CTS Spotlight for the week of January 14, 2011

Hello and welcome back to CRI's CTS Spotlight

01/14/11: The end of the first two weeks of Q1'11 is here with some interesting results. Energy looks to continue its upward move while some of the other basic materials may take the quarter off. Most notably, unleaded gas looks to be setting itself up for a run this spring while gold looks a little toppy. As previously suggested, the one thing that could derail this global expansion really quickly would be a spike in energy and that may be exactly what we are about to get. On a side note, it is interesting to see that CRI's VCIM has been buying junior Cdn. oil & gas stocks in abundance of late - coincidence, I think not!  

Here is the performance for the S&P 500 sector groups for the first two weeks of the quarter. Indeed, energy is again amongst the top performing sectors this quarter again. Interestingly, basic materials was not. So for this weeks Spotlight we shall look first at the energy sector and then at one 'problem' in the basic materials.

Energy review

Energy prices in general have been trending higher for some time now. Indeed, since the 2008 meltdown, prices have moved higher with only brief periods of consolidation. As long as the market continues to make higher highs and higher lows, one can't help but to look for further price appreciation down the road. Seeming to confirm this, the price channels for Crude, Heating Oil and Unleaded Gas all suggest the upward move has further to go. The interesting market here is natural gas. For some time now prices have been going up but at such a slow rate that really one could argue they have been going sideways. With the recent announcement that a firm can produce deasel fuel from natural gas cheaper than from crude oil, one can understand why prices may see a bit of a run here. Should the market embrace natural gas once again, prices could see a 50% 'pop' just to play catchup with its brethren.

        
One problem - gold

As previously suggested, one very quick way to derail the current global economic expansion is to see a dramatic rise in energy costs. energy prices have been relatively well behaved over the past couple of years and as a result, economic expansion has driven demand for many commodities to lofty levels. Indeed, if one were to see the world economy cool a bit in 2011, we could see gold, for example, correct quite substantially. And by judging how bullish the public is of gold, a substantial correction wouldn't be too unexpected. A 50% retracement of the '09-'10 run would bring prices back into the $1170 area and there are some funny gaps to be cleaned up on the monthly charts in and around this area as well. While I am not saying 'sell all your gold', this market does look a little tired and considering where it has been, a period of consolidation seems realistic.

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com