Newsletter

The markets have been reacting religiously to overseas news about the European debt crisis, so this week should not have come as much of a surprise to the investing community. The week started slowly as the Dow Jones proved it couldn't push through resistance levels around 11,700 as European financial concerns were back in the picture and the markets gave back a portion of their gains from the previous week. Volume was light as traders appeared to rest on the sidelines, avoiding the roller coaster activity that has been running rampant recently. Traders had hoped that the G20 meeting in Europe was going to produce a concrete plan to stabilize the shaky banking systems, but reports came that the EU was not necessarily unified. German officials warned investors to temper their optimism about expectations of the upcoming European Counsel meeting in Brussels resulting in an agreement upon a comprehensive plan.

Economic data, which helped bolster markets the week prior, fell short of expectations for the most part early on, contributing to the markets fading. A mixed bag of financial reports from leaders such as Citigroup (beat expectations) and Wells Fargo (missed expectations) didn't help matters. Tuesday looked to be more of the same as stats from China showed a mildly slowing growth rate, dampening early moods, but the bulls came raging back, shaking off the Chinese data as bank stocks rose to wipe-out losses from Monday. Aiding in the late-day rally was news from Britain that hinted France and Germany were near completion of a significant expansion of the region's bailout fund that would double the size of the fund. The rally was, however, short-lived as reports of disarray in Europe once again stunted optimism with European officials struggling to come to any sort of final agreement for a resolution package to the European financial crisis.

But...news towards the end of the week inspired a rally as French President Nicolas Sarkozy and German Chancellor Angela Merkel said that a comprehensive package to the financial crisis is set to be discussed at Sunday's European Council summit with a concrete plan to be adopted no later than Wednesday. Further, with violent protestors in the streets, an austerity package was approved by the Greek parliament. While the Canadian markets and the U.S. NASDAQ index pulled-up from the week's lows on the news, they still closed red, but with some momentum heading into the new week. Resources struggled throughout the week, hamstringing the Canadian markets, but mustered strength on Friday that may carry-through to kick-off this week. The S&P 500 and the Dow Jones surged back into positive territory, marking the fourth and third straight weeks, respectively. The Nasdaq, Dow and S&P are on pace for their best month in over a year. Technically, it is important to note that the Dow pushed its way above 11,718, a level it has not seen since the first week of August.

Earnings season is posting better numbers than expected for many companies. If the EU finds some resolve and earnings remain strong this next week, the final full week of October may spur continued optimism for the North American markets.

The Canadian and US dollar went back and forth this week with the Loonie taking control on Friday to push well off weekly lows. Picking-up 0.31 percent on its North American counterpart, one Canadian dollar ended the week buying $0.99291 US.

Commodity Snapshot:

• Gold closed lower the first four days of the week, but found mild strength on Friday to at least pare part of the losses. A weaker U.S. dollar and optimism over EU debt dealings brought some buyers back into the bullion, adding $23.20 per troy ounce to December gold contracts on the Comex division of the New York Mercantile Exchange. On the week, however the December contracts fell $46.90, or 2.79%, to $1,636.10 per ounce. Gold, which is typically regarded as a safe haven from riskier commodities and equities has broken that pattern recently and lost its shine. Investors still appear leary of the precious metal after falling from a spike above $1,900 in September, now trading with the ebb and flow of EU economic news.
• December Silver, which rose nearly 4 percent in the week prior, rose roughly 3 percent on Friday as well after four red days, but still subtracted value for the week. December contracts, the most actively traded, skidded $0.98, or 3.05%, on the week to $31.193.
• High grade copper lost approximately 10 percent with poor showings on Thursday and Friday with a drop as low as $3.031 before recovering some on Friday. For the week, December contracts shed 5.44%, or $0.1855, to $3.223.
• Palladium had a stellar 5.8 percent up day to end the week, nearly erasing the losses from the prior four days as industrial-focused metals outstripped gold on Friday. December Palladium closed at $618.25.
• Crude oil rose tepidly on the week after pressing to highs of $89.60 on Wednesday. News of the death of Libyan dictator Moammar Gadhafi will leave oil traders pondering Libya finding a new normal over the next couple months. The black gold's December contracts added $0.40, or 0.46%, per barrel to wrap the week at $87.40 on the New York Mercantile Exchange.

