Preopening Comments for Thursday October 30th
9:15 AM EDT: The buying panic in world equity markets continued overnight. European equity markets are up another 3%. The Nikkei Average rose more than 9%. S&P 500 futures are up another 30 points in preopening trade.
U.S. equity markets were helped by encouraging economic news this morning. Consensus for annualized real third quarter GDP was a decline of 0.5%. Actual was a decline of 0.3%. Also the LIBOR rate has declined again this morning from 3.42% to 3.17%.
Chart courtesy of StockCharts.com www.stockcharts.com
The U.S. Dollar is sharply lower again this morning. A lower U.S. Dollar has prompted an increase in commodities priced in U.S. Dollars. Crude oil, natural gas, silver and gold prices are higher in preopening trade. The commodity sensitive TSX Composite Index is expected to open nicely higher.
Third quarter earnings reports continue to surprise on the upside. ExxonMobil reported $2.86 per share. Consensus was $2.40 versus $1.70 last year. Colgate reported $1.04 per share operating earnings. Consensus was $0.98 versus $0.86 last year. International Paper reported $0.84 per share operating earnings. Consensus was $0.77 versus $0.57 per share last year.
Not all reports were positive surprises. Barrick Gold reported third quarter operating earnings at $0.40 versus $0.49 per share last year. Consensus was $0.52 per share. Also Teck Cominco announced a force majeur on its zinc production after weather conditions in Alaska precluded full shipment of zinc concentrate from its Red Dog mine.
Technical Action Yesterday
Another wild day! The Dow Jones Industrial Average fluctuated in a 300 points range near break even just after the Federal Reserve announced a 0.50% reduction in the Fed Fund rate, moved higher to +300 until six minutes before the close and fell sharply to close down 74 points. The drop during the last six minutes of trading was attributed to a negative news report on General Electric. After the close, General Electric noted that the report was false and misleading. Technical action by General Electric and its impact on equity markets confirms that nervousness remains at an elevated level. Despite volatility, technical action remains quiet. Two S&P 500 stocks broke resistance and one stock broke support. The Up/Down ratio for S&P 500 stocks was unchanged at 0.02.
S&P 500 stocks breaking resistance
S&P 500 stocks breaking support
No TSX Composite Index stocks broke resistance or support yesterday.
Tech Talk Comments on the FP Trading Desk site
(Available at http://www.financialpost.com/trading_desk/index.html )
12:00 Noon: FP Trading Desk headline reads, “Johnson & Johnson downgraded by JP Morgan”. Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/10/29/johnson-amp-johnson-downgraded-by-jpmorgan.aspx
Johnson & Johnson currently has a negative technical profile. Intermediate trend is down. The stock currently is trading below its 50 and 200 day moving averages. However, the stock is showing early technical signs of recovery. Short term momentum indicators (RSI, MACD and Stochastics) are advancing from a deeply oversold level. A MACD buy signal was recorded earlier this week. Strength relative to the S&P 500 Index has been positive during the past year. Current trading range is between $52.06 and $67.48.
Chart courtesy of StockCharts.com www.stockcharts.com
FP Trading Desk headline reads, “Cameco debt adds risk: Blackmont”. Following is a link to the report:
Cameco currently has a negative technical profile. Intermediate trend is down. The stock is trading below its 50 and 200 day moving averages. However, the stock is showing early technical signs of bottoming. Short term momentum indicators (RSI, MACD and Stochastics) are recovering from substantially oversold levels. A MACD buy signal was recorded late last week. Current trading range is $14.33 to $21.23.
Chart courtesy of StockCharts.com www.stockcharts.com
Interesting Charts and Observations
FP Trading Desk headline released late yesterday reads, “Ten quality stocks to consider now that we are almost at the bottom according to Canaccord”. Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/10/29/ten-quality-stocks-to-consider-now-that-we-re-almost-at-the-bottom-according-to-canaccord.aspx
Tech Talk comment: Canaccord’s strategist, Nick Majendie offers a history lesson on bear market bottoms. His top ten selections consist of a diversified list of high quality Canadian equities that will track closely the TSX Composite Index. An easier way to track the Canadian market is to purchase an Exchange Traded Fund. Top picks include iShares on the S&P/TSX 60 Index (XIU) and the Claymore Canadian Fundamental ETF (CRQ). Investors looking for a leveraged play can in invest in the Horizon Beta Pro 60 Bull+ ETF (HXU). Leverage is two times the daily change in the S&P/TSX 60 Index. RSI shows that all are showing technical signs of bottoming.
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 U.S. Dollar remains a focus. It is short term overbought and showing early technical signs of rolling over. Weakness to its recent breakout level at 80.38 is possible.
Chart courtesy of StockCharts.com www.stockcharts.com
The Canadian Dollar recorded its largest one day gain since 1971 in response to weakness in the U.S.Dollar.
Chart courtesy of Stockcharts.com www.stockcharts.com
Commodity prices responded strongly to weakness in the U.S. Dollar. The CRB Index jumped 5.91%, the biggest one day advance during at least the past five years.
Strength in commodity prices is bullish for the Canadian equity market. ‘Tis the season for most commodity prices to move higher starting at the end of October! Yesterday, copper prices rose 13% and nickel prices jumped 14%. Below is a chart showing the seasonality of copper:
Chart courtesy of StockCharts.com www.stockcharts.com
Copper
Chart courtesy of SeasonalCharts.com www.seasonalcharts.com
Energy stocks on both sides of the border were notably stronger yesterday. Short term momentum indicators show recovery by the sector from deeply oversold levels. “Gassy” stocks such as Encana are leading the way thanks to higher natural gas prices.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Strength in Apple drifted into other information technology stocks. The stock strengthened on a research report from Bernstein recommending that Apple use its robust cash reserves to repurchase shares. Other high tech companies with large cash reserves either are considering additional share repurchase programs (e.g. Microsoft) or recently announced a share repurchase program (e.g. Oracle). Just another reason to favour the information technology sector during its current period of seasonal strength lasting until mid January!
