ShareThis(Editor’s Note: Don Vialoux is scheduled to appear on Market Call on BNN Television tomorrow at 12:30 PM EDT)
Pre-opening Comments for Monday March 9th
U.S. equity index futures are lower overnight. S&P 500 futures are down 11 points in pre-opening trade. Two events triggered most of the weakness, takeover news and bailout news for another major European bank.
Merck made a cash and share offer to purchase Schering Plough in a deal worth $41.1 billion. The offer is a 34% premium to Schering’s closing price on Friday. Merck, a Dow Jones Industrial Average stock is down 5% in overnight trading. Schering Plough is trading higher.
Lloyds Bank has received an equity infusion from the Bank of England. Lloyds Bank fell 14% following the news. The news also triggered weakness in other major European banks including HSBC and Barclay’s
McDonald’s reported better than expected February global sales. Consensus was an increase of 0.4%. Actual was an increase of 1.4%.
Crude oil prices are up $0.42 U.S. per barrel this morning in anticipation of news from OPEC expected after its March 15th meeting that OPEC’s oil production will be reduced.
CF Industries has rejected a takeover by Agrium.
Amazon.com is trading higher overnight after Piper Jaffray has raised its recommendation to Buy and set a target price of $81. The stock has an improving technical profile. Intermediate trend is up. The stock is trying to move above its 200 day moving average. Strength relative to the S&P 500 Index has been positive since December.
Chart courtesy of StockCharts.com www.stockcharts.com
Outlook this week
Economic data is relatively quiet this week.
Earnings reports by well known companies are infrequent this week.
Trends
The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) fell from 0.31 to (63/363=) 0.17 last week. Three S&P 500 stocks broke resistance and 101 stocks broke support (including 15 stocks on Friday). The ratio is intermediate oversold, but has yet to show signs of bottoming.
Bullish Percent Index for S&P 500 stocks eased from 22.40% to 13.40% and remains below its 15 day moving average. The Index is intermediate oversold, but has yet to show signs of bottoming.
Chart courtesy of StockCharts.com www.stockcharts.com
The Up/Down ratio for TSX Composite stocks dropped from 0.54 to (42/96=) 0.44. Five TSX stocks broke resistance and thirteen stocks broke support last week. The ratio is intermediate oversold, but has yet to show signs of bottoming.
Bullish Percent Index for TSX Composite stocks slipped from 25.12% to 22.79% last week and remains below its 15 day moving average. The Index is intermediate oversold, but has yet to show signs of bottoming.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P 500 Index fell another 51.71 points (7.03%) last week. Intermediate trend remains down. The Index remains well below its 50 and 200 day moving averages. Resistance is at 943.85. Support is yet to be determined. MACD is trending lower and is short term oversold. RSI and Stochastics are short term oversold and are trying to bottom.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 50 day moving average fell from 11.00% to 5.80% last week. Percent is so oversold that it reached its third lowest level on record. However, significant signs of bottoming have yet to appear.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 200 day moving average fell from 2.20% to 1.00%, an all time low.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Industrial Average dropped 435.99 points (6.17%) last week. Intermediate trend is down. The Average remains well below its 50 and 200 day moving averages. MACD is trending down and is short term oversold. RSI and Stochastics are short term oversold and trying to bottom. Strength relative to the S&P 500 Index remains negative.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for Dow Jones Industrial Average stocks eased from 6.67% to 3.33% last week, the second lowest in history. The Index remains below its 15 day moving average. Although oversold, the Index has yet to show signs of recovery.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for NASDAQ Composite Index stocks fell from 23.49% to 17.28% last week and remains below its 15 day moving average. The Index is oversold, but has yet to show signs of recovery.
Chart courtesy of StockCharts.com www.stockcharts.com
The NASDAQ Composite Index gave up 83.99 points (6.10%) last week. Intermediate trend changed from neutral to negative on Friday when the Index broke below support at 1,295.48. Resistance is at 1,665.63. The Index remains well below its 50 and 200 day moving averages. MACD and RSI continue to trend lower and are short term oversold. Stochastics also are short term oversold and may be trying to recover. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The Russell 2000 Index lost another 37.97 points (9.76%) last week. Intermediate trend remains down. The Index broke support last week at 371.30. Resistance is at 519.00. MACD and RSI are trending lower and already are short term oversold. Stochastics are short term oversold and may be trying to recover. Strength relative to the S&P 500 is neutral.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Transportation Average dropped another 304.08 points (12.17%) last week. Intermediate trend remains down. The Average remains well below its 50 and 200 day moving averages. Resistance is at 3,737.01. Support is yet to be determined. MACD and RSI are trending lower and are short term oversold, but have yet to show signs of recovering. Stochastics are short term oversold and showing signs of trying to bottom. Strength relative to the S&P 500 Index remains negative.