Equity Market Snapshot:

• Big merger news hit the wire early in the week. In the second largest M&A deal reported this year, Pipeline operator Kinder Morgan reported that it is acquiring competitor El Paso for $38 billion in cash, stock and assumed debt. The deal came in just shy in dollar value of AT&T's $29 billion acquisition of T-Mobile earlier in 2011.
• Industry behemoth Rio Tinto reported that it will be selling 13 of its aluminum assets worth about $8 billion, including refineries, smelters, power stations and a mine. Rio plans to focus its efforts on its more profitable Canadian operations. Shares of RIO gave back 5.74% on the week.
• What would a week be like without news from Research In Motion? Well, we won't know this week either as the Blackberry maker was back in the headlines. As restitution for the prior weeks global service disruptions, the Company will offer its individual subscribers a selection of premium apps for free and its corporate customers free support for a month. On Tuesday, RIM unveiled its new operating system (called BBX) for its next-generation BlackBerry smartphones in an effort to better compete with Apple and Android devices. Canadian shares of RIM slipped 5.19% last week.
• Putting another step behind them relating to the Deepwater Horizon oil spill, Andarko Petroleum penned a deal for a one-time $4 billion payment to British Petroleum. Both parties will drop all claims against each other as part of the settlement. Shares of BP surged 6.19% on the week.
• Hospira shares dove on Tuesday as the medical supplier warned that it expects a $0.54 per share loss, well shy of gains of $0.96 per share expected by analysts. Shares dove 22.8% for the week.
• Canada's third-largest insurer, Sun Life Financial, stated that it will be reporting a loss of $621 million in Q3 as a result of the substantial volatility in the latest quarter which saw North American markets shedding more than 10 percent. On the week, shares slid 8.77%. Stateside, The Travelers Companies, Inc. ignited insurance stocks with better than expected earnings. Shares of TRV climbed 11.86% on the week.
• The industrials sector rolled as railway stocks stayed on track. For last week, Canadian Pacific Railway climbed 8.05% and Canadian National Railways rose 1.30%.
• Bank of America (up 4.36% on week) posted a profit of $6.2 billion in the Q3, changing gears from a loss in the same quarter of 2010. Citigroup (up 6.69% on week), Morgan Stanley (up 11.83% on week) and Goldman Sachs (up 5.54% on week) were also higher, even though GS posted a worse-than-expected quarterly loss.
• Reports rolled in this past week that the Canada Pension Plan Investment Board is partnering with Microsoft Corp. and a private equity firm in a possible bid for Yahoo Inc. The bidding war appears to be starting to take shape as private equity firms Silver Lake Partners, Blackstone Group, TPG Capital and Bain Capital are considering buyout scenarios for Yahoo.
• Agnico-Eagle Mines Ltd. shares dumped mid-week after the miner reported that it is suspending operations at its flooded Goldex mine in the Abitibi region of Quebec. Agnico reported that and will be taking a $170 million after-tax writedown on the property in Q3. NYSE shares plummeted 26.03% on the week.
• Wi-LAN Inc. raised its takeover bid for Mosaid by 11% to $42 per share; boosting the total offer to $500.6 million. Wi-LAN shares were basically flat on the week while Mosaid share value increased by 5.40%.
• Mac and iPhone maker Apple disappointed with sales numbers of $28.3 billion in Q3. Although up 39 percent, the figure still fell short of forecasts. Shares of AAPL retraced 6.90% for the week.
• Scotiabank agreed to pay about $1 billion U.S. in cash and stock to buy 51% of Columbian bank Banco Colpatria, a bank with a network of 175 branches and 308 automatic teller machines. Shares were virtually unchanged.
• "Intel Inside" spelled success as tech company Intel posted earnings that beat analysts' estimates and sales that hit record highs. Shares climbed 2.26% this past week.
• Abbott Laboratories reported that it will split into two separate publicly traded companies. One company will keep the Abbott name and be focused on medical products. The other firm is name-less still at this point, but will focus on research-based pharmaceuticals. Shares pulled back from intraweek highs, but still closed up 2.14%.
• Air Canada and the union representing its flight attendants have agreed to binding arbitration to settle their contract dispute. Hearings are scheduled to begin on Oct. 28 and a binding arbitration award is to be made by Nov. 7, finally ending the long battle between the two organizations. AC/B shares rose 2.24% on the week.
• Restaurants McDonalds (up 2.65% on week) and Chipotle (up 3.96% on week) both gave signs of optimism as the companies topped estimates with earnings.
• In IPO news, Groupon lowered the amount of money it hopes to raise in its initial public offering by 28% to $540 million. With 30 million shares going up for sale, Groupon is hoping to receive $16 to $18 per share.

