Last week's announcement from
Canadian Finance Minister Jim Flaherty that the royalty trust structure would
essentially be abolished after 2011 sent the market into a panic, and
rightfully so. Having let the initial shock of this announcement play out
over the last week or so, I thought it might be a good time to take a quick
technical peek at some related indices.
As an aside, we have gained
the exclusive right to bring you a special report on last week's Canadian
royalty trust announcement from Roger Conrad, one of the leading experts on
this industry. His report contains a discussion many individual energy trusts
and can be downloaded here: http://www.deltaga.com/reportForm.asp?rep=4
Now, a look at some charts:
S & P /TSX Composite
Index - TSE
Investor piled out of Canadian
stocks last week in response to the new tax legislation on income trusts, but
did this cause any dramatic technical damage to the Toronto Benchmark , the
TSE? Early chart action would say no, but the next move in the coming
weeks could be more telling. The TSE carries a heavy weighting in income
trusts and more than $20 billion in value was erased from that group last
week. However, it looks like this downdraft has so far allowed more
opportunistic entry points for investors here as the TSE consolidates its
recent rally from formidable support in the 11450 range. Expect more
consolidation at the midpoint of its recent range- around 12,000 -- as
investors sort this out, but opportunities will likely result. On the other
hand, a break below 11,140 would warrant defensive action.
NYMEX Crude Oil (CRUDE) -
59.15
Longer term, price action of
the energy trusts will be more closely tied to the underlying commodities
rather than one-off news events, so what does crude oil look like,
technically, after a volatile summer and fall? The good news is that crude
has started to bounce from that level in the high $50's yet again. Last
summer and fall marked the first instances in which the line in the sand was
drawn in this area and it was revisited just a few weeks ago. More good news:
the price momentum of crude recently turned positive after having been
negative for 12 weeks. The bad news, however, is that the trend remains
decidedly negative after breaching the $69 support in September. Traders
might place stops below recent lows in the mid-50's since further
retrenchment to low $50's / high $40's could become possible if that area
fails to hold.
Natural Gas Continuous
(NG/)
Many of the Canadian energy
trusts are large gas suppliers to North America. How is its pricing? I have
written on more than one occasion about the seasonality of natural gas, but
this year is looks as though the September lows may have marked a meaningful
low. From that $5.40 bottom in September, natural gas has recovered, bouncing
nearly 50% to over $8 today. Remarkably, this commodity has resumed a
positive trend with this move and a reach toward double digits looks very
likely. We would be sellers of partial positions in the $10-11 range should
it get that high, but the natural gas-focused energy trusts, some of which
looked at risk of further distribution cuts just a few weeks ago, may
represent very interesting values at this time since they're still languishing
near their lows.
All charts courtesy of www.stockcharts.com
