Pre-opening Comments for Thursday October 23rd
9:10 AM EDT: U.S. equity index futures are lower this morning. S&P 500 futures are off another 14 points in pre-opening trade. Equity markets continue to respond to strength in the U.S. Dollar. Commodity priced in U.S. Dollars continued to move lower. Most notable was weakness in gold, off another $29 to $706 U.S. per ounce. Yesterday, gold broke support at $739.80 per ounce to reach a fourteen month low.
Chart courtesy of StockCharts.com www.stockcharts.com
Economic news did not help equity index futures. Weekly jobless claims in the U.S. rose 15,000 to 478,000.
Third quarter earnings reports released overnight were surprisingly positive for the most part. U.S. Companies reporting higher than consensus third quarter results included Amgen, Xerox, Bristol Myers Squibb, UPS and Zimmer. Companies reporting less than consensus results included Dow Chemical and Eli Lilly. However, equity markets currently are not focusing on earnings reports. Overnight responses to reports were minimal.
Amazon.com reported higher than consensus third quarter earnings, but offered negative fourth quarter guidance. The stock is down 16% in pre-opening trade.
Third quarter earnings reports released overnight by Canadian companies also surprised on the upside for the most part. Consensus for PetroCanada was $2.11. Actual was $2.58 per share. Consensus for Encana was operating earnings at $1.78. Actual was $1.92 per share. Consensus for Potash Corp. was $3.55. Actual was $3.93 per share. On the other hand, Teck Cominco reported less than expected third quarter operating earnings. Consensus was $1.02. Actual was $0.97
Today, Finance Minister Jim Flaherty is expected to announce new measures intended to bolster Canada’s financial institutions. The measures are expected to include interbank loan guarantees.
Former Federal Reserve chairman Alan Greenspan is scheduled to testify today in front of a Congressional committee. His comments on derivative regulation will be watched closely.
Technical Action Yesterday
Once again technical action by S&P 500 stocks was quiet despite another day of extreme volatility. No S&P 500 stocks broke resistance and three stocks broke support. The Up/Down ratio slipped from 0.03 to (11/466=) 0.02.
S&P 500 stocks breaking support
Technical action by TSX Composite stocks was non-existent. No TSX stocks broke resistance or support.
Tech Talk Comments on the FP Trading Desk site
(Posted yesterday at
http://www.financialpost.com/trading_desk/index.html )
11:55 AM EDT: FP Trading Desk headline reads, Fed move signals possible 50 point cut next week”. Following is a link to the report:
Consensus is that that the Federal Reserve’s Open Market Committee will announce a reduction in its Fed Fund rate next Wednesday at 2:15 PM from 1.5% to 1.0%. Other central banks, notably in Europe, also are considering the possibility of another reduction in their overnight rate. If the Fed moves and other central banks do not move, interest rate differentials will increase and the U.S. Dollar will come under pressure. The U.S. Dollar continues to move higher regardless of anticipation, implying that other central banks likely will lower their overnight rate either in unison with the Federal Reserve or shortly after. Technically, MACD, RSI and Stochastics show that the U.S. Dollar is substantially overbought in the short term, but have yet to show signs of peaking. Traders will watch technical action in the U.S. Dollar for pending signs of a peak.
Chart courtesy of StockCharts.com www.stockcharts.com
Interesting Charts
Rumors to explain weakness in U.S. equity markets were rampant yesterday:
- A major fund-of-funds was liquidating 20% of its holdings
- A large hedge fund was force liquidated
- Mutual funds were cleaning up their holdings prior to their year end on October 31st. They were selling stocks and buying treasury bills.
Tech Talk comment: The media tend to find or invent an urgent explanation about volatility. Net impact on investors is to generate lots of emotion. Media comments are fun to watch, but emotions they generate are not helpful when making investment decisions.
Major U.S. equity indices are forming a similar pattern:
- A trading range with a capitulation low set on October 10th and a high set on October 14th
- Two failed tests of the low set on October 10th with the second test higher than the first.
- One failed test of the high set on October 14th
- Declining volume since capitulation day: October 10th
- Recovering short term momentum indicators (RSI, MACD and Stochastics)
The triangle patterns displayed below are rather nebulous given the time frame, but are useful as a frame of reference. A break above the triangle patterns will attract the bulls. A break below support will attract the bears.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
THE CASTLEMOORE “FOCUS” PORTFOLIO
What does CastleMoore think its typical Canadian investors should be invested in NOW?
Again, there’s not much “technically-speaking” to discuss. Cash is king; we’re up to our eyeballs in royalty. We are looking for the all-confirming re-test to begin our redeployment for client assets. Patience sometimes requires patience. We have felt for the last two weeks that we were close in terms of time – weeks – but do not know about price.
Today, we thought we’d build a bit upon our thinking, get a little “financially philosophical” again. q
In his forthcoming book Beyond the Bull, CastleMoore’s Chief Strategist, Ken Norquay makes the point that investing is a form of financial warfare: there are winners and losers.
