(Note: Tech Talk is scheduled to appear on BNN Television on Monday at 12:30 PM)
Pre-opening Comments for Friday November 21st
9:10 AM EST: U.S. equity index futures are higher this morning. S&P 500 Index futures are up 21 points. Equity markets are responding to comments in a Wall Street Journal article that Citigroup is considering a possible merger or a break up into several divisions. Citigroup is up 7% in pre-opening trade.
The flight to quality continued overnight. Gold added another $22.00 to $771 per ounce in pre-opening trade. Gold is testing resistance at $778.30 U.S. per ounce.
Chart courtesy of StockCharts.com www.stockcharts.com
Another reason for strength in gold is weakness in the U.S. Dollar. The U.S. Dollar continues to find resistance just above the 88 level. This morning the U.S. Dollar is at 87.57. Weakness in the U.S. Dollar has prompted strength in commodities priced in U.S. Dollars. Crude oil, silver and copper prices are higher in overnight trade.
![clip_image002[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2008/11/clip-image00217.gif)
Chart courtesy of StockCharts.com www.stockcharts.com
Higher commodity prices are expected to boost the TSX Composite Index at the opening.
Canada’s inflation rate in October was less than anticipated. Consensus for CPI was a decline of 0.6%. Actual was a decline of 1.0%, the largest monthly decline in 49 years.
Technology companies continue to report surprisingly strong third quarter earnings. After the close yesterday, Dell reported operating earnings at $0.37 per share versus $0.34 per share last year. Consensus was $0.31 per share. The stock is up 5% in pre-opening trade.
The technology sector also will be helped this morning by an upgrade of Microsoft by Openheimer.
GAP Stores also reported better than expected third quarter earnings. Consensus was $0.34 versus $0.30 per share last year. Actual was $0.35 per share. The stock is up 3% in pre-opening traded.
Today is the last trading day for October equity and index options and futures. Look for volatility in equity markets to remain higher than usual.
Technical Action Yesterday
Technical action by S&P 500 stocks was substantially bearish yesterday. Sixty three S&P 500 stocks broke support. None broke resistance. The Up/Down ratio eased to (22/462=) 0.05. Prominent sectors with breaks through support were energy, oil services and financial services. The list of stocks breaking support was too extensive for this report. Accordingly, only stocks that changed trend (i.e. moved either from an uptrend to a downtrend or moved from a neutral trend to a downtrend) are reported below:
Almost all of the technical damage was done during the last 90 minutes of trading. That’s when Congressional leaders confirmed that a bailout of the auto industry had been at least delayed until December, when Hank Paulson did not indicate further action by Treasury until after Inauguration Day and when the Dow Jones Industrial Average broke below its October 10th low at 7773.71. U.S. equity markets quickly triggered stop loss orders. Volume rose significantly. VIX spiked to over 80%.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Panic prevailed on exchanges and in the voices of the television broadcasters. A flight to quality was evident. The yield on one month and three month Treasury Bills briefly fell to 0.00%.
Chart courtesy of StockCharts.com www.stockcharts.com
The yield on two year treasury notes fell below 1.00%, the lowest level in history.
Chart courtesy of StockCharts.com www.stockcharts.com
The yield on 10 year U.S. treasuries broke support at 3.34% to reach a multi-year low.
Chart courtesy of StockCharts.com www.stockcharts.com
Long term U.S. Treasury prices broke resistance on a spike in volume.
Chart courtesy of StockCharts.com www.stockcharts.com
Action in U.S. fixed income markets confirmed that investors have little or no confidence in the U.S. economy and U.S. equity markets. Unbridled panic was evident in equity and fixed income markets as investors moved strongly to a flight to quality. Credit spreads also rose. Investors were staying away from corporate bonds and focusing on U.S. treasuries. A bubble in U.S. treasuries has developed. Credit conditions remain frozen and have yet to show signs of thawing. Investors are concerned about the viability of major U.S. banks (e.g. Citigroup). Equity markets are unlikely to stabilize until major stocks in the financial service stabilize.
