Tuesday, May 13, 2008

It’s a Bull, Bear, Recession, the End. No wait! It’s a…

Has the market got you confused? You’re not the only one. Even the experts are having trouble coming up with the right designation

By Alex Roslin
Investor’s Digest of Canada
May 16, 2008

So it is a bear or not? This has been the question rattling investors for months. Some analysts say the answer might finally get a whole lot clearer very soon as markets near key inflection points on the charts.

The debate isn’t new nor has it been easy to resolve as soaring volatility catches investors in wrong-way trades. When markets sold off sharply in early 2007, some technical analysts were quick to declare the bull market was over only to see major stock indexes worldwide snap back and power to record highs. Oops.

Then, when markets got kneecapped in last summer’s credit crunch, many technicians emerged again to pronounce the bull really dead this time. Alas, just as the panic really set in last August, markets rebounded nicely.

Since last fall, however, stocks have veered around drunkenly in a yawning trading range, with volatility shooting through the roof, making the debate even harder to resolve. “What a sick beast this is,” wrote professional trader Stephen Vita in a post about the volatility on his AlchemyOfTrading.com website.

Mark Arbeter, chief technical strategist at Standard & Poor’s Equity Research Services in New York, says the wild seesaw action is worse than the 2000-02 dot-com bust. “Someone asked me, ‘Have you ever seen anything like this?’ Not as long as I’ve been around. At least in 2002 there were some decent trends that developed. It wasn’t up, down, up, down,” he said.

But some analysts say the charts are now starting to point to some bullish signs for the markets—though their optimism is still tempered by a lot of caution.

By one of the most commonly accepted definitions of a bear market—a 20-percent price decline—the bull does lives on by the skin of its teeth. The S&P/Toronto Stock Exchange composite index lost 18 percent from its July high to the low in January—short of bear market territory—and has since recovered most of that decline.

In March, the S&P 500 traded briefly 20.2 percent below its October high after news emerged that investment bank Bear Stearns had almost gone bankrupt. But the day’s close was above that crucial threshold.

Tom Bulkowski, a guru of technical analysis and author of The Encyclopedia of Chart Patterns, says he would have turned bearish if the S&P 500 had closed the day below the 20-percent line. As is, he believes it’s still too early to tell which way the trading range will break, though he leans to the bullish side.

Bulkowski has studied thousands of commonly watched chart patterns and done what no one had systematically done before—actually figured out if they work. He can tell you how often a pattern leads to an upside breakout and how far it’s likely to go up. He also likes to study how often breakouts fail and what happens then.

He sees markets like the S&P 500 (tradable in Toronto with XSP) forming a particularly bullish pattern since the beginning of 2008—an “ascending triangle.” This is when a rally keeps stalling at a certain level—called overhead resistance—but each time it sells off it doesn’t fall as far as last time.

In 900 such patterns he studied in bull markets, 74 percent resolved themselves with an upward breakout, says Bulkowski, who publishes stats on dozens of chart patterns at his website and blog, ThePatternSite.com.

The target for such breakouts is for prices to rise by the same amount as the height of the triangle. This happens three-quarters of the time, Bulkowski found. In the case of the S&P 500, that would mean about 130 points, or a 10-percent gain. Such a rally would take the index to around the next area of overhead resistance—the previous highs of last December.

In an especially bullish sign, XIU (the iShares Canadian SPX/TSX 60 Index Fund) and HXU (the Horizon BetaPro S&P/TSX 60 Bull Plus ETF) succeeded in breaking out upward from their ascending triangle patterns in mid-April.

Also on the plus side, Bulkowski notes a slew of bullish-looking “inverse head-and-shoulders patterns” developing slowly in recent months in global markets like Japan, Brazil and Australian iShares ETFs. (Of these, Japan’s market is tradable in Toronto with CJP.)

By mid-April, these indexes were nudged up against key inflection points as they strained to break upward. “They’re struggling to push through that resistance,” Bulkowski said.

Bulkowski remains super-cautious, however, and advises watching developments like a hawk. That’s because upward breakouts from ascending triangles don’t always last and can result in what he calls a “throwback”—a price decline back into or very close to the triangle.

Such fakeouts happen 57 percent of the time. “A lot of these will throw back. It could be that this is just a bear market rally. We don’t know which way it will go. The market is saying it’s not convinced,” Bulkowski said.

At S&P, Mark Arbeter is also getting more optimistic. “Stocks still have some major overhead supply to deal with, but it certainly feels like we are starting to get better traction climbing the wall of worry,” he wrote in a note in mid-April.

If there’s a rally, will it rocket on up to new highs? That’s going to be the key test, Arbeter says. He believes markets are likely to keep churning in a trading range for much of the rest of the year—a kind of “mini-bear”—then finally break out to new highs by year-end. One reason for his bullish tilt: investor sentiment has hit bearish extremes, which usually suggests a market bottom.

