ShareThisPre-opening comments for Monday April 20th
U.S. equity index futures are lower this morning. S&P 500 futures are down 17 points in pre-opening trade. Equity markets are responding to strength in the U.S. Dollar. Commodities priced in U.S. Dollars are lower. Crude oil is down $3.40 U.S. per barrel. Copper slipped $0.06 U.S. per lb. Commodity stocks are weak in overnight markets and are leading equity markets to the downside.
U.S. bank stocks also added to weakness. Goldman Sachs released a report raising concerns about Citigroup’s growing credit losses.
First quarter earnings reports released this morning continue to exceed consensus estimates. Eli Lilly reported $1.20 versus $0.92 per share last year. Consensus was $0.99 per share. Bank of America reported $0.44 versus $0.23 per share last year. Consensus was $0.05. Halliburton reported $0.42 versus $0.64 per share last year. Consensus was $0.41 per share.
Take over news is a focus this morning. Oracle offered to purchase Sun Microsystems at $9.50 per share in a deal worth $7.4 billion. Pepsico offered to purchase remaining outstanding shares of Pepsi Bottling at $29.50 per share in a deal worth $6 billion. GlazoSmithKline offered to purchase Stiefel Labs for $2.9 billion.
Outlook this week
The economic focus this week is on housing.
First quarter earnings flood in this week.
Trends
The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) jumped from 0.78 to (229/182=) 1.26 last week. Seventy nine S&P 500 stocks broke resistance last week (including 20 stocks on Friday) and two stocks broke support. With the Up/Down ratio moving above 1.00, S&P 500 stocks have reached the Mark Up phase. Next phase after the Mark Up phase is the Peaking phase. No significant technical evidence of the Peaking phase has appeared to date. Equities can be selectively purchased in the Mark Up phase, but the easy money already has been realized. Intermediate upside potential is less attractive and the time to realize additional gains has been diminished.
Bullish Percent Index for S&P 500 stocks rose last week from 60.00% to 66.00% and remains above its 15 day moving average. Trend remains upward and signs of an intermediate peak have yet to surface. However, the Index already has reached the intermediate overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
The Up/Down ratio for TSX Composite stocks advanced from 1.28 to (88/45=) 1.96 last week. Thirty five TSX stocks broke resistance (including 11 stocks on Friday: notably energy stocks) and eight stocks broke support (including 3 stocks on Friday: notably gold stocks). The ratio remains in the Mark Up phase. Significant signs of the Peaking phase have yet to surface.
Bullish Percent Index for TSX Composite stocks rose from 48.37% to 56.28%.and the Index remains above its 15 day moving average. Intermediate trend remains up and has yet to show signs of rolling over. However, the Index already has reached a slightly intermediate overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P 500 Index added 13.04 points (1.52%) last week. Intermediate trend remains down. Support is at 666.79. Resistance is at 943.85. The Index has gained 30.4% from its March 6th low. The Index remains well above its 50 day moving average. MACD and RSI are approaching short term overbought levels, but have yet to show signs of rolling over. Stochastics are overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 50 day moving average rose from 85.60% to 89.60%. Percent is clearly intermediate overbought. Indeed, it is approaching a record high level since the first recorded of data at the end of 2001. However, signs of a roll over have yet to appear. This is an early warning signal.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P 500 Index experienced a significant correction on 10 of the past 12 occassions after Percent moved above 80% and rolled over. The two exceptions occurred in January 2006 and August 2007 when the S&P 500 Index managed to record small additional gains over the next four months.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Industrial Average improved 47.95 points (0.59%) last week. The Average is up 25.7% from its March 6th low. Intermediate trend remains down. Support is at 6,469.95. Resistance is at 9,088.06. The Average remains well above its 50 day moving average. MACD and RSI are approaching short term overbought levels. Stochastics are overbought. Strength relative to the S&P 500 Index remains negative.