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Composite Index gave up 531.55 points (5.31%) last week. Intermediate trend remains down. The Index remains well below its 50 and 200 day moving averages. MACD is trending lower and is short term oversold but also is trying to recover. RSI and Stochastics are short term oversold and have started to recover. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX stocks trading above their 50 day moving average fell from 26.98% to 15.35% last week. Percent is oversold, but has yet to show signs of recovery.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX stocks trading above their 200 day moving average increased from 6.51% to 6.98% last week. Percent remains close to record low levels.
Chart courtesy of StockCharts.com www.stockcharts.com
The Australia All Ordinaries Composite Index lost 184.20 points (5.62%) last week. Intermediate trend changed from neutral to negative when the Index broke below support at 3,201.50. Resistance is at 3,762.50. The Index remains well below its 50 and 200 day moving averages. MACD, RSI and Stochastics are short term oversold and trending lower. However, signs of a recovery have yet to appear. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The Nikkei Average fell 395.32 points (5.22%) last week. Intermediate trend remains down. The Average has developed a five month trading range with support at 6,994.90 and resistance at 9,521.24. The Average trades well below its 50 and 200 day moving averages. MACD and RSI are neutral. Stochastics are short term oversold and trying to recover. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The Shanghai Composite Index added 110.15 points (5.29%) last week. Intermediate trend is up. Support is at 1,814.75. Resistance is at 2,402.80. The Index recently found resistance at its 200 day moving average and support at its 50 day moving average. MACD and RSI have declined to a neutral level. Stochastics are short term oversold and have started to recover. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The London FT Index dropped 299.36 points (7.81%), the Frankfurt DAX Index fell 177.33 points (4.61%) and the Paris CAC Index gave up 168.03 points (6.22%) last week. Charts courtesy of StockCharts.com
The U.S. Dollar added 0.59 last week. Intermediate trend remains up. MACD, RSI and Stochastics are short term overbought, but continue to trend higher.
Chart courtesy of StockCharts.com www.stockcharts.com
The Euro is trying to find support at the 123.94/125.10 level. Short term momentum indicators are trying to recover from oversold levels.
Chart courtesy of StockCharts.com www.stockcharts.com
The Japanese Yen remains in an intermediate downtrend. Support may be developing at its 200 day moving average currently at 100.16.
Chart courtesy of StockCharts.com www.stockcharts.com
The Canadian Dollar tested support at 77.00 once again and bounced higher. Resistance remains at 85.02.
Chart courtesy of StockCharts.com www.stockcharts.com
The CRB Index is trying to bottom. Support has formed at 200.16. Short term momentum indicators (RSI, Stochastics) are recovering from oversold levels.
Chart courtesy of StockCharts.com www.stockcharts.com
The Baltic Dry Index continues to recover. It rose another 12% last week indicating that demand for shipping used to move commodities continues to increase.
Chart courtesy of StockCharts.com www.stockcharts.com
Crude oil continued to move higher last week. It closed on Friday at a six week high. Crude already has gained 29.6% from its low in December. Support is at $35.13. Resistance is at $50.47. Anticipation of another reduction in production by OPEC at its meeting on March 15th could add momentum this week.‘Tis the season for crude oil prices to move higher.
Chart courtesy of StockCharts.com www.stockcharts.com
Gasoline prices were virtually flat last week. The reverse head and shoulders pattern remains intact. Technical target is $1.67 U.S. per gallon. ‘Tis the season for gasoline prices to move higher until May!
Chart courtesy of StockCharts.com www.stockcharts.com
Heating oil also was virtually unchanged last week. Support is at $1.135 U.S. per gallon. Resistance is at 1.669 U.S. per gallon.
Chart courtesy of StockCharts.com www.stockcharts.com
Natural gas remains the weakest commodity in the energy sector.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P Energy Index broke support at 310.56 last week despite strength in crude oil prices. Weakness can be attributed to more fallout from the proposed U.S. budget that reduces incentives to explore and to develop reserves in the U.S..