That’s also the opinion of Ron Meisels, president of Montreal-based research firm Phases & Cycles. “The doubters and skeptics seem to be everywhere, either advocating staying away from the markets until the negative news peters out, or even more actively talking down the markets with projections of dramatic new lows to come,” his advisory said in a note in early April.

“It’s all music to our bullish ears.”

Meisels noted that markets have held above their January bottom despite a slurry of bad economic news. However, he expects a “highly selective” and “tepid” rally compared to 2002-07. He projects unimpressive, single-digit rallies for the S&P 500 and other U.S. indexes, but better results for the TSX, which he sees eventually hitting 16,000.

But Meisels is still cautious, saying the TSX “may have to do considerable work” to overcome overhead resistance. “The bullish picture remains intact provided the S&P/TSX Composite Index remains above its March lows.”

[TAGS: bull market, bear market, recession, Mark Arbeter, Tom Bulkowski, Ron Meisels]

Monday, May 12, 2008

Magog's World Crumbles

Bitterness and recrimination follow when Quebecor World closes down the town’s most important job provider

Alex Roslin
Saturday, April 19, 2008
The Montreal Gazette

Pierre Goulet had a feeling something was up when he went to work at the Quebecor World printing plant in Magog on Monday, March 31.

He never imagined the bright chilly spring day was his last working at the plant where he had been hired 27 years before as a lift operator at age 16—the first and only job he had ever had.

Instead, what he expected was the beginning of bargaining season on a proposal a new union contract. The existing contract was set to expire in June, and Goulet, the husky 43-year-old president of the plant’s union, was the man who had to negotiate a new one on behalf of the plant’s 380 employees.

To say things were up in the air was an understatement. Quebecor World had filed for bankruptcy in the midst of a financing crunch, the slowing U.S. economy and a soaring loonie.

What’s more, the company had just lost a big contract with Rogers Communications Inc. involving 70 titles like Chatelaine and Maclean’s.

The math was simple, and Goulet was under no illusions. “There is less product to print, and we had too many printing presses. We know that,” he said over a beer in a café in the community of 24,000, which sits on the shore of picturesque Lac Memphrémagog at the foot of the Mont Orford ski hill.

Just the same, Goulet was hopeful the contract talks would go well. The lost printing jobs weren’t handled at Magog, and the last two contracts in 2001 and 2006 had been negotiated amicably, he said.

In fact, the Magog plant was anything but a hotbed of union-management strife. It was widely known in the community that labour relations at the plant were excellent. The union rarely filed official grievances, and everyone seemed to get along like family.

In many cases, family is exactly what they were. Goulet’s wife worked at the plant 25 years as a press feeder. His two brothers had gotten jobs there after being laid off at other plants in the region that had closed in recent years—part of a wave of 2,000 manufacturing job losses to hit the community of 24,000 in the past three years.

A dozen other members of Goulet’s extended family also worked there. “Almost everyone was the same. It was a family at Quebecor World Magog.”

Many employees had been at the plant since the beginning in 1971, when Quebecor Inc.’s founder, the late Pierre Péladeau, built the ultramodern Magog facility, enabling his then-fledging firm to land its first U.S. magazine printing contracts and helping to launch the company as a media conglomerate.

With good salaries by standards in the region—averaging $17 to $18 an hour—Goulet said, “It was the job in Magog. We would tell people, ‘Hey, I work at Quebecor.’”


That Monday morning at the plant, Goulet sensed something was wrong right away. The normally cordial managers seemed to be avoiding him.

Finally, he was invited into a room where senior Quebecor World executives told him the plant was closing. “When?” he asked. “Immediately. We’re in the middle of stopping the equipment.”

Goulet headed to the cafeteria, where the rest of the employees had been gathered and told the news. Some came up to him later and wept, he said. “It was a very painful day to see people 50, 55 years old come to your office and cry.”

The news hit Magog like an avalanche. “They had good salaries,” said Yvan Morin, a Magog electrician whose father used to work for the plant as a subcontractor.

“People are talking about it a lot, especially with what’s happened lately with the other closings. It just doesn’t end.”

Luc Lepage, a vice-president at the Magog Ford dealership, said one of his employees has two kids who lost their jobs at the plant and 30 to 40 of his clients worked there. “It’s hard for them to stay in the region and find a similar job,” he said.

“It affects us much more than the closing of a tourist operation, where there are a lot of minimum-wage jobs. We need something else to support the economy or we will transform slowly into a town only for retirees, which is already what’s happening.”

At a Subway restaurant neighbouring the plant, where many employees were regulars, employee Jonathan Leclerc said only a handful have popped in since the closing. “I know some people are disappointed and others are angry because the company didn’t give any notice. People learned about it that morning,” he said.

