Pre-opening Comments for Friday March 27^th

U.S. equity index futures are lower this morning. S&P 500 futures are down 10 points in pre-opening trade. Traders are responding to strength in the U.S. Dollar and corresponding weakness in commodity prices.

Equity index futures did not respond significantly to February Personal Income and Personal Spending reports released at 8:30 AM EDT. Consensus for Personal Income was -0.3%. Actual was -0.2%. Consensus for Personal Spending was up 0.2%. Actual was up 0.2%.

Agrium has raised its offer to buy CF Industries by 10% in a cash and stock deal. The new offer is worth $35 per share.

Citigroup has raised its ratings on the Railway and Truck sectors. Evidence of an economic recovery in the U.S. has surfaced. Companies transporting goods will benefit.

General Motors is up 10% this morning following news that it will not need additional funding by the U.S. government at the end of March.

Masco is trading lower after the company reduced its dividend by 68%.

Technical Action Yesterday

Technical action by S&P 500 stocks remains bullish. Another 17 S&P 500 stocks broke resistance. None broke support. The Up/Down ratio rose from 0.29 to (101/313=) 0.32.

S&P 500 stocks breaking resistance

Technical action by TSX Composite stocks also remains bullish. One TSX stock broke resistance and none broke support. The Up/Down ratio improved from 0.87 to (60/68=) 0.88.

TSX stocks breaking resistance

Weekly Technical Comment on Claymore’s ETFs

For Thursday March 26^th 2009

Technical parameters for Claymore ETFs continued to improve last week. Three more ETFs moved above their 50 day moving average.

Following are technicals on Claymore’s ETFs based on the close today:

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

Editor’s Note: Following is a modified version (read: shorter version) of a report to be released in the Financial Post this weekend. The full version can be obtained by purchasing the National Post on Saturday or by subscribing to www.nationalpost.com

Investing in Brazil

Brazil is one of the fastest growing emerging nations in the world. However, like the rest of the world, it currently is suffering from a deep recession. Is now a good time to invest in Brazil?

Seasonal influences

The Brazilian Bovespa Stock Index has a period of seasonal strength from the end of October to the end of May. The Index has advanced in seven of the past eight periods. Average gain per period was 16.4%. Favourable seasonal influences surfaced on schedule during the current period. The Index bottomed at 29,435 on October 27^th 2008 and has continued to strengthen since then.

Technical influences

The Bovespa Index has an improving technical profile. Intermediate trend is up. Support is indicated at 35,722. Resistance is indicated at 43,441. The Index recently moved above its 50 day moving average, an encouraging sign. Strength relative to the S&P 500 Index has been positive since the end of October. Moving Average Convergence Divergence, a momentum indicator recently resumed an uptrend. Intermediate technical target on a break above 43,441 is 52,800 where previous resistance exists.

Chart courtesy of StockCharts.com www.stockcharts.com

Fundamental influences

Brazil currently is in an enviable position in the world. It is a major producer of commodities such as copper, crude oil, gold, silver, iron ore and coal. Demand for these commodities particularly by China is increasing and commodity prices are rising. Brazil’s economy has suffered with the rest of the world and currently is in recession. However, an improving outlook for commodities suggests that Brazil will be one of the first major nations to recover from the recession. Despite the recession, the Brazilian government optimistically is projected Gross Domestic Product growth in 2009 at 2.0%.

What to do

Several investment vehicles are available for individuals considering an investment in Brazil. Shares in several of Brazil’s largest companies are available for trading on U.S. exchanges as well as in Brazil. In addition, Exchange Traded Funds heavily weighted in Brazilian shares are available including the Claymore BRIC (Brazil, Russia, India, China) ETF (Symbol: CBQ on the TMX Exchange). Brazil’s weight in CBQ is approximately 46%. MER for the ETF is reasonable at 0.60%.

CBQ has an improving technical profile. Units complete a reverse head and shoulders pattern on a break above $19.64. MACD has resumed an uptrend. Intermediate target based on completion of the technical pattern is $26.30.

Chart courtesy of StockCharts.com www.stockcharts.com

 

Bill Carrigan’s Blog

Bill discusses “a few rules on volume”. Following is a link to his blog:

http://www.gettingtechnicalinfo.blogspot.com/

 

CastleMoore’s Investment Insights

The “Corporate Efficiency” Racket.

This week two of Canada’s biggest energy companies, Petro-Can and Suncor, announced their engagement. The marriage will occur this autumn. Soon another corporate giant will be born.

And why is this giant merger being undertaken?

They say it’s something about corporate efficiency. Apparently the new giant oil company will be able to lay off thousands of workers and save millions of dollars in expenses. Very efficient.

What an interesting country we live in. Governments are being asked to put up billions of dollars of taxpayer money to prevent the layoff of thousands of auto workers. And now two corporate oil giants have a plan that will likely result in the layoff of thousands of oil patch workers. The Petro-Can/Suncor wedding seems to do the exact opposite of what the government is trying to do in the auto industry.

