Pre-opening Comments for Friday October 24th
9:10 AM EDT: World equity markets are sharply lower this morning. The Nikkei Average dropped 9.5% last night. The DAX Index is off more than 8%. Major U.S. equity index futures are locked at limit down. Limits are 60 points for the S&P 500 Index, 550 points on the Dow Jones Industrial Average and 85 points for the NASDAQ Composite Index. At the opening, trading on S&P 500 futures is halted for two minutes. Thereafter, the limit is increased to 120 points. Similarly, the limit on Dow Jones Industrial Average futures is adjusted after the first two minutes of trade to 1100 points.
The trigger for the sell off was negative guidance offered by three Japanese companies. Sony and Samsung guided to lower earnings. Toyota guided to lower sales.
The S&P 500 Index and Dow Jones Industrial Average will test October 10th lows at the opening. Those lows are 839.80 for the S&P 500 Index and 7882.51 for the DJIA.
Chart courtesy of StockCharts.com www.stockcharts.com
![clip_image002[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2008/10/clip-image002110.gif)
Chart courtesy of StockCharts.com www.stockcharts.com
OPEC announced this morning that oil production will decline by 1.5 million barrels per day. Oil prices are down another $4.60 U.S. per barrel in pre-opening regardless of OPEC’s decision.
Weakness in crude oil and other commodity prices are a reflection of a spike in the U.S. Dollar overnight. The Euro and British Pound fell to multi-year lows against the U.S. Dollar. The Canadian Dollar also moved lower and is testing its April 2005 low set at 78.56.
Chart courtesy of StockCharts.com www.stockcharts.com
Information technology companies continue to report surprisingly strong third quarter earnings. After the close, Microsoft reported fiscal first quarter earnings of $0.48 versus $0.46 per share last year. Consensus was $0.47. Celestica reported adjusted earnings of $0.24 U.S. versus $0.13 last year. Consensus was $0.18 per share. Both stocks traded higher in overnight trading.
Canada’s inflation rate rose 0.2% in September to reach an annual rate of 3.4%. The increase was higher than expectations. Consensus was a decline of 0.1% in September.
Economists are changing their expectations for the Fed Fund rate given the recent volatility in fixed income and equity markets. Previously, a 0.50% reduction to 1.0% was anticipated when the Federal Reserve announces its decision next Wednesday. Now, 38% of economists are anticipating a 0.75% reduction to 0.75%.
Technical Action Yesterday
Another quiet day on the charts for S&P 500 stocks regardless of extreme volatility! No S&P 500 stocks broke resistance and four stocks broke support. The Up/Down ratio remains at (11/469=) 0.02.
S&P 500 stocks breaking support
Another quiet day on the charts for TSX Composite stocks! One TSX stock broke resistance and none broke support. Up/Down ratio remains at 0.02.
TSX stocks breaking resistance
Tech Talk Comments on the FP Trading Desk site
FP Trading Desk headline reads, “Investment advice for all the chicken littles”. Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/10/23/investment-advice-for-all-the-chicken-littles.aspx
Leon Tuey, one of Canada’s top technical analysts noted recently that “Chicken Littles are rushing out, but wise men are buying with glee”. Leon is one of several Canadian technical analysts following a variety of technical indicators who believes that equity markets recently reached important lows. Leon mentioned several indicators in his report. Other indicators giving the same message include short term momentum indictors (RSI, MACD and Stochastics) as well as Bullish Percent indices. Simultaneous buy signals by MACD and Bullish Percent indices have been recorded during the past two weeks by the Dow Jones Industrial Average, S&P 500 Index, NASDAQ Composite Index and TSX Composite Index.
Interesting Charts
Another wild day on equity markets! VIX remains elevated. It spiked again at midday, but closed slightly lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Strength in the U.S. Dollar continues to dampen enthusiasm for equities.
