Pre-opening Comments for Wednesday October 22nd
9:10 AM EDT: U.S. equity indices are lower again this morning. S&P 500 futures are down 33 points in pre-opening trade. Basic Material stocks are notably weaker. They are responding to continuing strength in the U.S. Dollar. This morning the U.S. Dollar reached a five year high relative to the British Pound. The Canadian Dollar fell below $0.80 U.S. to reach its lowest level in four years.
![clip_image001[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2008/10/clip-image00114.gif)
Chart courtesy of StockCharts.com www.stockcharts.com
Commodities priced in U.S. Dollars including crude oil, gold, silver and copper are moving lower. The exception in the commodity sector is natural gas. Natural gas is gained $0.08 this morning due to colder than average weather in eastern Canada and U.S.
![clip_image002[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2008/10/clip-image00219.gif)
Chart courtesy of StockCharts.com www.stockcharts.com
Third quarter earnings reports released since the close yesterday were mixed. Apple, Canadian National Railway, Broadcom, Philip Morris and McDonalds reported better than expected results. Boeing, AT&T, Wachovia and Wyeth reported less than consensus results.
The credit freeze continues to thaw. The three month LIBOR rate fell another 0.20% to 3.54%.
Technical Action Yesterday
Another day when no S&P 500 stocks broke resistance or support! Most stocks remain locked in to a range between their October 10th low and their October 14th high. The Up/Down ratio is stuck at 0.03.
Ditto for TSX Composite stocks! No stock broke resistance or support yesterday. The Up/Down ratio is stuck at 0.02
Technical action during the past week is typical of a market that has passed the Bottoming phase and has entered the Base Building phase.
Interesting Charts
More technical signs of a thaw in the credit freeze! The LIBOR rate continues to move lower.
Chart courtesy of StockCharts.com www.stockcharts.com
The TED spread continues to narrow.
Chart courtesy of StockCharts.com www.stockcharts.com
The yield on one month U.S. T-Bills rose sharply yesterday implying the start of a switch from treasuries to higher yielding money market funds.
Chart courtesy of StockCharts.com www.stockcharts.com
Fear of a continuing credit freeze in the U.S. is dissipating. U.S. equity indices remain volatile, but the VIX continues to move lower.
Chart courtesy of StockCharts.com www.stockcharts.com
However, the credit freeze has yet to thaw significantly in Europe. A flight to quality (i.e. a flight to short term U.S. dollar assets) is still happening. The U.S. Dollar continues to move higher despite MACD at substantially overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Commodities priced in U.S. Dollar are responding accordingly. The CRB Index is substantially oversold, but continues to trend lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Commodity prices are unlikely to recover significantly until the U.S. Dollar shows technical signs of peaking.
The Information Technology sector received more good news after the close yesterday. Yahoo reported slightly higher than consensus third quarter earnings. Of greater importance, Apple reported blow out earnings and revenues. Consensus for fiscal fourth quarter earnings was $1.11 versus $1.01 per share. Actual was $1.26. iPhone sales were 6.9 million units. Company guidance was 4.0 million units. Consensus was 5.1 million units. As usual, Apple offered low guidance for its fiscal first quarter. However, the market was not fooled. Apple has a history of low-balling revenue and earnings guidance. The stock moved swiftly higher last night to reach $102.00. On the charts, the stock is developing support at $85.00. A MACD buy signal was triggered on Monday. RSI and Stochastics also are recovering from deeply oversold levels.
Apple’s impressive numbers confirm that the demand for consumer electronic products remains strong and likely will strengthen as the Christmas selling season approaches. Strength in Apple quickly spilled into other consumer electronic stocks. The NASDAQ Composite Index rose 2.0% shortly after Apple’s report was released. The NASDAQ Composite Index is forming support at 1542.45. A MACD buy signal was triggered yesterday. A bullish percent index buy signal came late last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Another sector that is showing positive earnings surprises is the transportation sector. After the close yesterday, Norfolk Southern reported better than expected third quarter earnings. Consensus was $1.21 versus $0.97 per share. Actual was $1.37 per share. The stock gained 7% following the news. On the charts the stock is trying to bottom. It recorded a MACD buy signal yesterday.
Norfolk and other transportation companies are beating consensus earnings for good reason. Fuel costs declined significantly during the third quarter and are flowing to the bottom line. The Dow Jones Transportation Average has a similar technical pattern to Norfolk Southern. It also recorded a MACD buy signal yesterday. It recorded a bullish percent index buy signal late last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
ETF News
Invesco launched the PowerShares Emerging Markets Infrastructure Portfolio ETF last week. Symbol is PXR. More information is available at http://www.invescopowershares.com/
Claymore Canada’s agriculture ETF (COW) now has listed options trading in Montreal
Since the collapse of Lehman, ETF activity on U.S. equity markets has virtually exploded. A spokesman for the New York Exchange mentioned yesterday that the value of ETFs trading on U.S. exchanges during the past month has been approximately 40% of the total value.
Thank You
Thank you to the many people who are accessing this site. Number of hits to the site reached an all time daily high on Monday at 224,000.
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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.
October 22nd, 2008 at 5:51 am
Thanks to you Don for this very useful (I refrain from saying valuable for fear that you’ll start charging for it) service
October 22nd, 2008 at 5:53 am
Hi,
I saw you on BNN Monday; a very interesting interview! I have just accessed your website and am delighted to have found it. As someone just getting started in trading, the Education pages are a fantastic source of information.
Thank you and keep up the good work!
John Eckfeldt
October 22nd, 2008 at 6:21 am
Could you please start a regular section on OPTION play.
I am interested in CREDIT SPREAD strategy.
Thanks
October 22nd, 2008 at 10:03 am
Thank you Don, I’ve been following your site off and on for about a year/two now and really look forward to your commentary on a daily basis, especially in these choppy markets.
October 22nd, 2008 at 4:47 pm
I wish I had of dipped into the Nasdaq today rather than yesterday.
October 22nd, 2008 at 4:53 pm
Hi Don;
I’ve been trading both the Bull and Bear Horizon BetaPro ETFs for several months now, off and on. I have observed that more often than not, the more actively traded ones (HXU, HXD, HED, HEU…) seem to find support and resistance levels right on the round dollar marks.
Is there a Technical reason for this, or is it just coincidence?
Thanks in advance for your input!
October 23rd, 2008 at 7:34 am
Thanks for your suggestion, Nirmal. Have been considering inclusion of an “Option Corner” in this report for awhile. Probably will add shortly. Will need to examine possible set up and structure. My background and experience as a listed option marketing specialist at Richardson Greenshields and subsequently RBC Investments will prompt me to offer conservative strategies such as covered call writes, cash secured put writes and synthetic stock positions. Stay tuned.
October 23rd, 2008 at 9:26 am
Thanks Don.
All those are good. May be under SYTHETIC you can cover CREDIT spread. No fancy
just BULL PUT SPREADand BEAR CALL SPREAD.
I am looking for opportunity to generate income.
Chers
Nirmal