A Comment -- General Comments From an Expert (A Commentary)

Financials. Feels the big upside is in the US banks especially in the ones that have really been pummelled such as Bank of America (BAC-N), CitiGroup (C-N) or J.P. Morgan (JPM-N) and feels there is a better recovery here. They are cheaper and trading at 50%-60% of BV, while Canadians are trading at 1.5%-2% times BV.

Markets: Sees a cyclical trend from 65-82. People compare this decade to then. Kept hitting peaks and troughs during that time in a 4-year cycle. In modern times, it toughed last in ’09. We are at the high point of this cycle, whether it is now or two months from now and a trough expected in 2014. Expects a sell off in September for seasonal reasons but there may be a rally over the winter but it will be the last kick at the can.

Oil broke out. It hit his first target of $92 and eventually broke through and next level is $102-$105. After that you have to see where the breakout occurs. Seasonal increases will occur at the end of October.

Penny Stocks: The problem is they are often illiquid and not well followed so there is less of a crowd following it and tech analysis is studying what the crowd does so you have to be careful with these.

Election Year: Believes in this pattern. That is why he was bullish for the pattern. Step until Nov the markets are not all that bullish in an election year. We had our run.

Markets: Not a surprise that China is sniffing around the ABX African asset. Thinks ABX would like to re-focus themselves. Wouldn’t be surprised if they consummate something. He prefers to sit on the sidelines until something is communicated more clearly and he has a sense of their direction. Thinks you will start to see more M&A activity in copper next year.

Short selling. He has tried to short on paper but found he wasn’t very successful. It is much more stressful than he would like. If revenues are going down, that makes it more difficult for company. If that is going up, that makes it more difficult for a company. If you think a company will not be able to cover their dividends and will have to cut or eliminate them, that is a good-looking short.

Markets. Historically, in the last 80 years during US presidential election years, markets have tended to peak right around the beginning of September and go in a corrective mode right through until usually around the end of October, prior to the actual election itself. Then you get a very strong upward move. In the last 50 years, rather than 80 years, market peaks in the middle of August and then moves lower until the end of October. When you have very close elections, like the current one, there tends to be a more prominent direction.

Seasonal Trends. Energy and precious metals do very well during the summertime. A sector that tends to be very weak at this time of the year is the transportation area. Higher energy prices in the summer put pressure on airline stocks.

Gold. How do you incorporate “policy action” into your technical analysis when it could clearly break down the charts before we even see it technically? He looks at technicals and seasonality but also he looks at fundamentals. Some of these that have impacted the sector would include earnings reports. 2^nd quarter earnings reports for a lot of gold companies have been a disaster. However, once the earnings reports were finished at around the end of July, gold and gold stocks started to show some nice recovery. Also, more and more central banks have started to move into the gold area. China and India are obvious choices and Russia is another one. Technically, chart shows a flag formation. Gold bottomed mid-May and slowly but surely we are getting higher highs. Magic number is $1,642, which would be very bullish and if it breaks above this, he could see a technical target of over $1725 level.

Dow and S&P 500 index funds. Should the caller sell these and put more money into the TSX index fund? The S&P 500 has gone up 11% since January 4, which is a huge move in a very short period of time. We are now at a period of resistance. One of the ways of measuring over bought and oversold is the percentage of stocks above their 50 day moving average. Every time the S&P 500 gets up to around the 80% level, that is a warning sign that the market is about to roll over. The S&P has its weakest month in September, plus the presidential material; it looks like it would be an opportunity to take some profits and the possibility of re-entering at around the support level.

S&P 500. He is seeing more and more resistance for marks to go higher than 1425 level. He has sufficient technical evidence to indicate the US market is way overbought and is starting to show some signs of weakness. One of the best sectors to watch is the iShares DJ Transport ETF (IYT). This has been going down slightly while the S&P has been going up. It has tested and starting to move below its 20 day, 50 day and 200 day moving averages. This is a sign of weakness implying that markets are likely to move lower.

Economy. There are 2 very different strategies for solving the US economy malaise. (US Election? Ed.) Not sure that one is any necessarily better than the other. There is uncertainty because no one knows what strategy will be in play and that’s seems to be the hot button on the radar screen of most traders, trying to discover what that is going to be. Until that gets resolved, sometime in November, he doesn’t see much of a catalyst that is going to drive stock prices higher. He doesn’t see the US Fed doing much beyond extending the Twist program.

What happens if you own options in this company splits into 2 companies or spins off a company? E.G. if Rim splits and he holds 2013 Calls? Whenever you have an options contract, such as a Call option, you have the right to take possession of the shares. If the company split in 2, you would have the right to Buy exactly the same thing as you had before but now you would have the right to buy both.

Caller regularly sells Puts on stocks that he wouldn’t mind holding. When he sells a Put that is in the money, he buys it back at a loss and sells it forward. Does this make sense? If you write an August Put option and the last day of trading would be this Friday and the stock is in the money, meaning you are going to have to Buy, the caller would buy this Put back at a loss and Sell another Put option for November or December. If you think the stock is in a downtrend, and is going to bounce, this is probably not a bad strategy. He has found very often that the downtrend tends to continue down, which would make the strategy harder and harder to maintain. He would really look at Spreads before looking at uncovered Puts.