Weekly Indices Results:

The S&P TSX Composite Index closed the week strong, but couldn't recover from earlier loses, fading 132.24 points, or 1.09%, on the week to 11,949.49. The TSX Venture Exchange stopped its two-week winning streak, subtracting 24.70 points, or 1.59%, to finish at 1,532.91.

In the States, the Dow Jones Industrial Average made it four straight green weeks, adding 164.30 points, or 1.41%, on the week to 11,808.79. The much-broader S&P 500 also closed green, climbing 13.67 points, or 1.12%, on the week to close at 1,238.25. The tech-rich NASDAQ Composite didn't fare as well, dropping 30.39 points, or 1.14%, from its total to 2,637.46.

Canadian Economic Data:

• Statistics Canada reported on Monday that foreign investment in Canadian securities fell to $7.9 billion in August. Decreases in the Canadian bond market were attributed for the majority of the decline.
• The number of new motor vehicles sold in August slipped 0.4% to 131,840 units. This second monthly decline followed a three-year sales peak in June. Lower sales of trucks and overseas-built passenger cars accounted for the decrease.
• For the fourth straight month, the composite leading indicator index was little changed in September. Six of the ten components expanded, the same number as in August. The weakness in the index was concentrated in the stock market and the manufacturing sector, largely offsetting the rebound in the housing sector.
• For the fourth straight month, Canadian wholesale sales rose in August, driven by higher prices for imported goods. Excluding the impact of prices, wholesalers recorded their biggest decline since May 2010. Wholesale sales rose 0.2 percent in August to $48.4 billion, missing estimates of 0.5%.
• The number of Canadians receiving employment insurance rose sharply in August compared to July. The number of beneficiaries increased by 6.6 percent in August, up by 35,200 to 568,600 from 533,330 the month before.
• The loonie got a boost as Canada's annual core inflation rate rose in September to its highest level in nearly three years. The core rate hopped to 2.2 percent from 1.9 percent in August. Investors use the core index as a solid gauge of trends because it strips out eight volatile items, including gasoline and food.
• Consumer prices rose 3.2% in the 12 months to September, led by higher prices for gasoline and food. This follows a 3.1% increase posted in August. Energy prices advanced 12.5% during the 12 months to September, following a 13.4% increase in August. On a year-over-year basis, gasoline prices rose 22.7%, after gaining 22.8% in August. Prices for fuel oil rose 27.4% while prices for natural gas fell 4.7%.

Next week, investors will be on the lookout for the Bank of Canada's rate announcement and retail trade updates on Tuesday; and payroll and employment information on Thursday.

U.S. Economic Data:

• Industrial production increased 0.2 percent in September after having been unchanged (revised from 0.2 percent increase) in August. The index for transit equipment (+1.9%) paced the gainers and output for utilities (-1.8%) led September's laggards. For the third quarter as a whole, industrial production rose at an annual rate of 5.1 percent.
• The Empire State Manufacturing survey came in shy of expectations with a reading of negative 8.5. The negative reading shows that inventories declined, indicating that conditions for New York manufacturers continued to deteriorate in October.
• The U.S. Labor Department reported that the Producer Price Index for finished goods rose 0.8% during September, topping economist expectations of a 0.2% climb. The index - which measures average changes in prices received by domestic producers for their output - was flat in August.
• Inflation rose as anticipated for the month of September with the Consumer Price Index climbing 0.3 percent, according to the Labor Department. Excluding food and energy, core prices increased 0.1 percent, the smallest increase in half a year.
• Building permits slid to a five-month low in September. Single-family home construction, representing almost 70 percent of all homes built, rose modestly. On the whole, 658,000 homes began construction in September, a boost of 15 percent compared to the month prior, but still well shy of the 1.2 million starts that economists look for in a healthy market.
• Continuing with the housing market pessimism, existing homes sales fell in September. Purchases dropped 3 percent to a 4.91 million annual rate while the median price dropped 3.5 percent from 2010.
• The U.S. Conference Board reported that the index of leading economic indicators rose 0.2% in September, slightly below analyst forecasts, but still providing mild hope for the economy's future performance.
• After slowing for two straight months, the Philadelphia Fed index showed that manufacturing activity expanded in October in the mid-Atlantic area covering eastern Pennsylvania, southern New Jersey and Delaware. The general economic index climbed more than forecast, to 8.7 in October from minus 17.5 the prior month. Readings higher than zero signal expansion in the area.