Chart courtesy of StockCharts.com www.stockcharts.com
In contrast, the TSX Energy Index continues to respond to higher crude oil prices. The Index bottomed two weeks ago at 174.04 and subsequently has gained 8.6%. Short term momentum indictors (RSI, Stochastics) are recovering from oversold levels.
Chart courtesy of StockCharts.com www.stockcharts.com
“Oily” Canadian stocks are starting to respond. Suncor broke resistance at $27.25 on Friday. Intermediate trend changed from down to neutral. A break above resistance at $29.78 will change intermediate trend from neutral to up.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold was virtually unchanged last week. Resistance has formed at 1,007.70 U.S. per ounce. Nice bounce from its 50 day moving average at mid week! Short term momentum indicators continue to roll over. ‘Tis the season for gold and gold stocks to move flat to slightly lower between February and June!
Charts courtesy of StockCharts.com www.stockcharts.com
Silver has a similar technical pattern. Resistance has formed at $14.61 U.S. per ounce. Nice bounce from its 50 day moving average. Momentum data has rolled over.
Platinum remains the precious metal of choice. It continues to outperform gold. Intermediate trend remains up. Resistance has formed at $1,119.50 U.S. per ounce. ‘Tis the season for platinum to move higher until May!
Chart courtesy of StockCharts.com www.stockcharts.com
The AMEX Gold Bug Index continued to drift lower last week. Resistance has formed at 327.84. Short term momentum indicators continue to drift lower. ‘Tis the season for the sector to underperform until June.
Chart courtesy of StockCharts.com www.stockcharts.com
Copper broke above resistance at $1.6550 U.S. per lb. and established an intermediate uptrend. Technical target is $2.05 U.S. per lb. Demand by the Chinese for copper is increasing. Inventories are declining.
Chart courtesy of StockCharts.com www.stockcharts.com
Other Factors
The VIX Index (better known as the Fear Index) rose last week from 46.35% to 49.33%. The surprise was that the Index did not move higher given the downdraft in U.S. equity markets.
Chart courtesy of StockCharts.com www.stockcharts.com
The New High/Low Index for New York stocks spiked down on Friday, not a good sign for early trading in U.S. equities this week.
Chart courtesy of StockCharts.com www.stockcharts.com
On the other hand, the TSX New High/New Low Index did not spike to lower levels on Friday, a mild positive for TSX stocks.
Chart courtesy of StockCharts.com www.stockcharts.com
The U.S. credit freeze became more frozen last week. The yield on one month, three month, two year, five year, ten year and thirty year treasuries fell slightly last week. In addition, the TED spread and LIBOR rates rose slightly.
The price of the long term Treasury Bond ETF moved from $101.88 to $104.26.
Chart courtesy of StockCharts.com www.stockcharts.com
Stability in the U.S. financial service sector has yet to appear. The S&P Financial Service Index closed at an all time low on Friday.
Chart courtesy of StockCharts.com www.stockcharts.com
The technical profile for the TSX Financial Service Index is only slightly better. The Index remains above its support level at 90.88. Comments by analysts late last week that “recently released fiscal first quarter results will be the best quarterly results this year” did not help the sector.
Chart courtesy of StockCharts.com www.stockcharts.com
Economic news to be released this week will be neutral to slightly positive for equity markets. The January U.S. trade deficit is expected to decline slightly. Retail sales (ex autos) are expected to improve for the second consecutive month. Consumer sentiment, the first economic indicator measuring March data is a question mark. The market is anticipating the worst. Generally, economic data for February and March likely will be “less bad”, a scenario that sets the stage for a significant stock market rally later in the month.
Increasing demand by the Chinese and higher prices for commodities (notably base metal and crude oil prices) are impacting equity markets. Best performing equity markets last week included China, Taiwan, Brazil and Russia. Individual stocks such as Freeport McMoran Copper and Gold and Rio Tinto were star performers late last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Technical action by most equity markets and sectors (other than commodity sensitive markets and sectors) was exceptionally bearish last week. Most are extraordinarily intermediate oversold by several measures (e.g. Up/Down ratios, Bullish Percent Indices, MACD, RSI, Stochastics). However, most have yet to show signs of recovery.
