(Editor’s Note: Brooke Thackray is scheduled to appear on BNN Television’s Market Call today at 12:30 PM EST to discuss seasonality and equity markets).

Pre-opening Comments for Monday November 10^th

9:05 AM EST: U.S. equity index futures are moving higher this morning. S&P 500 Index futures are up 16 points.

The focus this morning is on China’s economic stimulus package announced over the weekend at the G20 finance ministers’ meeting in Brazil. The Chinese cabinet announced a $586 billion spending package focusing on infrastructure and social issues (e.g. housing and environment). The announcement had an immediate positive impact on a variety of equities and equity indices. The Nikkei Average added 5.8% and the Shanghai Composite Index gained more than 7%. Chinese infrastructure stocks gained 10%-20%. Copper added 8%. Nickel jumped 11%. Crude oil rose $4.00 U.S per barrel. International mining stocks such as BHP Billiton and Rio Tinto gained over 10%. Strength in commodity prices will have a significant positive impact on the TSX Composite Index at the opening. International infrastructure stocks and Exchange Traded Funds trading on North American equity markets also are expected to open significantly higher.

The U.S. Dollar is moving lower on the news from China. A lower U.S. Dollar also is supporting higher commodities priced in U.S. Dollars. Gold is up $25.00 U.S. and silver added $0.50. Gold and silver and precious metal equities and ETFs have an improving technical profile. Gold recorded a MACD buy signal on Friday. Precious metal equity ETFs that are attractive at current prices include XGD on the TMX exchange and GDX on U.S. exchanges.

Chart courtesy of StockCharts.com www.stockcharts.com

The Federal Reserve and U.S. Treasury have provided additional financial assistance for AIG. They purchased additional AIG shares valued at $40 billion. Total value of financial assistance to date is $150 billion. The additional $40 billion will come from the TARP program. AIG is trading higher on the news.

People are choosing to eat at McDonalds instead of higher priced restaurants. McDonalds announced an 8.2% increase in October same store sales. McDonalds has an improving technical profile. Support is indicated at $45.79 and $50.80. Resistance is indicated at $60.00. Short term momentum indictors (RSI, MACD and Stochastics) are recovering from deeply oversold levels. Strength relative to the S&P 500 Index has been positive during the past year.

Nortel reported a “write off” third quarter report. The company reported a loss of $6.85 per share including a write of $6.55 per share. It also suspended dividends on two of its preferred shares and announced plans to reduce employee count by another 1300 people. Ironically, the stock is trading higher before the opening because the company’s operating loss in the quarter was only $0.30 per share. Consensus was a loss of $0.38 per share. In addition, the loss in employee count was less than expected. Media reports over the weekend predicted layoffs totaling 3,000.

Not all the news was positive this morning. Circuit City entered into Chapter 11 bankruptcy. The stock has been anticipating the news during the past four months.

Chart courtesy of StockCharts.com www.stockcharts.com

Outlook this week

Economic news is quiet this week. The focus is on October retail sales to be released on Friday.

The focus on earnings this week is on Wal-Mart. Canadian reports continue to pour in.

Trends

The ratio of S&P 500 stocks in an uptrend versus a downtrend (i.e. the Up/Down ratio) improved last week from 0.02 to (24/454=) 0.05. Nineteen stocks broke resistance and 2 stocks broke support. S&P 500 stocks remain in a Base Building phase.

Bullish Percent Index for S&P 500 stocks improved from 37.80% to 43.20% last week. The Index remains above its 15 day moving average and continues to recover from a deeply oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

The Up/Down ratio for TSX Composite stocks improved from 0.02 to (10/116=)0.09 last week. Eleven TSX stocks broke resistance last week and six stocks broke support. The ratio continues to recover from a deeply oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

Bullish Percent Index for the TSX Composite Index improved last week from 33.33% to 41.39%. The Index remains above its 15 day moving average.