Chart courtesy of StockCharts.com www.stockcharts.com
Equity markets are being driven by emotion (i.e. fear) as well as bull and bear raids by computer generated transactions triggered by hedge funds. This has nothing to do with fundamental analysis, technical analysis or seasonality analysis. Trying to the guess when the panic will end is beyond rational analysis. What is known is that panics like yesterday are signals that the end of the downdraft in equity markets is approaching.
Bearish technical action by TSX Composite stocks was worse than technical action by U.S. equity indices. The TSX Composite Index lost more than 9%, the second largest daily drop in history (The largest drop occurred in October 1987). Twenty TSX Composite stocks broke support. One stock broke resistance (First Calgary Pete, a company being acquired).The Up/Down ratio remained the same at (10/117=) 0.08.
Chart courtesy of StockCharts.com www.stockcharts.com
Canada’s banks lead the weakness following a surprise announcement by Toronto Dominion about a pending $350 million write off in its fourth quarter report. The announcement immediately triggered concerns about possible write offs by other banks when they release fourth quarter reports starting next week. Breaking of technical support by Bank of Montreal, Commerce Bank, National Bank and Royal Bank contributed to weakness.
Chart courtesy of StockCharts.com www.stockcharts.com
Panic clearly appeared in the Canadian equity market.
Confession: Tech Talk’s bullish stance since October 10th clearly was too early. The irrational panic recorded yesterday was not anticipated. What to do now? If long in favoured sectors and their ETFs, stick with them for now fully realizing that short term downside risk remains. If sitting on cash, wait for technical evidence of a bottom and a momentum recovery. Equity markets are unlikely to recover significantly until evidence of a thaw in credit markets appears. That hasn’t happened yesterday. Indeed, technical action yesterday suggested that the credit freeze is more frozen than ever.
Now to close on a more positive note:
Gold and gold stocks continue to show mildly encouraging technicals. Gold completes a base building pattern on a break above $778.30.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold looks more interesting in Euros and Canadian Dollars. Gold in Euros recently broke above a base building pattern and already is approaching its all time high at 699 Euros.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold in Canadian Dollars is even closer to its all time high of $1098.40 Cdn.
Chart courtesy of StockCharts.com www.stockcharts.com
Weekly Report on U.S. Sector Bullish Percent Indices
Bullish Percent indices for all sectors fell last week. All remain below their 15 day moving average. Eight of the eleven sector indices are at or near their all time lows. However, none are showing technical signs of recovery.
Bolded items are changes from last week
Charts courtesy of StockCharts.com
Tech Talk’s Column in Tomorrow’s Financial Post
(Available in hard copy or by paid subscription at www.nationalpost.com )
Topic is the Canadian banking sector.
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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.
November 21st, 2008 at 1:41 am
Well looking at the Dow futures we could have a big rally today. At the moment its almost 300 up.
Call me crazy but i was buying at the close again yesterday
I got AGU at 30, TD at 43, FM at 13 (exactly half its book value). As it stands my whole protfolio (not including yeaterdays buys which are at par) is down about 11%, so if this represents the bottom then i believe i qualify for the 10% above bottom rule
Of course i would not recommend anyone do this with money they will need in the next 5 years.
However if i lose it all Im hoping some kind person will offer me a bowl of chicken soup
November 21st, 2008 at 1:43 am
PS: And if im a winner I’ll buy everyone else a drink!
November 21st, 2008 at 5:11 am
Best of luck Mike!
November 21st, 2008 at 5:19 am
If you look at the stock market chart from 1929-1932 you will see that after the big first drop in 1929, the markets fell for the next three years in steps, reaching a total decline in the end of over 80%. I’m not at all trying to make a comparison between this crisis and 1929 except to say that I still think the markets have a long way to fall yet. I think there will be rallies but I also think TSX and DJ are going down to 5000 – 6000, over the next couple of years. Call me scared if you want but I’m waiting it out.
November 21st, 2008 at 5:58 am
Thanks Jeff
Well there are some good earnings reports (in current circumstances) coming in this morning from Heinz and others.
And the sun is shining in London..which is almost more rare than a rally these days.
November 21st, 2008 at 7:29 am
Hi all,
According to Stan Weinstein, he uses the advance decline as an indicator to spot market trend changes.