Chart courtesy of StockCharts.com www.stockcharts.com
Brooke Thackray’s Monthly Market Letter
Brooke released his November letter earlier than usual this month. Normally, the letter is released on the first Monday of the month. However, Brooke’s key day for entering equity markets each year is October 27/28. Accordingly, the letter was released on October 27th.
This edition of the market letter focuses on:
- The longer term forecast for U.S. equity markets showing that the current 20 year period started in 2000 is a flat and volatile period.
- Seasonality in November: Sectors with a history of outperformance in November include Information Technology, Consumer Discretionary, Health Care, Materials and Industrials.
- A mention that the Metals and Mining sector has a period of seasonal strength starting November 19th.
The letter is free. To subscribe, send an email to subscribe@alphamountain.com with SUBSCRIBE in the subject line. Also state your first and last name, city and country.
Brooke’s book entitled, “Thackray’s 2009 Investor’s Guide” was released on October 25th. Copies are available at Amazon.com, Barnes & Noble, Chapters and Indigo or at www.alphamountain.com . Cost is $19.95.
Brooke is scheduled to appear on BNN television on November 10th.
THE CASTLEMOORE “CLASS” PORTFOLIO
What does CastleMoore think its typical Canadian investors should be invested in NOW?
Class Investor – Moderate Risk
Aren’t bulls supposed to react to the color red? Well, there’s never been more red in the markets than anytime in recent memory: yet nary a bull in sight. We, on the other hand, are warming up in the bullpen but aren’t quite ready to get in the game just yet. Legendary New York Yankee catcher, Yogi Berra, is credited with saying, “It ain’t over ‘til it’s over.” That’s how CastleMoore feels about October’s sharp stock market decline.
We notice an incredible desire by ordinary investors to “call the bottom”, to try to buy their favourite stock at these bargain prices. We take that desire as an indication that “it ain’t over”, yet.
The online version of Forbes magazine recently published an article questioning the rationale of the buy-and-sell approach in the modern investment era. It is quite similar to what we would have written ourselves. The article can be viewed at:
Read Sheldon Liberman’s latest blog entry at http://www.sheldonliberman.blogspot.com/
Read Hap Sneddon’s latest blog entry at: http://hapsneddon.blogspot.com/
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Castlemoore now has a group on Facebook, appropriately named “CastleMoore.” Members have access to certain Castlemoore insight not available elsewhere.
If you live in the Toronto area and would be interested in attending an upcoming Castlemoore investment seminar, send an email to info@castlemoore.com. If you live outside of the Toronto area and would be interested in participating in a Castlemoore online webinar, we’d like to here from you too.
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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
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Disclosure: Except for iShares on the TSX 60 Index and the Claymore Canadian Fundamental ETF, 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 30th, 2008 at 5:27 am
Hi Don,
You said HXU is two times the daily change in the S&P/TSX 60 Index, how about monthly change? Let assume that the S&P/TSX 60 Index will be up 10% in a month, will HXU be up 20%?
Thanks
October 30th, 2008 at 6:35 am
Re:June
This type of ETF does not seek to provide correlation with its underlying index over a
period of time other than daily. For more information read the prospectus at:
http://www.hbpetfs.com/prospectuses.asp
October 30th, 2008 at 7:35 am
Hello Don,
I am unfortunately in HMD for $38.50. On Tuesday, October 28, 2008 HMD was up at 41 and then closed at 31 and has been in a free fall. Will there ever be a time where the market swings the other way before December 31, 2008 or should I just sell now?
Thank you and I appreciate your comments.
October 30th, 2008 at 7:46 am
Hi June, I track HXU/HXD. Both have a beta of 2 so they trade 2x the percent change of the index. So daily or monthly, these ETFs trade 2x the return of the index.
I am in agreement with CastleMoore’s cash position. As tempting as it is for a bargain hunter, I believe that Investors must watch the case shiller housing index as a leading indicator to the health of the stock market. All of the bailout plans in the world won’t change economic health, it only resolves the credit problem.
October 30th, 2008 at 8:09 am
June,
The ETFs track two times the daily change. Over a months time you can end up making more than two times or less than two times depending on what path markets take. If the markets trend hard like they have in the last couple of months, you will make more than two times. Just look at the S&P Bear or the Crude Bear in the last 30 or 60 days.
October 31st, 2008 at 6:15 am
Well if Chris an Paul traded bull,bear etf’s instead of “track” or looked a “month”ly charts , they would know that Stefan knows what he’s talking about. All etf’s are an over lay of a closed end fund with a lagging roll over.
October 31st, 2008 at 8:20 am
Hi Ana. The mining sector is showing early technical signs of recovery. Technicals on base metals (e.g. Copper, Aluminum)and base metal stocks (e.g. Teck Cominco, Freeport McMoran)recorded MACD buy signals during the past week. A rollover of the U.S. Dollar suggests continuation of this trend. Seasonal influences for these commodities and stocks turn positive in November. Better opportunities than HMD exist elsewhere.
November 2nd, 2008 at 8:50 am
hi don
i’ve been considering investing in either clu or xsp.they sound like similar products.however on oct.31 xsp was up .78% and clu was up 4.35%.why the discrepancy?
thanks,
peter