The S&P 500 Index lost 37.76 points (3.90%) last week. The Index remains in an intermediate downtrend and below its 50 and 200 day moving averages. The Index remains locked in a four week trading range with support at 839.27set on October 10^th and resistance set on October 14^th at 1,044.31. RSI and MACD continue to recover from deeply oversold levels. Stochastics is short term overbought. Upside technical target on a break above 1,044.31 is its 200 day moving average at 1,269.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of S&P 500 stocks trading above their 50 day moving average eased last week from 7.80% to 4.60%. Percent continues to try to bottom from a record oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of S&P 500 stocks trading above their 200 day moving average eased from 6.20% to 4.20% last week. Percent is trying to bottom from a record oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

The Dow Jones Industrial Average gave up 381.20 points (4.09%) last week. The Average has formed a four week trading range with support set on October 10^th at 7,773.71 and resistance set on October 14^th at 9,794.37. Intermediate trend remains down and the Average remains below its 50 and 200 day moving averages. RSI and MACD continue to recover from deeply oversold levels. Stochastics have rolled over from a short term overbought level. Strength relative to the S&P 500 Index remains positive. Target on a break above resistance at 9,794.37 is its 200 day moving average at 11,621.

Chart courtesy of StockCharts.com www.stockcharts.com

Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week at 43.33%. The Index remains above its 15 day moving average. The Index continues to trend higher from a record oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

Bullish Percent Index for NASDAQ Composite Index stocks rose from 22.77% to 29.69% and remains above its 15 day moving average. The Index continues to recover from a record oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

The NASDAQ Composite Index gave up 73.55 points (4.27%) last week. Intermediate trend remains down. The Index remains below its 50 and 200 day moving averages. Support is forming at its October 24^th low at 1,493.00. A move above 1,785.84 will complete a short term reverse head and shoulders pattern with a technical target close to its 200 day moving average at 2,256. RSI and MACD continue to recover from deeply oversold levels. Stochastics have rolled over from a short term overbought level. Strength in the Index relative to the S&P 500 Index remains negative.

Chart courtesy of StockCharts.com www.stockcharts.com

The Russell 2000 Index lost 31.73 points (5.90%) last week. Intermediate trend remains down. The Index remains below its 50 and 200 day moving averages. Support is developing at its October 28^th low at 441.92. A break above 552.70 will complete a reverse head and shoulders pattern with an upside technical target close to its 200 day moving average at 686. RSI and MACD continue to recover from deeply oversold levels. Stochastics are rolling over from a short term overbought level. Strength relative to the S&P 500 Index remains negative.

Chart courtesy of StockCharts.com www.stockcharts.com

The Dow Jones Transportation Average fell 219.81 points (5.66%) last week. Intermediate trend remains down. The Average remains below its 50 and 200 day moving averages. Support is trying to form at 3,283.12 set on October 28^th. RSI and MACD continue to recover from deeply oversold levels. Stochastics have rolled over from a short term overbought level. Strength relative to the S&P 500 Index remains positive.

Chart courtesy of StockCharts.com www.stockcharts.com

The TSX Composite Index fell 166.55 points (1.71%) last week. Intermediate trend is down. The Index remains below its 50 and 200 day moving averages. Support is trying to form at its October 28^th low at 8,537.34. A break above 10,251.40 will complete a short term reverse head and shoulder pastern with a technical target close to its 200 day moving average at 13,119. RSI and MACD continue to recover from a deeply oversold level. Stochastics are rolling over from a short term overbought level. Strength relative to the S&P 500 Index is neutral.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of TSX Composite stocks trading above their 50 day moving average improved from 9.35% to 11.89% last week. Percent has bottomed and continues to recover from a deeply oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

Percent of TSX stocks trading above their 200 day moving average improved from 4.07% to 4.51% last week. Percent continues to bottom from a record oversold level.

