CTS Spotlight for the week of April 1st, 2011

Hello and welcome back to CRI's CTS Spotlight,

04/01/11: After a month absence due to a family emergency, CRI is once again at the helm to help in understanding what is going on in this crazy world. First and foremost, the US dollar continues to point towards the mid 74 area so that means we still have a little farther to go on the downside. Having said that, I did notice this week quite a few markets have triggered stops and those that haven't are looking rather toppy. Considering the seasonal top that ought to materialize in the coming weeks (sell in May and walk away), one shouldn't be too surprised with the idea that trends begun after the US mid term congressional elections (last November) are starting to exhaust themselves. Trade accordingly - now is not the time to be taking big risks!

This week I thought we would take a good look at the Canadian bond market. As a proxy for commodities in general and a good barometer for demand for commodities from North America, Canada has been enjoying the benefits of growth at a very low inflation rate. That may be coming to an end - and the one market that will herald that end will be the bond market.

Two things jump out at me when I look at this chart:

1. There is a very well established double top breakdown in price (that occurred right after the massive equity buy signal following the US mid term congressional elections last fall). This will not only act as massive resistance going forward but also represents a major pivot in the perception of inflationary pressures within Canada itself. In other words, inflation is back and it isn't going away until a well defined bottom in price comes in.

2. This previous week's price action has confirmed a nasty looking bear flag pole formation (with help on understanding this technical price pattern please refer to CRI's FREE Chart Patterns & Formations seminar). This price action is bearish (confirming point 1. above) and implies prices want to move down into the 114 area. If such an event happens, it will also confirm a massive monthly top in price (with a break of the major support area in and around 117). While this is a trade-able price pattern, the risk (suggested stop point just above 123) means for every dollar you potential could make on the trade (going short at 119) you have to take twice the risk - not worth the trade in my opinion. Having said that, it is important to understand what the market is trying to tell us - Canadian interest rates are going up!

So to summarize, Canada and Canadian bonds are looking very risky at the moment. Interest rates are not going lower in Canada, they are going higher. Ironically - the Bank of Canada has been pounding the proverbial table for months warning Canadians of their very high relative debt levels and the potential disaster looming for Canada. Did anyone listen - I doubt it!

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