Next week will bring updates on the Housing Price Index and Consumer Confidence on Tuesday; Durable Goods and New Home Sales on Wednesday; GDP on Thursday; and Reuters/U of Michigan Consumer Sentiment on Friday.

Penny Stocks to Watch & Company Spotlight Results:

Among the stocks we watched this week, international oil and gas company Mart Resources Inc. (TSX-Venture:MMT) moved smoothly all week to close the week up by 4 cents, or 8%, at its high of the week of $0.54. The other stock we had on radar, fellow oil and gas company Sterling Resources Ltd. (TSX-Venture:SLG) had a quiet week, rising to an intraweek high of $1.44 before closing down by $0.03, or 2.11%, at $1.39.

In the States, biotech CardioVascular BioTherapeutics Inc. (Pink Sheets:CVBT) both gapped downward and hit its intraweek high $0.33 on Monday before sliding a bit further throughout the week to close down by 3 cents, or 8.82%, at $0.31. The other U.S. stock on our watchlist, real estate company Thomas Properties Group Inc. (NASDAQ:TPGI), basically held its gains from the previous week and reached an intraweek high $2.60, but closed mildly lower at $2.52, down by 2 cents, or 0.79%.

If you'd invested in all four stocks and held them to the end, you'd have seen an average loss of 0.93%. However, if you'd bought all four at the beginning of the week and sold each at its peak, you'd have realized average gains of 2.21%.

Next week, we focus on Canada's CGX Energy Inc. (TSX-Venture:OYL) and Monument Mining Ltd. (TSX-Venture:MMY). In the States, look for big things from Lpath Inc. (OTCBB:LPTH) and Denison Mines Corp. (AMEX:DNN).

GreenLight Resources (TSX-Venture:GR) reported that two new gold discoveries have been made at its Keymet Gold/Silver project in New Brunswick. The first is in an outcrop on a brook 300 meters to the south west of the Keymet shaft where a 2 meter wide quartz-arsenopyrite (20% arsenopyrite) filled shear zone, which appears to be a splay fault off of the main Keymet shear, assayed 3.4 grams per tonne gold. The second new discovery was made approximately 1,500 meters to the north west of the Keymet Shaft while investigating a series of historic copper/zinc soil anomalies. In this area numerous large, angular boulders of silicified conglomerate and meta-wacke were found that contained 1-2% disseminated "needle" arsenopyrite. These boulders have been traced over a distance of 450 meters and appear to be aligned sub parallel to the strike of the Keymet vein system. No base metals are associated with this new showing which indicates that this is possibly a separate but parallel gold bearing zone within the overall Keymet base metal/silver vein system.

Volume increased each day this past week in GreenLight trading and the stock appears poised to potentially make a much larger move. Members are encouraged to keep a close eye on this play as gold prices rose on Friday and the precious metal could be positioning for a strong recovery back towards its old September highs in excess of $1,900 per ounce.

Atlas Therapeutics (OTCBB:ATTH) appears to be finding a bottom with a rise in share price this past week. Volume remains light, but increased on Tuesday and Wednesday sending the value of a share upwards approximately 20 percent. Importantly, this movement showcases the ease at which this stock can climb rapidly. We encourage our investment community to hone-in on this company as we feel it is just waiting for a catalyst to drive prices northbound.