Chart courtesy of StockCharts.com www.stockcharts.com

The Australia All Ordinaries Index added 23.90 points (0.60%) last week. Intermediate trend is down The Index remains below its 50 and 200 day moving averages. Support is trying to form at 3,693.90. A break above 4,291.90 will complete a reverse head and shoulders pattern with a technical target close to its 200 day moving average at 5,214. RSI and MACD continue to recover from a deeply oversold level. Stochastics have rolled over from a short term overbought level. Strength relative to the S&P 500 Index remains positive.

Chart courtesy of StockCharts.com www.stockcharts.com

The Nikkei Average added 4.02 points (0.05%) last week. Intermediate trend is down. The Average remains below its 50 and 200 day moving averages. Support is trying to form at 6,994.90. A break above resistance at 9,601.30 will complete a reverse head and shoulders pattern with an upside technical target near its 200 day moving average at 12,699. RSI and MACD continue to recover from deeply oversold levels. Stochastics have rolled over from a short term overbought level. Strength relative to the S&P 500 Index remains negative.

Chart courtesy of StockCharts.com www.stockcharts.com

The Shanghai Composite Index added 18.93 points (1.09%) last week. Intermediate trend is down. The Index remains below its 50 and 200 day moving averages. Support is trying to form at 1,664.92. Short term momentum indicators (RSI, MACD and Stochastics) are recovering from oversold levels. A MACD buy signal was recorded on Friday. Strength relative to the S&P 500 Index is mixed.

Chart courtesy of StockCharts.com www.stockcharts.com

The London FT Index added 9.80 points (0.22%), the Frankfurt DAX Index eased 50.49 points (0.99%) and the Paris CAC Index slipped 17.95 points (0.51%) last week. All are trying to find support at levels reached on October 27^th.

The U.S. Dollar remains the focus for world equity and bond markets. More evidence of an intermediate peak surfaced this week. Resistance is trying to form at 87.88 set on October 28^th. Support is trying to form at 83.10. A short term triangle pattern has formed. Short term momentum indicators (RSI, MACD and Stochastics) have rolled over from substantially overbought level. A reasonable downside target on a break below the triangle pattern is to 80.38, its previous break out level. A move of this magnitude will trigger a significant recovery in commodities priced in U.S. Dollars. Thackray’s 2009 Investor’s Guide notes that the U.S. Dollar has a history of moving lower from mid November to the end of December followed by a recovery in January.

Chart courtesy of StockCharts.com www.stockcharts.com

The Euro remains a mirror image of the U.S Dollar. It was virtually unchanged last week. Support is trying to form at 123.94. Short term momentum indicators are recovering from deeply oversold levels. A reasonable upside target if the U.S. Dollar breaks lower from its triangle pattern is138.82, the previous breakdown level.

Chart courtesy of StockCharts.com www.stockcharts.com

The Canadian Dollar continues to recover from a deeply oversold level. It gained another 1.45 last week. Upside target on a break by the U.S. Dollar is 92.44.

Chart courtesy of StockCharts.com www.stockcharts.com

The Japanese Yen gave more technical evidence of an intermediate top last week. Resistance has formed at 109.25. Short term momentum indicators have rolled over.

Charts courtesy of StockCharts.com www.stockcharts.com

The CRB Index is trying to find support at 253.85. Short term momentum indicators continue to recover from deeply oversold levels.

Crude Oil continued its intermediate downtrend last week by setting an 18 month low. Short term momentum indicators are trying to bottom. Seasonal influences start to turn positive at the end of November.

Chart courtesy of StockCharts.com www.stockcharts.com

Natural gas has developed a six week trading range between $6.51 and $7.59. Momentum indicators are neutral. Inventories at the official start of the winter heating season (November 1^st) were in the middle of their five year range. See the full picture at http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html . Seasonal influences on natural gas prices remain positive until the end of December. Inventories and weather conditions between now and the end of December will determine if a change in trend will occur.