In an excerpt from his book Ken says:
Let’s look more closely at our notion that the stock market is like a financial war. What kinds of people participate in war? And what can we learn from them?
First and foremost we have the private soldier. The characteristics of a good private are: loyal to his cause, brave under fire, does his duty, sacrifices himself if necessary.
Then we have the generals. The characteristics of a good general are: cunning, decisive, conserves his resources, strikes at the right time.
VERY IMPORTANT POINT. In the world of the stock market, we behave like generals; we do not behave like privates. We are generals, not privates… very important.”
The problem with most investors in this market comes from their behaviour. They have acted like financial privates, not generals. It’s the way they’ve been trained. Their model is this: the big banker/brokers are the advisors, the generals. Investors follow their advice to buy and hold a diversified portfolio etc: they are the privates.
And what has been the result of this financial war? Bankers and brokers all over the world are being bailed out by the government – and stock portfolios are down over 40% on average.
What should the average investor do? Change the way you think: think like a general, not a private. Be more cunning and more decisive, conserve your resources, and strike at the right time.
Those who learn to adapt their thinking to the new financial reality will do fine financially. Those who persist in the old way of thinking will be financial casualties.
The game plan for investors now should still be a “recover strategy” the first step of which is to make some changes in thinking, in methodology.
Read this commentary on your Blackberry or any other WAP-enabled device. Go to http://www.castlemoore.com/mobile. Feedback welcomed.
If you like to receive bi-monthly newsletter, know more about our model portfolios or access an audio file of our investment philosophy, “Modern Financial Fiascos”, click on the link http://www.formdesk.com/castlemoore/register . We are also accepting interest for seminar attendance.
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
= = = = = = = = = =
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 23rd, 2008 at 12:50 am
The only people making money are those who are shorts and long US$. Every thing else is down, oil, gold, tech, financials, exchange index worldwide, everything, well almost, except for the likes of McDonalds.
So I suppose as a general in this war, you are not fighting right?
Because if you are, you will have lost money. It’s easy to stay out, but it takes courage to be in the market. Those who win wars are those who have courage. I am buying and trading. And losing so far, but hey, I’m in the game.
John
October 23rd, 2008 at 8:27 am
John,
Ken states, “The characteristics of a good general are: cunning, decisive, conserves his resources, strikes at the right time.”
In your list of asset classes you forgot to include cash!
Never forget, “No position is a position.”
-Paul
October 23rd, 2008 at 10:50 am
One definately needs to be cunning, decisive, and willing to conserve his resources, but that is true under any market conditions.
It is tough out there right now with all the whipsaw trend changes and alike, but there is also money to be made.
I am sticking to my STOPs and exiting if they get hit….these small losses are my tuition fees as a Student of the Markets!
October 23rd, 2008 at 8:23 pm
I agree. I am always 100% invested and I am still running margin. I am keeping my few small core of stable names (more or less stable…lol), but when I venture out on any sortie for a short term aggressive move, I use tight stops… so far I get stopped out more than anything… but I’m still in the game as usual.
No guts, no glory. Anybody can be in cash. No cunning required.
If one can’t take losing money, one should keep theirs in the bank. Losing money is normal in the stock market… you can always make it all back and then some…. And there are some good tax advantages anyway…. as long as you don’t lose it all.
Someone told me recently that the whole point of investing is capital preservation, I answered, no… the whole point of investing is “making money”. A tough thing to do right now, but eventually the market will stabilize… until then keep making small bets as Nick the Greek used to do until lady luck comes back (Gambling Secrets of Nick the Greek). Got to always be in the game… otherwise the day it comes back, you’ll be somewhere else and won’t know what to do or what to buy.
And in this market it is too late to short… remember last Monday. Shorties are getting stopped out too. The market is way too volatile and unpredictable with one day gains of 600 points followed by a down day of 500 points. Nobody is nimble enough to catch them all without getting clipped. Like my old broker used to say, don’t get cute with the market, it’ll cost you.
Bottom line, in my other account, my 100% invested retirement plan I may be down 26% from my year average… and 31% from the year high….but I’m still up over 400% for the past 10 years and getting better than a 10% yield average. I could never grow 400% with cash.
October 23rd, 2008 at 9:59 pm
Hi Don,
What are your thoughts on the following seasonal trades:
HOU.TO long
HSU.TO long
HXU.TO long
HNU.TO long
Thanks,
Farouk
October 24th, 2008 at 6:17 am
Reminds me of one of my favourite quotations…
“A ship in a harbour is safe, but that is not what ships are built for.” – great nineteenth-century theologian, William Shedd
October 24th, 2008 at 8:06 am
Conrad,
You got it.
October 24th, 2008 at 8:19 am
I’ve seen ships sink and destoried in the harbour so I guess its like cash it to gets hurt from inflation
October 27th, 2008 at 7:48 am
Interesting thoughts. What is the general thinking/experience with shorting?