20 Day Moving Average Trend Robust

by Zubin Driver
June 02, 2009

As discussed last week, markets have been range bound for most of May; on Friday the month ended on a high note at the top of this range , and yesterday broke out to the upside. As the rally continues, an increasing number of signals point to the notion that the worst has past. It remains difficult not to be wary of the notion, however, that a rally is not the same as a recovery.

A quick glance at the TSX chart shows strong support at the 20 day moving average. Most stocks that have participated in the recent bull run have also found support at the 20 DMA, and the same is essentially true of the Dow, S & P 500, and NASDAQ .

A few weeks ago this space discussed the movement of equities towards or above their 200 day moving averages (towards for weaker stocks, the Dow, and S&P; above for the TSX and NASDAQ, indicating the relative strength of commodities, technology, and the more regulated world of Canadian finance). The 200 DMA denotes the longer term trend, still pointing down. The short term nature of the current rally is evidenced by its tightrope walk atop the 20 DMA. Yet, 50 DMAs now also point up, 20 day MAs are crossing 200 DMAs, and the possibility of a long term change in trend is growing technically more plausible.

Who didn't expect a bigger deficit?!

The latest installment of infantile partisanship aired last week in Ottawa as Canada's finance minister, Jim Flaherty, announced that the 2009 fiscal year's budget will be $16 billion more than originally projected in the government budget--passed with opposition support--in January. Due to rising EI costs, a ballooning GM ('Government Motors') aid package, stimulus, and falling tax revenues, the projected deficit has risen from $35 to 50 billion. Some limited criticism may be due the government, with respect to forecasting numbers more conservatively or accurately, or failing to clutch the purse strings more tightly in times of plenty.

However, howls from the opposition for the finance minister to resign, are contrived. Undoubtedly, a key feature of democracy is the right to criticise and elect people to exercise this right. Yet the only two parties that, realistically, could form governments in Canada, would have chosen the same course of action--SPEND!

Hopefully the funds flowing into the economy will help to avert the disaster all previously feared. At 3% of GDP, Canada's deficit is far smaller than most Western countries; America's is projected at 12% for 2009. The trickier task will be to avoid structural deficits--those that become a perpetual feature of budgets built in on an annualised basis. Particularly if robust growth returns slowly, the visionary party will be the one who, while accounting for smaller tax revenues coupled with rising spending needs, still plots a path that doesn't lead to structural deficits.

"I'm so Happy, 'Cause today I've found my friends!"

For those of us in our 20s and 30s, other than in chemistry class the last time we heard the word lithium was during another craze--grunge music--in a song by Nirvana that celebrated the element's anti-depressant applications. The current hype in the venture world is all about lithium's alternative energy application to fuel batteries in electric cars. Reminiscent of the shale, coal, or potash manias from last year, right now most companies who issue a press release containing the word lithium are likely to get a bump in their share price. Of course, many companies vying to rise from the ashes are trying to do so by changing their businesses to become lithium explorers.

There is no significant major company presence in the lithium space, and its application in cars appears to also be in its early stages, so true feasibility is likely not fully understood. It will therefore be interesting to see over time how robust this sector continues to be. Yet the idea of battery powered, zero emissions cars is certainly compelling, and clearly the blue sky potential is vast.

Will the market's excitement over lithium prove to be a fad, or maintain staying power?

Best regards,
Zubin

Zubin Driver
Investment Advisor
(W) 604 643-7608 / (F) 604 643-7606
Email: zubin_driver@canaccord.com

Canaccord Capital Corporation
Attention: Zubin Driver
P.O. Box 10337 Pacific Centre
2200 - 609 Granville St.
Vancouver, B.C. V7Y 1H2

This newsletter is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Capital Corporation (“Canaccord Capital”), this is not an official publication of Canaccord Capital and the author is not a Canaccord Capital analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Capital.

The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Canaccord Capital assume any liability. This information is given as of the date appearing on this newsletter, and neither the author nor Canaccord Capital assume any obligation to update the information or advise on further developments relating to the information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and Canaccord Capital are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. The holdings of the author, Canaccord Capital, its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the securities mentioned in this newsletter.

OFFICES IN MAJOR CENTRES ACROSS CANADA. MEMBER OF ALL CANADIAN STOCK EXCHANGES AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA. MEMBER CANADIAN INVESTOR PROTECTION FUND (CIPF).