Chart courtesy of StockCharts.com www.stockcharts.com

Energy stocks on both sides of the border are significantly outperforming the price of crude oil and natural gas, an encouraging technical sign.

Chart courtesy of StockCharts.com www.stockcharts.com

U.S. and Canadian energy indices bottomed in mid October and have formed base building patterns. Short term momentum indicators are recovering from deeply oversold levels. A break by the S&P Energy Index above 419.13 and a break by the TSX Energy Index above 260.43 will attract technical buying.

Charts courtesy of StockCharts.com www.stockcharts.com

Gold is showing early technical signs of bottoming. Support is developing at $681.00. Short term momentum indicators are recovering from oversold levels. A MACD buy signal was recorded on Friday. Positive seasonal influences start in mid November. Weakness in the U.S. Dollar will be the trigger for higher prices.

Chart courtesy of StockCharts.com www.stockcharts.com

Gold stocks are starting to outperform gold, an encouraging technical sign for both.

Chart courtesy of StockCharts.com www.stockcharts.com

Gold equity indices on both sides of the border have improving technical profiles. XAU is forming support at 63.52. Short term momentum indictors continue to recover from deeply oversold levels.

Chart courtesy of StockCharts.com www.stockcharts.com

Chart courtesy of StockCharts.com www.stockcharts.com

The technical profile for silver continues to improve. Support is developing at $8.40. Short term momentum indicators are recovering from oversold levels. MACD shows positive divergence relative to the price of silver.

Chart courtesy of StockCharts.com www.stockcharts.com

Silver continues to outperform gold. Silver and silver stocks are preferred over gold and gold stocks.

Chart courtesy of StockCharts.com www.stockcharts.com

Base metal prices are struggling despite limited movement by the U.S. Dollar last week. Copper continued an intermediate downtrend by reaching a new low. Aluminum has a similar technical pattern.

Chart courtesy of StockCharts.com www.stockcharts.com

The yield on 10 year U.S. Treasuries dipped slightly last week. They remain range-bound between 3.25% and 4.32%. Momentum indicators are neutral.

Chart courtesy of StockCharts.com www.stockcharts.com

News of a thaw in the credit freeze remains mixed. The yield on one month Treasury notes was virtually unchanged last week at 0.13%. A thaw should boost yield.

Chart courtesy of StockCharts.com www.stockcharts.com

The yield on three month treasuries dipped from 0.46% to 0.31%, not an encouraging sign. Demand for high quality, government guaranteed, short term instruments remains high despite their low yield.

Chart courtesy of StockCharts.com www.stockcharts.com

The TED spread was virtually unchanged last week. It should be declining.

Chart courtesy of StockCharts.com www.stockcharts.com

The LIBOR rate continued to decline, an encouraging sign. Indeed, LIBOR is lower now than at the start of the credit freeze.

Chart courtesy of StockCharts.com www.stockcharts.com

Other Factors

Volatility has declined from record levels, but remains elevated.

Chart courtesy of StockCharts.com www.stockcharts.com

Distribution of money from the $700 billion TARP program has started. However, the program’s impact on short term rates has yet to surface.

Fears of General Motors, Chrysler and Ford going bankrupt are overblown. The autoworkers’ union is pressing the Democratic Party – controlled Congress to provide at least short term financial relief. Union leaders were the backbone of support for the Democratic Party during the recent election. Look for news of a bail out of the industry to be announced this week.

Third quarter earnings released on both sides of the border continue to surprise on the upside. That trend is expected to continue this week. Tech Talk will take a closer look at fourth quarter 2008 and first quarter 2009 consensus earnings estimates by major U.S. and Canadian companies later this week.

Technical indicators (e.g. Up/Down ratios, Bullish Percent Indices, short term momentum indicators) for most stocks and sectors continue to show signs of recovery despite declines by major North American equity indices last week.