Chart courtesy of StockCharts.com www.stockcharts.com
Equity and sector indices on both sides of the border continue to form base building patterns. The pattern currently is two weeks old.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
The recent stock market crash fits the characteristics of a panic “waterfall” correction. A recent study by Ned Davis Research noted that the bottom of the past 10 “waterfall” stock market corrections by U.S. equity markets starting with the 1929 crash was, on average, followed by a base building pattern lasting approximately five weeks followed by an upside breakout and an upside follow through lasting six months.
Weekly Report on U.S. Sector Bullish Percent Indices
Mixed news from sector bullish percent indices this week! Six indices moved lower and four indices moved higher. However, indices that moved lower returned to previous intermediate oversold levels. Three indices moved below their 15 day moving average and three indices moved above their 15 day moving average. Five sectors previously recorded buy signals when indices moved above their 15 day moving average from deeply oversold levels. Three more sectors joined the buy list: Financial Services, Health Care and Utilities. The remaining three sectors are close to recording intermediate buy signals. None are overbought. Following is a summary:
Bolded items are changes from last week
All Charts courtesy of StockCharts.com
Tech Talk’s Column in Saturday’s Financial Post
The column discusses “Investing in the U.S. Consumer Discretionary sector”. It is available either in “hard copy” at your local news stand or by paid subscription at www.nationalpost.com
Weekly Technical Update on Claymore’s ETFs
Good news for holders and buyers of Claymore’s ETF this week! Ten of the thirteen ETFs followed on a weekly basis recorded short term MACD buy signals. Relative Strength Index and Stochastics also have recovered from oversold levels. An improvement in short term momentum indicators is the first technical sign that an ETF either has bottomed or is close to a bottom. Initial purchases are recommended at this stage. As more technical indicators turn positive (e.g. improvement in trend, a break above 50 and 200 day moving averages, etc.), additional purchases are suggested.
Following are the technicals on Claymore’s ETFs based on the close on Thursday:
Bolded items are changes from last week
RS Relative Strength
+ Number of months with positive performance relative to its benchmark
- Number of months with negative performance relative to its benchmark
N Number of months with neutral performance
Following is a full technical profile on CRQ:
Chart courtesy of StockCharts.com www.stockcharts.com
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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 24th, 2008 at 6:42 am
RE:stock market crash
The Global Economic Crisis of 2008
Main article: Global financial crisis of September–October 2008
Beginning on September 16, failures of large financial institutions in the United States, due primarily to exposure to securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly evolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. The failure of banks in Iceland resulted in a devaluation of the Icelandic Krona and threatened the country with bankruptcy. Iceland was able to secure an emergency loan from Russia. [6] In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks.[7] On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the “brink of systemic meltdown” [8]
The economic crisis caused countries to temporarily close their markets.
On October 8, the Indonesian stock market halted trading after a 10% one day drop. [9] Russia, the Ukraine, and Thailand also temporarily suspended trading. [10] Mexico and Brazil, Latin America’s biggest economies, acted to prop up falling currencies.[11]
The Times of London reported that “the meltdown was being dubbed the Crash of 2008 and older traders were comparing it with Black Monday in 1987. The fall this week of 21 percent was not as bad as the 28.3 percent fall 21 years ago. But some traders were saying it was worse. “At least then it was a short, sharp, shock on one day. This has been relentless all week.””[12]. Business Week also referred to the crisis as a “stock market crash” or the “Panic of 2008.” [13]
The Black Week: [14] Beginning October 6th and lasting all week the Dow Jones Industrial Average closed lower 5 out of 5 sessions. Volume levels were also record breaking. ***All told it was a historic week. The Dow Jones industrial average fell over 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. The S&P 500 fell more than 20% [15].*** The week also set 3 top ten NYSE Group Volume Records with October 8th at #5, October 9th at #10 & October 10th at #1 [16]
[After a year of slow losses and three weeks of acceleration due to investment bank failures and government-sponsored consolidations, ***worldwide stock markets plunge more during the week of October 6-10 than they did during the stock market crash of October 1929;*** the week saw the largest one-week percentage and overall point decline in the history of the American stock market. At the end of the week the American stock market was down just over 40% from its all-time highs in October 2007.]