Seasonal influences for most broadly based equity indices and sectors remain positive. Favourable seasonal influences by sectors such as energy and mining have appeared so far this year on a relative basis (e.g. relative to the S&P 500 Index) but not on a real return basis.
Huge cash positions remain on the sidelines.
Political news from the U.S. continues to have a negative impact on equity markets. The trigger was the proposed U.S. budget announced by President Obama on February 24th. From the close on February 24th to its low last Friday, the S&P 500 Index declined 13.8%. The Budget triggered a torrent of partisan rhetoric on both sides of the political spectrum. The idealogs on both sides of the political spectrum took control of the agenda. Many of the proposals in the budget clearly were against people with high income and wealth (e.g. the proposals to raise the tax rate on capital gains in October, elimination of deductibility on mortgage interest and charitable donations for people earnings more than $180,000) and against the corporate sector (e.g. limitations on compensation for bank executives if their bank received TARP money, reduction of drilling incentive for the oil industry, steps proposed to limit the profitability of the existing health care sector). Strong support in the media by ranking Democratic leaders on these issues added to suspicion by ranking members of the Republican Party. Republicans perceived (rightly or wrongly) that bi-partisan support was not wanted, not needed and not encouraged.
The Republicans have a strong case on some (but not all) of these issues. An example is an event scheduled today that is bound to raise the hackles of the far right of the Republican Party. President Obama intends to sign an order that will allow federal funding of embryonic stem cell research. Two weeks ago, a research team in Canada announced to the world that it had discovered a technique to access human stem cells for research that will replace the need to use human embryos. Far right member of the Republican Party likely will respond with anger today because of their perception (rightly or wrongly) that the Obama administration and Democratic Congressional leadership are “trying to stick it” to the former administration as well as the Republic Party.
Net result of recent actions by both sides of the political spectrum is to greatly reduce confidence in the political process on both sides of the aisle. The next test by Congress is the Omnibus bill, the spending bill needed to pay the federal government’s programs prior to passage of the budget. This bill is filled with earmarks (rumored to number about 8,000). Another word for earmarks is “pork”. Members of both political parties have loaded the bill with their favorite local spending program. However, the bill suddenly is finding a lack of support (particularly by Republican members who lack trust in any Democratic sponsored bills) and has failed to pass the Senate “due to a lack of votes”.
The U.S. public quickly is losing confidence in the political process and its lack of ability to act on a timely basis. The perception is that both parties are acting in their own best interest instead of “in the best interests of the people”. While the politicians in Washington are fiddling, the U.S. economy is burning. Public perceptions of the political process are having a direct impact on confidence in U.S. equity markets. Equity markets are responding accordingly.
How will this scenario end? A catalyst to restart the political process to restore trust between the two parties will appear eventually. That catalyst has yet to appear. Hopefully, it will appear shortly. Until then, the U.S. equity market will continue to have a rough ride.
The Bottom Line
This too will pass! For now, best to stick with what is working and to avoid what is not. Equity markets and sectors related to China and commodities are working. Others are not.
Tech Talk’s Weekly Column in the Financial Post
(Published on Saturday March 7th and available by paid subscription at www.nationalpost.com )
It’s Time To Dump The Dow As A Benchmark For The U.S. Equity Market
The most recognized stock market indicator in the world is the Dow Jones Industrial Average. However, its usefulness as a benchmark index for the U.S. equity market has become questionable recently. Much of the debate on its viability focuses on changes in the Average during the past year.
Background
The Dow Jones Industrial Average is an equity index that measures the performance of 30 blue chip U.S. based stocks. The Average is a price weighted index. Other well known broadly based equity indices such as the Standard & Poor’s 500 Index, Russell 3000 Index and the NASDAQ Composite Index are capitalization weighted indices.
Flaws
The Dow Jones Industrial Average has several drawbacks as a benchmark representing the performance of the U.S. equity market.
- Price weighting of the Average has significantly skewed its performance. Low priced stocks no longer have a significant influence on its performance. Five of the thirty stocks currently are priced below $7.00 (i.e. Citigroup, General Motors, General Electric, Bank of America, Alcoa). If the prices of all of these stocks doubled, their performance would be equivalent to only a 22% gain in IBM, the highest priced stock in the Average.