A change in investor psychology was detected on Friday. Equity markets anticipated a horrible U.S. October employment report. The actual report was worse than anticipated, Yet, U.S. equity markets recorded a significant gain. Equity markets no longer are responding negatively to bad news. Economic news reports for the month of October (e.g. Retail sales this week) will continue to look horrible. Month over month comparisons will be less troubling when November data is released.

The post-election news flow turns positive between now and the end of January. Equity markets moved higher early on Friday partially in anticipation of good news from President elect Obama’s press conference.

The focus over this weekend was on the G20 meeting of finance ministers and central bankers in Brazil. The meeting discussed ways to stabilize currencies and to thaw the credit freeze. This meeting precedes a meeting of G20 government leaders starting November 15^th in Washington. G20 finance ministers are pointing a finger at the U.S. as the primary cause of the subprime lending crisis and the subsequent credit freeze. Ministers are demanding greater influence over world financial bodies including the IMF and the World Bank. Ultimately, they are demanding less influence by the U.S. Dollar in world finances. Discussions could have a significant impact on the U.S. Dollar. Currently, the U.S. Dollar and Japanese Yen are significantly overvalued relative to most world currencies due to a “flight to quality” during the credit freeze. Unified efforts by G20 nations to thaw the credit freeze (i.e. real efforts to take action rather than political rhetoric) will have a negative impact on the U.S. Dollar. Money will move from U.S. treasury bills in U.S. Dollars into other currencies and securities.

The “cash and equivalents” bubble remains. When it breaks, a flood of funds will flow back to equities and other fixed income securities.

Business media anxiety levels remain high. Headlines in weekend newspapers were tilted heavily toward a recession or depression. It’s time to be a contrarian!

The Bottom Line

Preferred strategy is to add to initial equity and ETF positions on weakness from current levels. Stick with sectors with improving technicals and favourable seasonal characteristics.

Tech Talk’s Weekly Column in the Financial Post

(Published in Saturday’s Financial Post. The original report is available by paid subscription through www.nationalpost.com )

Investing in the Infrastructure Sector

Infrastructure spending is a focus by governments around the world. Governments are ramping up infrastructure spending as a method to boost their economies from recessionary levels. What are they doing and how can investors take advantage?

Background

Subsectors included in the infrastructure sector include construction and engineering, airport services, highway and rail tracks, marine ports and services, electric and gas utilities, water utilities, oil and gas storage and heavy electrical equipment.

Fundamental influences

The need for greater infrastructure spending by governments is global. Spending is needed to maintain existing infrastructure as well to establish a base for economic growth. Demand is particularly strong in selected sectors including health care, energy, transportation and the environment.

The U.S. particularly needs to spend more. The American Society of Civil Engineers recently noted that 26% of the 600,000 bridges in the U.S. are in serious need of repair to avoid another catastrophe like the Minnesota bridge collapse in August 2007. Estimated cost for repair of bridges is $10 billion annually for the next two decades. Of greater importance the Engineers predict that the U.S. will need to spend $94 billion annually for repairs and upgrades of existing highways. Meanwhile, the U.S. government has announced plans to expand its existing highway system by 80% by 2015. This program is likely to accelerate under an Obama administration and a Democratic Party controlled Congress. The Democratic Party platform for the 2008 election included a promise to spend $60 billion per year during the next 10 years to finance transportation infrastructure projects across the nation. In addition, President elect Obama and the next U.S. Congress are expected to support massive infrastructure spending on clean energy, health care, transportation equipment, education and the environment.

Governments in Europe jumped on the infrastructure bandwagon this week. The German cabinet approved a $35 billion stimulus package. The package included additional infrastructure spending in 2009 and 2010 of $12 billion. Other European nations likely will announce comparable programs shortly.

Infrastructure spending by governments is expected to accelerate most in China. The Chinese economy continues to grow at an 8% annual rate. Domestic demand for goods and services continues to increase. More infrastructure spending is needed as a base for economic growth.