List of stock market crashes
http://en.wikipedia.org/wiki/List_of_stock_market_crashes
October 24th, 2008 at 7:06 am
Re: previous post
If you note, the 2008 crash is the worst stock market crash in NA history, worse than 1929… by any measure…. but even after 1929, it was followed by a big “relief” rally… unfortunately it ended in a worse outcome a couple years later.
I don’t expect this negative outcome here as world governments are actually trying to help rather than the “laissez faire” attitude and bad policies of the early 30s.
In 6 months, I think markets will be much higher.
As Don said, today we are re-testing the last low. If it holds here we will be fine.
I’m looking for a long tail down “hammer” candlestick on the TSX daily chart by the end of the day. This would be bullish as it represents a successful retest of the recent lows. Only then we can move on and rebuild…. it might only be an “L” shape correction, but that is fine. We can work with that…..
When I start getting used to daily 600 point corrections, and take them with a grain of salt, I know we’re near a bottom. It’s getting pedestrian.
October 24th, 2008 at 7:38 am
Actually Canuck, it is a misconception that nothing was done in the 30’s during the Great Depression……..Actually alot was done by Hoover and then Roosevelt later on in the Depression……..Ironically, many of the same things(”mistakes” imo) that were done back then are being done now……….ie.bailouts of banks etc……..I have read alot on the topic and once again alot of the media have it wrong that nothing was done back in the Great Depression……..As well, the government(US) wants the public to think that nothing was done back then and that is was the Depression lasted so long but in actual fact many of the things that were done back then are the exact same things that are being employed now…..To add to this, many feel the depression could have been not so prolonged(15 years) had the government not meddled but then again, that is what governments do………they meddle and make things worse not better…..all throughout history………….of course all imo but wanted to clear up some misconceptions.
October 24th, 2008 at 7:42 am
I do agree with you though that today should be a washout and there should be very nice returns to be made in the next six months……..What is going on now is a massive “scare” of deflation but next year the hyperinflationary effects of the FED and world central banks will start being felt in an unprecedented way…….The only place to hide will be “hard assets” and precious metals……..The downswing in the precious metals right now are literally buying opportunities of a lifetime…..imo
October 24th, 2008 at 9:48 am
Any body posting their comments and opinion is fine to me in this column. However, a reference to articles is necessary when their opinion is based on it and then some further ahead. Having said that just indicate where the article can be found is sufficient.
Just last week when the TSX jumped over 700 points the bulls rushed to come out and yelled about a V-shaped recovery has come upon us. And we should start buying again. Pity for those who did just that, an average loss of 15 to 20 % is experienced. In fact, this market downturn, as I believe, is unlike any in history and will take much longer to recover than previous crashes. The key to stablize the market is when the US housing prices finds a bottom. There is a long way before prices will stablize. Also,there are still hedge funds ready to unload more shares. BNN just mentioned the November 30 as a possible ugly day again when these hedge funds may push the stocks down in big time. Nobody knows how many such hedge funds are out there. So, be patient and wait for the waves to calm down before jump for a swim. For those who has a position in stocks already and if time is not a problem then sit through a few quarters. Otherwise, I would sell for tax loss.
People tend to brat about how much they gained in the past and they are in the game but no body will tell much bad they lost during the last three months. Cash preservation is a position and so far in the best until the storm has calmed. Then join the game for the kill.
October 25th, 2008 at 7:50 am
Hi, I’m searching for an investent advisor or wealth manager that has a proven track record in market timing. Someone who best interest are align with mine and has a sell and buy discipline. All suggestion are welcome.
Thanks in advance.
Al
October 25th, 2008 at 6:13 pm
Try the guys at CastleMoore. They have a banner at the top of this blog. Just click on the banner.
P.S. Tech Talk is not connected with CastleMoore other than offering a banner service on this blog. I know the principles and their techniques and approve of their approach toward investing. They use a combination of technical and fundamental analysis to reach investment decisions.