The advance decline of the NYSE or TSX are in sync with the DOW and TSX.
I.E. new DOW and TSX low followed with a new advance decline low for NYSE and TSX.
No major correction or trend reversal for now.
Take care,
Bacardi
November 21st, 2008 at 8:11 am
IMO, too early to buy. Bottom not in place yet. It could still get a lot nastier before it gets better. Unless day trading, I would wait until the 50 DMA crosses the 200 DMA… on all major NA indexes…and we should see that sometime in the next 6 months.
When the Fed sit on their hands, and refuse to help the markets or failing industries, then this is a 1929-1932 scenario. Most of this mess is caused by poor handling of the situation by the Fed…. a lot of this could have been avoided.
A failure of the big 3 could precipitate 10% unemployment on top of the already 10% forecast. This is a very serious economic situation, not your run of the mill recession we’re dealing with.
November 21st, 2008 at 8:57 am
Louise Yamada in her recent comments on CNBC gave a 400-600 target for the SPX based on the break of a huge double top. She points out there are no bases to build a new bull on. Don, do you have a comment on her targets and the way she measures? She is no slouch in the business of technical analysis.
November 21st, 2008 at 11:53 am
I must agree regardless of how super the price looks the risk is substantially worst (observed the VIX):technically there is simply nothing to buy. Gold related issues seem to be giving the best vibes but likely only on a trading basis.
November 21st, 2008 at 2:07 pm
Hi,
I’m fairly new to the TA world…..when you say the 50 and 200 crossing over…is this typically over a 3 month, 6 month or ?? Thanks. Burls.
November 21st, 2008 at 6:06 pm
Yes, I’m pretty pleased with my +50% move in HGU today, and -11.88% move in HSD.
November 21st, 2008 at 7:49 pm
Hey Jeff. I was very happy to see my HGU move up +50% today too. Now just another 40% higher from here and I will be at break-even at the price I paid back in September!
November 22nd, 2008 at 2:12 am
Wow what a day!
Well i sold my FM and AGU for a tidy profit yesterday, and also cashed in my ABX. Perhaps i should have waited on ABX but im not confident Gold will keep going up.
The only thing that really bugs me is TD, which i though was cheap on Thursday at 43..even with their writedown. They went as low as 38 at one point yesterday after RBC downgraded them. Luckly they came back up to 41 but its worrying to see that kind of sell-off of an apparently safe bank stock like TD. I suppose the bright side is that they and BNS got their quarterly report out of the way.
So as it stands I’m 60% in cash, and 40% in stock (which is currently down 8%) so i am still alive ..for now
But when i look at the rest of my portfolio Im only really worried about TD and BNS now as i really thought they would not get rumbled as they have done in the last few days. Please dont let them scrap their divs because then the share price will go into free-fall. As I see it, its only the generous divs keeping them up at the mo.
I know i should not be enjoying this but i am in a perverse sort of way.
November 22nd, 2008 at 3:07 am
Hello Mike,
Where might I be able to view the Dow futures?
Thank you for your comments.
Ana
November 22nd, 2008 at 11:28 am
Dow Futures anyone?
http://mobile.bloomberg.com/markets/americas.html
http://finance.yahoo.com/indices?e=dow_jones
November 23rd, 2008 at 4:33 am
I usually just watch the Dow futures on CNBC Europe.
Thanks for the link Rol..very handy
November 23rd, 2008 at 4:46 am
Anyone have any views on HJU , (HORIZONS BETAPRO MSCI EMERGING) ETF? Currently its $2.63.
I was considering buying 1000 shares. My argument for doing so is a)the most i can lose is $2630 b) emerging markets will fare better than US/UK/Europe c) many analysts keep tipping emerging markets as better value than US/UK/Europe
My hesitation is that while select emerging markets may do better, HJU may be too heavily weighted in Russian or South American markets..which I’m not keen on.
Or is there a specific Asian/China ETF on the TSE?
November 23rd, 2008 at 6:30 am
Watch out below?
