greater in intensity that the 1920s DOW or the 1990s NASDAQ. Growth was not modurated in Japan during this period. The chart went straight up. It only makes sense that the subsequent bear market would be deeper and longer as their economy consolidates.

I don't know enough about the fundamentals of Japan to make any predictions about a recovery. I do appreciate the fact, though, that the chart tells an interesting story.