Canadian governments also are accelerating infrastructure spending. The Federal Government’s “Build Canada Fund” approved in the last budget projects spending by $8 billion between 2008 and 2014. Priorities of the fund are the national highway system, drinking water, waste water, public transit and green energy. Most of the Federal Government’s programs co-op with larger provincial and municipal governments programs.

Seasonal influences

Most companies in the infrastructure sector are in the industrial and utilities sectors. Equities and Exchange Traded Funds in the Industrial sector have a period of seasonal strength from the end of September to the end of December. The Utilities sector has a period of seasonal strength from the end of February to the end of May.

Technical influences

Most equities and Exchange Traded Funds in the infrastructure sector currently have a negative technical profile, but are showing early signs of bottoming. Support levels started to form when the U.S. equity market reached an intermediate low on October 10^th. Short term momentum indicators (Relative Strength Index, Moving Average Convergence Divergence and Stochastics) are recovering from deeply oversold levels.

What to do?

The easiest way to invest is to own Exchange Traded Funds that tracks the sector. Several are available including iShares S&P Global Infrastructure ETF (IGF), Claymore Global Infrastructure ETF (CIF) on the TMX and PowerShares Emerging Markets Infrastructure Portfolio ETF (PXR).

Canadian stocks in the sector include SNC Lavalin (SNC), Stantec (STN), Finning International (FTT), Aecon Group (ARE), Russell Steel (RUT) and Toromont Industries (TIH)

Interesting Column by Diane Francis in Saturday’s Financial Post

Headline for the column was, “Tech post key move by Obama”. Following are excerpts:

The most significant cabinet decision by President-elect Barack Obama will be to create the first Chief Technology Officer (CTO) post. This, more than any other appointment, will define his presidency and the transformation of government from its current nature to what’s known as the 2.0 world.

Main goals of the CTO are:

• To be responsible for enhancing and financially supporting technology of all kinds: environmental, scientific, engineering, medical. This will include massive funding for green (U.S. $150 billion in 10 years), biotech, computer tech and pure scientific research.
• To be responsible for making the government more transparent, accessible and responsive.
• To extend broadband access to all Americans, up from the 23% who now can tap the internet and its vast store of information or services. The U.S. ranks 15^th in the world in this regard, according to the OECD.
• To lobby for more open immigration policy to attract more of the world’s brainpower to its government funded research projects.
• To earmark money to upgrade and computerize the nation’s education system
• To clean up the patent-protection and copyright process to end frivolous and vexatious litigation as well as “trolling” or tweaking existing protections to create new, invasive ones.

Tech Talk comment: This plan, if only partially implemented, will have a significant impact on U.S. based companies offering technology products and services. Look for more news on the subject during the next few weeks as well as an announcement of the person who will become the CTO. This is the kind of news that will help U.S. equity markets and particularly the information technology sector in the weeks to come. Tech Talk continues to favour the technology sector for a seasonal trade. The easiest way to invest in the sector is through Technology SPDRs (Symbol: XLK). Units have an improving technical profile. Support is forming at $14.29. Short term momentum indicators RSI, MACD and Stochastics) are recovering. A break above $17.45 will complete a bullish reversal pattern.

Chart courtesy of StockCharts.com www.stockcharts.com

Bill Carrigan’s Weekly Toronto Star Column

(published in Saturday’s Toronto Star and available by paid subscription at www.thestar.com )

Bill discusses the power of trend lines. Following is a link to his column:

http://www.thestar.com/comment/columnists/article/533143

 

Matt Blackman’s Blogs

Matt offers two blogs. The first is entitled, “Bounce still in play?”. Following is a link to the report: http://tradesystemguru.com/content/blogcategory/34/68/

The second blog is a special report entitled, “The Big Bubble Bust – How smart are attempts to stop it?”. Following is a link to the report:

http://tradesystemguru.com/content/blogcategory/47/81/

 

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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 nor to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

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