The next day, Magog Mayor Marc Poulin held an emotional press conference at which he said he was “extremely frustrated” with the company. He said the Memphrémagog regional development centre, of which he is president, had tried unsuccessfully to meet Quebecor prior to the closing in order to discuss ways to help the plant financially. He said the offer had been rebuffed.

“Pierre Péladeau, who believed in Magog, today must be turning in his grave and crying,” he said.

“The first reaction was a feeling of desolation and eventually frustration toward the company,” said Denis Roy, a retired RCMP officer who is interim president of the 400-member Magog-Orford Chamber of Commerce and Industry.

“They didn’t respond to the community.”

Two days after the mayor’s press conference came a sharp retort from Pierre Karl Péladeau, the son of the Quebecor patriarch and currently president of Quebecor Inc.

In an open letter to the mayor published in the Sherbrooke Tribune newspaper, “I was surprised to read and hear your comments,” he wrote. “Your references to my father are in bad taste.”

Péladeau went on to blame the closing on the plant’s union. The company had approached it in 2004 and 2005 in order to renegotiate the union contract. In exchange for upgrading an older printing press, he wrote that the company had wanted to cut the number of operators at the plant’s four printing presses.

“The union didn’t want to hear about it. Faced with this refusal, the managers of the company decided to make the investment elsewhere where it would be profitable,” he said.

“You would have rendered a much greater service to your community if you had used the prestige and influence of your office to denounce the organizations that render it impossible to make the investments essential to the survival of our businesses.”

Péladeau also said it wasn’t true that the company had ignored the community, noting that the plant’s director, Patrice Asselin, had indeed met the head of the regional development centre, Ghislain Goulet, to discuss the community’s suggestions.

Péladeau’s missive set off another bomb in the region. Ghislain Goulet (no relation to the union boss) retorted that the company didn’t respond to any of the community’s proposals.

“They didn’t look at solutions before closing the plant. The plant hadn’t seen much investment in years. We were open to discussing technological assistance, tax credits, acquiring the building and renting it back to Quebecor World,” he said.

“Both sides—management and the union—told us labour relations were very good. That’s why we were so surprised by Mr. Péladeau’s letter.”

Back at the union, Pierre Goulet said he was devastated. He said the company hadn’t needed the union’s permission for the proposed layoffs.

As well, he said other Quebecor plants that had attempted to reduce the number of operators on the printing presses had found themselves with manpower shortages.

“Because they couldn’t lay off a few people, they laid off nearly 380?” Goulet asked in disbelief. “They needed an excuse.”

What also irked Goulet was media coverage suggesting the Magog plant had been inefficient and aging.

In fact, he said, only one of the plant’s four presses needed an upgrade, while low employee turnover over three decades had honed a skilled workforce. Many employees had been proud to share their knowledge within the company, he said, with 20 percent joining various workplace committees devoted to improving operations.

“The company’s most productive plant in Quebec is Magog, even with our older equipment,” he said.

“If they had said it was the economic situation, that would have been fine. But what makes people in Magog feel bad was to hear we were unproductive and obsolete. If they are bankrupt, it’s not because of the workers. The management is responsible for keeping the company afloat, and they didn’t have the vision.”

Quebecor World spokesman Tony Ross refused to comment on the Magog plant’s productivity level, saying only that the closing wasn’t related to productivity or any lost printing contracts. “It was part of a retooling and restructuring program that was started three years ago.”

He also praised the plant’s employees. “It was a very good workforce at the Magog facility. If there are openings at other Quebecor World facilities, we will consider hiring them.”

Ross wouldn’t say whether other plants will be closed as part of the restructuring, but noted the process will be completed this year.


After Péladeau’s letter, Goulet called an assembly of the plant’s union members. Now, he didn’t know if the close-knit town would pin the closing on him. “I have to see them every time I go outside in Magog,” he said. “My whole family lost their jobs. That’s a lot of pressure.

Nervous, he arrived at the community hall two hours early in order to prepare his speech. “I wanted them to be proud of what they had done, so they could walk with their heads high.” He said the meeting went well. “Working for these people was my honour.”

Meanwhile, the Quebec government has responded with a $1-million fund to help the local economy.

But days later, there was more bad news for the community when reports suggested CSBS, a 100-employee bed linen manufacturer in Magog that is also under bankruptcy protection, was now unlikely to reopen.

Goulet said he is optimistic employees have the skills to find new jobs. But most will have to leave Magog to find decent salaries, he said.

Goulet, who has been appointed to a local “revival” committee exploring ways to revive the region’s economy, is himself thinking of moving to Montreal with his wife and three kids to find work.

“I don’t know what will happen with the village of Magog.”

[TAGS: Magog, Quebecor, Eastern Townships, Pierre Péladeau]