I wonder what our federal government will do. Will they approve the oil merger and allow the oil companies’ corporate efficiency to neutralize their auto industry bail out? Will they block the merger and receive criticism from corporate Canada for preventing the corporate IN-efficiency that got GM, Chrysler and Ford into the jam they are currently in? Will they attach strings to the deal: approve the merger only if the new merged company agrees to cooperate with the government’s goal of maintaining high levels of employment in Canada? (After all, they are attaching conditions to the auto bail out: the bail out loans will be subject to certain production guarantees etc.) What will our government do?

If they do nothing about the auto industry, hundreds of manufacturing jobs will be lost. If they do nothing about the oil merger, hundreds of energy jobs will be lost. Corporate efficiency is a tough game. It seems that efficiency means running lean and mean: maximum corporate output for minimum labour cost. Isn’t that how the Japanese and German car companies operate? If our government bails out the American car companies, they will be promoting corporate IN-efficiency. Maybe we are asking the wrong question. Maybe the government shouldn’t DO anything. Maybe it’s more important for them to NOT DO.

Real estate fever – really?

We hear you can buy a house in Windsor Ontario for $25,000 to $30,000. We hear that 40% of Windsor’s houses that were sold last month sold for under $100,000. It seems that there is a small part of Canada that has the same depressed house prices as our American cousins. Pierre Elliott Trudeau was right: when the America sneezes, Canada catches a cold. March 2009 sees America suffering from real estate pneumonia and Canadian just now getting the sniffles. Will Torontonians or Calgarians be able to buy houses for under $100,000 some day?

The very thought of such a steep drop in house prices sends chills through the bones of Canadian home owners – especially those with big mortgages. “Yes, it happened in the USA, but it could never happen here. And the Windsor situation is the exception, not the rule!”

In his book, Beyond the Bull, Ken Norquay points out that the human animal uses the most primitive bestial parts of his brain when dealing with money matters. We use our herd instinct to do what everyone else does just when we should be thinking independently. We use our “deer-in-the-headlights” fear instinct to “fight, flight or freeze” when we should be calmly executing our pre-determined investment plan. And now we wonder what instincts homeowners will apply to the current decline in house prices.

So far, Canadian realtors are acting like ostriches with their heads in the sand. They are in denial. “What’s happening south of the border cannot happen here.” And who can blame them? Their job is to help Canadians buy and sell their houses. Realtors do best in rising markets. When house prices go up, they do well. Commissions are good, mortgage brokerage fees are good, and the customers are happy. In times like these, it’s easy to find sellers but more difficult to find buyers. It’s no wonder Canadian realtors don’t want to face the reality of this downturn. They prefer the scramble of speculative activity associated with rising prices.

What about Canadian homeowners? What should they be thinking?

If they were getting a cold, they’d take zinc and vitamin C and get plenty of sleep. But what should you do if you think the price of your house might drop under $100,000? Sell it and rent? Scale down: sell your big house, buy a smaller house? Ride out the storm? What should you do if you are at risk of losing your job and not being able to afford your mortgage payments? Tricky, isn’t it? What is the intelligent thing to do?

For guidance in this question, we encourage you to objectively assess your position as a homeowner and mortgagor. Did you buy a too-big house because you wanted more exposure to a red-hot rising real estate market? Did you take a too-big mortgage because you wanted to leverage your exposure to rising house prices? Now that prices are not going up, are these “too big” decisions still valid? If house prices are going down, maybe you should have a “too small” house. Or maybe you should have only a small mortgage. If the times have changed, we should change with them.

For further guidance, look at the stock market. Most of today’s buy and hold investors have noticed that the 10-year rate of return on equity mutual funds is negative. They are wishing they had sold out 10 years ago. Or even one year ago! But they believed the mutual funds salesman’s line: “Stocks go up over the long term.”

Could that be happening in real estate now?

This is not a good time for speculation in Canadian real estate. Check in with your common sense: are you stretched out in a “too big” real estate situation? What will happen to you if Windsor prices spread to other areas of Canada?

Ken Norquay, CMT

Chief Investment Strategist

CastleMoore Inc

905-847-8511

Weekly Report on U.S. Sector Bullish Percent Indices

Bullish Percent indices for all sectors rose last week. All are now above their 15 day moving average. All continue to recover from intermediate oversold levels and have yet to show signs of rolling over. A few are approaching intermediate oversold levels near the 60% level, but continue to have upside potential. A level above the 70% level is a danger sign, particularly if the index rolls over and breaks its 15 day moving average. Stick with the trend for now, but be aware that bullish percent indices for most sectors already have recovered substantially from early March lows.

Bolded items are changes from last week

Charts courtesy of StockCharts.com www.stockcharts.com

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Disclosure: Don 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.

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