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This bull’s got a long way to run, says chartist

If you're looking for some positive reinforcement to stay in equity markets given their brisk climb in recent months, then here's something you may want to digest. The technical analysts at Phases & Cycles have issued a fresh report contending this is a bull that isn't going to loosen its grip any time soon and can easily tolerate any short-term corrective dips.

Yes, the 15 per cent climb in the S&P/TSX index since July may certainly suggest a market that is overheating, admit analysts David Tippin and Ron Meisels. And the charts are showing some "growing negative divergences in internal momentum" that suggest a pullback is very possible.

But any correction is likely to be contained, they argue, with the 50-day moving average at 12,250 and the 200-day moving average near 12,000 two obvious support levels for any pullback.

On the upside, the inverse head and shoulders formation of the summer period (shown in the chart as B,C, and D) projects targets in the upper 12,000s and possibly to 13,200. Above 13,200, they suggest there is considerable "clear air" up until the upper major bull market trend line in the mid-14,000s.

"The S&P/TSX composite index's resource bias is the place to be at this stage in the bull market - so the prospects are good that these upside projections are achievable," Tippin and Meisels wrote in the report.

Their bullish stance extends to the other major North American equity indexes, too. In a bull camp for a while now, they continue to contend that the major risk is not a dramatic fall, but selling too soon. Bailing out prematurely, as they see it, creates the dilemma of when to get back in.

"This bull market still has a lot of life in it. Upside surprises should continue to be expected over the fall and winter months," they said.

In other analyst actions today....

Air Canada should be able to return to profitability by 2011 and can achieve earnings growth of 40 per cent over the next four years, said UBS analyst Tasneem Azim. UBS said it was particularly impressed with Air Canada's improved liquidity position, as the airline ended the third quarter with $2.2-billion in cash. The company should be able to see positive free cash flow of $700-million on average over the next three years, the analyst said.

Upside: UBS continues to rate the stock a "buy" and raised the 12-month price target by $1 to $5.

Armtec Infrastructure Income Fund reported third-quarter earnings that were well below consensus forecasts, due in part to project delays, cost overruns and general market weakness. CIBC World Markets Inc. analyst Paul Lechem cited concerns over the company's high debt levels and weak earnings momentum.

Downside: Mr. Lechem downgraded Armtec to "sector underperformer" from "sector performer" and reduced his price target to $16.50 from $21.50.

Pengrowth Energy Trust reported better-than-expected third-quarter results thanks partly to lower operating costs, but given the recent appreciation in the unit price, they are approaching full valuation, said Canaccord Genuity analyst Kyle Preston. "Pengrowth remains one of our top yield picks as we continue to believe the current monthly dividend of 7 cents a share (6.5 per cent yield) is sustainable for the foreseeable future," he said.

Downside: Mr. Preston downgraded the trust to "hold" from "buy" but raised his target price to $13 from $12.50.

Constellation Software Inc.'s third-quarter results were much better than forecast, thanks largely to the performance of recent acquisitions, said Versant Partners analyst Tom Liston. "Management is among the very best in the business at identifying the best acquisitions at prices that ultimately deliver high returns on capital to its shareholders," he said.

Upside: Mr. Liston raised his price target by $5 to $50 and maintained his neutral recommendation.

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