Time for Caution? Time for Coal?
June 23rd, 2008There appear to be some clouds of caution accumulating on the horizon. It could be the beginnings of a storm, or it might just blow over.
The S&P/TSX Composite Index declined another -1.3% last week. The Venture Composite was off -0.9%. The damage was worse south of the border with the Dow Industrials down -3.8% on the week and the S&P 500 -3.1% lower.
The trend value of the S&P/TSX Composite Index is still marginally positive at +0.3% per week, but consistency is a meager 17%. The Dow Industrials on the other hand have a trend value of -1.0% per week with 42% consistency. The trend/consistency pair for the S&P 500 is -0.9%/36%.
The end-point of the chart above, however, shows that the proportion of S&P/TSX Composite Index stocks with positive trend values has dropped to 46%. Our polynomial curve still looks good, but you have to keep in mind that it’s being fit to a 52 week series. If our % Up numbers continue to stay below 50% over the coming weeks, that curve will gradually flatten, then turn down.
There are other reasons to be cautious.
If you’ve dropped by our Canadian ETF Review site recently, you’ll already know from the Country ETF chart in the DATA & CHARTS workbook there, that all countries except Canada have negative trend values (as represented by the respective publicly-traded ETFs). We’re still bucking the trend (barely) with our resource-intensive economy.
So far, while we’re cautious, we’re also cautiously optimistic that this will be a short term scenario… a correction from exuberant times over the past few months.
And, speaking of exuberant, those of you who’ve been using our trend/consistency screens in the DATA & CHARTS workbook will have almost certainly picked up some coal stocks along the way. Fording (FDG.UN) is the obvious one in the S&P/TSX Composite Index, but those subscribing to our premium subscription service will have found others like Western Canadian Coal (WTN) and Grande Cache Coal (GCE).
Relative to their 52 week lows, FDG.UN is up 222%, WTN is up 2194% and GCE is up 1235%!
Now, we certainly aren’t going to tell you that our relative trend analysis™ (RTA) methodology would have delivered those gains into your portfolio for a couple reasons…
- RTA isn’t intended to pick tops and bottoms (although some users claim to have had success in doing so). RTA waits until that bounce from the bottom turns into a consistent uptrend, and we believe that’s the time to act.
- Even if you had bought in when the trend and consistency values looked good (probably December or early January), you may have taken profits when the overall market started looking grim, and trend/consistency values started dropping. Such is the nature of the human psyche, and it doesn’t hurt to be conservative when the top-down picture isn’t favourable.
All the same, capturing just a third or even 10% of the moves in those stocks would have been a nice bonus. It has been for us at least, and hopefully for many of you.
Oddly, the S&P index people put coal companies like Fording in MATERIALS, not ENERGY. After all, coal doesn’t do much for you if you don’t burn it.
The other interesting point that comes up here is if you’re an environmentalist and are pro clean fuels, coal may not be something you’d like to promote or even consider as an investment.
To that, all we can say is it’s your loss! The markets are currently telling us that coal, not windmills and solar energy, are the future (until, of course, that trend come to an end).
PS… Fording, by the way, is still climbing 4% per week on average with 94% consistency. You’ll also get another 3-4% per annum because it’s an income trust.