Pre-opening Comments for Thursday September 18^th

U.S. equity index futures are moving higher this morning. S&P 500 futures are up 9 points. Equity markets are responding to news that six central banks including the Federal Reserve and the Bank of Canada have arranged swaps valued at $180 billion that are to be used to increase liquidity in the world’s financial system.

Currency and commodity markets remain skeptical about actions taken by central banks. The U.S. Dollar is sharply lower again this morning. The U.S. dollar is responding to comments from China that the Chinese are looking to diversify its currency reserves that currently are 60% in U.S. Dollars.

Chart courtesy of StockCharts.com www.stockcharts.com

Gold has added another $29.00 per ounce. Silver, copper, crude oil and natural gas prices also have moved higher in response to weakness in the U.S. Dollar.

Crude oil and natural gas prices also strengthen on news that damage to oil and gas facilities in the Gulf of Mexico and Louisiana areas caused by Hurricane Gustav were greater than previously announced.

Morgan Stanley and Wachovia confirmed this morning that they are in merger talks. Wachovia is moving higher in overnight trading.

Fedex reported encouraging news this morning. Last week, the company predicted that fiscal first quarter earnings would be approximately $1.23 per share. Actual earnings were $1.23 per share. Of greater importance, the company offered positive guidance for second quarter earnings. Fedex has a positive technical profile. The stock has an upward intermediate trend and trades above its 50 and 200 day moving average. ‘Tis the season for Fedex to move higher!

Chart courtesy of StockCharts.com www.stockcharts.com

Technical Action Yesterday

Technical action by S&P 500 stocks was bearish once again. One stock broke resistance (SanDisk) and 23 stocks broke support. Stocks breaking support included Bank of New York, Boston Properties, CBS, Citigroup, CVS, Donnelley, Electronic Arts, Embarq, Hartford Financial, IBM, Janus, LSI Logic, Marriott, Medtronic, Microsoft, Northern Trust, Office Depot, Philip Morris, Precision Castparts, Qwest, Sara Lee, Torchmark and Westvaco. The Up/Down ratio fell from 0.75 to (167/252=) 0.66.

Technical action by TSX Composite stocks also was bearish again. One TSX stock broke resistance (Agnico Eagle) and 12 stocks broke support: AGF, Biovail, Celestica, Commerce Bank, Fairborne Energy, Power Corp., Royal Bank, SunLife, Toronto Dominion, Telus and Uranium One. The Up/Down ratio fell from 0.32 to (32/125=) 0.26.

Interesting Charts

First disappointment, then panic! Traders were disappointed yesterday when equity markets did not respond favourably to the AIG deal. No response to good news quickly triggered wide spread selling. The VIX Index rose throughout the day as equity markets moved lower. U.S. equity indices closed near their lows for the day and VIX closed near its high for the day. The U.S. equity market is moving through the capitulation stage where investors and traders are selling regardless of value or fundamental prospects. As of the close yesterday, evidence that the capitulation stage is over has yet to arrive.

Chart courtesy of StockCharts.com www.stockcharts.com

Chart courtesy of StockCharts.com www.stockcharts.com

The panic first appeared in Goldman Sachs and Morgan Stanley. Both reported better than expected third quarter earning, but the market was more concerned about credit quality.

Chart courtesy of StockCharts.com www.stockcharts.com

The panic quickly spread after a Chinese media comment implied that China has over-invested in U.S. Treasuries and other U.S. fixed income securities (e.g. Fannie Mae and Freddie Mac debt). That comment raised concerns about the U.S. Dollar and quickly triggered buying in gold. Gold subsequently broke resistance at $849.70, which, in turn, triggered additional technical buying. By the close, gold recorded its biggest one day point gain in history.

Chart courtesy of StockCharts.com www.stockcharts.com

Gold stocks quickly caught the wave.

Chart courtesy of StockCharts.com www.stockcharts.com

And now a ray of hope for equity markets! S&P 500 futures were slightly higher late last night following an important announcement by the SEC. The SEC stated that rules disallowing naked short selling become effective today. Anyone caught deliberately completing a naked short sale will be charged with fraud. Hedge funds are widely believed to have been significant naked short sellers throughout the recent financial crisis. Now, naked short sellers either will voluntarily buy back their positions or will be bought in by the investment dealer that completed the transaction.

THE CASTLEMOORE “FOCUS” PORTFOLIO

What does CastleMoore think its typical Canadian investors should be invested in NOW?

From Liberman’s blog (posted Tuesday):
Keeping the Powder Dry.

Given the events of the week, and it’s still only Tuesday, there appears to be a need for dispassionate words of reason. Well, instead, you’ll get mine.
The main thing to remember is that, in the long history of financial markets, there has never been a crisis so grave that no opportunity can come of it. (Read more…)

From Norquay’s blog (posted Wednesday):

September selloff ended today [Sept16,08]

September Selloff Ends
For now, it looks like the selling is over, having ended between 2 and 3 o’clock today.
The key occurrence was the final flushing of financial stocks out of the large pension plans and mutual funds. These mega-investors found themselves in an awkward position last year at this time. The summer 2007 selloff came with a warning about subprime mortgage woes: but the mega investors were seriously over invested in bank stocks and mortgages. Their systematic selling program began.
And, this afternoon, those selling programs were mostly completed. The next few days should give us the final verdict: can the stock market move up from here? (Read more…)

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CastleMoore Inc. uses a proprietary Risk/Reward Matrix that places clients within one of 12 discretionary portfolios based on risk tolerance, investment objectives, income, net worth and past investing experience. For more information on our discipline and methodology, please contact us.

CastleMoore Inc.

Buy, Hold…and Know When to Sell

www.castlemoore.com

Disclosure: Mr. Vialoux does not own securities mentioned in this report.

Disclaimer: Comments and opinions offered in this report are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

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