- The top 10 highest priced stocks in the Average (Chevron, Coca Cola, Exxon Mobil, IBM, Johnson & Johnson, McDonalds, MMM, Procter & Gamble, United Technologies, Wal-Mart) highly influence the performance of the Average. The top ten are dominated by companies with international operations. Indeed, most of their earnings are realized outside of the U.S. Shares of the top ten are more representative of a benchmark for big cap international equities than a benchmark for the U.S. equity market.
- Recent stock price changes have severely skewed sector weightings in the Average. The Financial Service sector now is virtually unrepresented in the Average with a weight of less than 2%. In contrast, the Financial Service sector has a weight of 9.65% in the S&P 500 Index. Similarly, the Energy sector has ballooned to more than 20% of the Average. Weight in the S&P 500 Index is only 13.71%.
- Dow Jones has a history of deleting failed stocks from the Average and adding “Flavour of the Time” stocks. The most recent change was deletion of American International Group and addition of Kraft Foods. These changes do not allow a true representation of performance of the U.S. equity market over history. Technical significance of previous resistance levels, support levels and trends no longer are relevant. Adding to the confusion will be changes likely to be announced shortly when General Motors, Citigroup and possibly Bank of America are replaced in the Average.
Following is the list of stocks that are part of the Dow Jones Industrial Average and their prices at the close last Wednesday.
What to do?
Ignore reference to the Dow Jones Industrial Average as a benchmark of the U.S. equity market when considering performance of the U.S. equity market. Better to use a more broadly based index such as the S&P 500 Index.
Bill Carrigan’s Blog
Bill’s blog says, “A picture is worth 1,000 words (or 10,000 economists’ words)”. Following is a link to his blog:
http://www.gettingtechnicalinfo.blogspot.com/
Matt Blackman’s Blog
Matt says, “Stocks fall, a reversal afoot?”. Following is a link to his blog.
http://tradesystemguru.com/content/blogcategory/34/68/
Comments and questions about Matt’s blog can be made at
http://tradesystemguru.wordpress.com/
Disclosure: Mr. Vialoux does not own securities mentioned in this report.
Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca 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.
| Sponsored By... |
|
|
|
Discussions from the Tech Talk Forum:
An error has occurred, which probably means the feed is down. Try again later.
|
March 9th, 2009 at 4:08 am
The lack of a higher VIX on a down market suggests to most analysts that this is a bear market that will continue.
March 9th, 2009 at 7:45 am
Hi Don,
Could you recommend Which ETF is good to short GOLD in Toronto Market?
Thank You.
03-09-09
March 9th, 2009 at 4:51 pm
I agree with Matt Blackman’s Blog… IMO a rally is coming soon… markets too oversold, news and opinions too bearish… and that late rally last Friday on the DOW… short covering fears over the week-ends. The shorts are getting spooked… that’s a bullish signal… a little foreshadowing of a coming rally…. a market’s “tell” signal.
In any case, whenever I feel like selling everything and going to 100% cash, which is rare for me, a rally soon ensues.
And I was thinking of selling everything today…
March 9th, 2009 at 5:12 pm
Hi Canuck2004,
I agree with you, but…
I find the current market oddly familiar. Do you remember the great run-up of 1999? I clearly remember the way the markets kept going up an up and whenever there was a brief sell-off, the markets would roar back in a few days to hit new highs. It seemed beyond logic and the subsequent sell-off proved this.
IMO, today we have a market bubble that is in many ways the same as 1999, but upside down. I think that this current bubble could take the markets beyond any bottom that we could imagine. But I also think that once the markets begin to recover, we will have a major upwards corrections that will take us up to a more normal level.
I’m just not sure about what the bottom is, or what the ‘normal’ level is.
- Gary
March 9th, 2009 at 6:38 pm
RE CANUCK & GARY
I have to agree that there is possibly a bear rally in the offing.There has been a lot of up and down but no interesting movments-movements have become sluggish,tricklieand uninspirational.
I can best summerize the atmosphere as the same during the period just before the massive turn around in the markets in the fall of, I beleive it was 80 or 81,in my carefree joyful youth when I was learning exactly what whores occupied bvoard rooms and trading offices.Joe Granville had everyone believing that zero was the target price; most beleived him. The pressure was palatable and I am finding it the same way now.
There will be no logic to it should the event happen but those so inclined may want to open some spreads or strangles and hedge their shorts.
The bear has to create some optimism to enable a transfusion of all the sideline cash to reach the market. This naturally is so that there is some blood to spill in the next down leg. It has all also been sucked dry!