Carrigan article in the Star
Read it carefully.
http://www.thestar.com/article/540805
This shows the 10-yr at 3.167
http://finance.yahoo.com/indices?e=treasury
November 23rd, 2008 at 8:28 am
i “think” FXI CAF PGJ HAO GXC CHN are specific to china. none of these on the TSE. i am not too sure if tey are pure china/ asia. i “think” FXP is an inverse china etf. i do not own any of these, and do not ever intend to, because i do not know how to hedge them,. e.g, FXP is supposed to be a hedge against FXI, but i do not think the inverse relationship is working very well….. i do not know what the hedges are. i wish i could figure this out too……. g’luck.
November 23rd, 2008 at 8:52 am
At this point in time, I feel anyone going long is brave. Cramer is shouting out bear/sell which is a signal of a bottom. I’m willing to pay the premium to see a bottom took place, after the fact.
http://chrispycrunch.blogspot.com/
November 23rd, 2008 at 6:07 pm
I say wait for a bottom, then wait for a re-test. Then buy. Odds are with you then.
Until then, 50-50 chance of making money. This is gambling in here, not investing and the odds here are with the house, not you.
A Bear will just as soon eat you than look at you.
BMO and CM for example made new lows Thursday and Friday…. not good for TSX financial sector (don’t care about the others-leadership historically is the worst ones of the bunch, these two). They will go lower.
50 DMA vs 200 DMA.
Note the 50 DMA below the 200 DMA… this is the inverse of a bullish market (50 DMA above the 200 DMA). The crossover when the 50 DMA crosses the 200 DMA to the “downside” is known as the “Death Cross” (Bear signal). The bullish move is when the 50 DMA crosses the 200 DMA to the upside, known as the “Golden Cross” (Bull signal).
http://stockcharts.com/h-sc/ui?s=$TSX&p=D&b=5&g=0&id=p14114611438
Until we see a Golden Cross… waste of time and effort.
All NA can get cut in half again before this is over. IMO this is a Japan style scenario, and it should be worse this time as the US has double the debt Japan had when it went into it’s death spiral 20 years ago.
However, we should get a short term reversal in here…. oversold on Keltner and STO momentum…. but the stress in on “short term”.
November 23rd, 2008 at 6:10 pm
Oops try this link:
http://tinyurl.com/5oqsog
November 24th, 2008 at 3:37 am
Thanks for the info on emerging market ETFs Rol.
Canuck2004,
Good strategy; wish i’d listened
However i really dont think we have much lower to go. Im sitting on 8% loss in my stock portfolio at the moment, but other than my financials TD and BNS I’m not too worried.
Its odd but I have a weird aversion to shorting, unless its purely as a hedge.However i noticed some weird price differential with both HGD and HGU.
HGD is at 4.71, so there is way more upside potential than downside. On the other hand HGU is at 7.76, which also does not have much downside available to it. My bet is that if one bought 500 shares of each, one comes out winning no matter what because of where their share price is currently.
If gold now skyrockets (HGU upside) then the most downside available for HGD is 0, which would mean a minimal loss, but overall a win because of HGU. However if gold sinks again then HGD skyrockets from its current level of 4.71, while HGU can only fall to 0. So to lose overall HGU has to plummet and HGD not increase by more than approx $7. My view is that the odds are one will make money on buying both the bull and bear ETF purely because both ETFs are currently near their lows.
Does that make sense or am i missing something? (sorry im not very experiences or eduated about these ETFs)
November 24th, 2008 at 5:24 am
Okay how about this strategy on ETF Gold instead:
One buys the HBU ($14.00 approx) etf which links to the Gold Comex index. Its low is about $10.00 which refers to the recent $700 price.
Then to hedge one also buys HGD ($4.50 approx) etf which is linked to TSX Gold mining stocks.
My strategy assumes the belief that even if Gold comex goes up, Canadian gold mining stocks will not continue to rise as much as they did friday. Remember that during small gold increases during past 2 months ABX and others did not necessarily shadow the price. If Gold price drops, one loses less on the HBU than stands to gain with the HGD.
So with the above two ETFs the odds i believe are almost a win win, if not at least a sure-fire small win with whatever scenario unfolds with gold. Any thoughts?