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for Dow Industrial Average stocks increased from 53.33% to 63.33% last week and remains above its 15 day moving average. The Index continues to trend higher and has yet to show signs of rolling over. However, the Index also has reached an intermediate overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for NASDAQ Composite stocks improved from 45.77% to 51.36% last week and remains above its 15 day moving average. The Index continues to trend higher and has yet show signs of rolling over. However, the Index already is slightly overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The NASDAQ Composite Index gained 20.53 points (1.24%) last week. The Index has gained 32.2% from its March 9th low. Support is at 1,265.52. Resistance at 1,665.63 was broken on Thursday. Intermediate trend changed from down to neutral. MACD and RSI are approaching a short term overbought level, but continue to trend higher. Stochastics are short term overbought. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The Russell 2000 Index added 11.17 points (2.39%) last week. The Index has gained 39.9% since its March 9th low. Intermediate trend remains down. Support is at 342.59. Resistance is at 519.00. The Index remains well above its 50 day moving average. MACD and RSI are approaching short term overbought levels. Stochastics are short term overbought. Strength relative to the S&P 500 Index remains neutral.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Transportation Average added 105.88 points (3.54%) last week. The Average has advanced 45.0% since its low on March 9th. Intermediate trend remains down. Support is at 2,134.21. Resistance is at 3,737.01. The Average remains well above its 50 day moving average. MACD and RSI are approaching a short term overbought level. Stochastics are short term overbought. Strength relative to the S&P 500 Index has turned positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Composite Index improved 250.53 points (2.73%) last week. The Index has gained 26.1% from its March 6th low. Support is at 7,479.96. Resistance at 9,505.65 currently is being tested. MACD and RSI are approaching a short term overbought level. Stochastics are short term overbought. 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 rose from 64.65% to 75.81% last week. Percent is intermediate overbought, but continues to trend higher.
Chart courtesy of StockCharts.com www.stockcharts.com
An early warning sign by Percent of TSX stocks trading above their 50 day moving average has been flashed. Historically, when Percent reaches the 75% level and rolls over, the TSX Composite Index has come under significant technical pressure.
Chart courtesy of StockCharts.com www.stockcharts.com
The Australia All Ordinaries Composite Index added 110.60 points (3.06%) last week. The Index has gained 22.1% since its March 9th low. Intermediate trend changed on Friday from down to neutral when the Index broke above resistance at 3,762.50. Support is at 3,052.50. MACD, RSI and Stochastics are short term overbought and may be showing early signs of rolling over. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The Nikkei Average eased 8.47 points (0.09%) last week. Intermediate trend remains down. The Average has gained 26.9% from its March 9th low. Support is at 7,021.28. Resistance is at 9,521.24. The Average remains well above its 50 day moving average. MACD, RSI and Stochastics are short term overbought and have rolled over. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The Shanghai Composite Index improved 124.06 points (5.21%) last week. The Index has gained 50.4% since its October 28th low. Intermediate trend is up. The “Golden Cross” remains intact. Support is at 2,037.02. MACD, RSI and Stochastics are short term overbought. Strength relative to the S&P 500 Index remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The London FT Index added 109.09 points (2.73%), the Frankfurt DAX Index improved 185.72 points (4.14%) and the Paris CAC Index rose 117.78 points (3.96%) last week.
Charts courtesy of StockCharts.com
The U.S. Dollar continues to send mixed signals. It was virtually unchanged last week. The U.S. Dollar peaked on March 4th at 89.62, just before world equity markets bottomed. It remains in a four month trading range between 82.63 and 89.62. Short term resistance may have formed at its 50 day moving average at 86.17. MACD and RSI are short term neutral. Stochastics are slightly short term overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Euro was weakest of the major currencies last week. It fell 1.25 last week to near its 50 day moving average at 130.32. Short term momentum indictors either are approaching or at oversold levels. Support is at 125.01. Resistance is at 137.35.
Chart courtesy of StockCharts.com www.stockcharts.com
Major currencies other than the Euro rose significantly relative to the U.S. Dollar last week. The Yen added 1.23. Intermediate trend remains down.
Chart courtesy of StockCharts.com www.stockcharts.com
The Canadian Dollar also strengthened significantly relative to the U.S. Dollar. It broke above short term resistance at 81.92 and gained 0.82 for the week.
Chart courtesy of StockCharts.com www.stockcharts.com
The CRB Index eased slightly last week. It remains in a four month trading range between 200.16 and 229.62. Recent upward momentum has slowed.
Chart courtesy of StockCharts.com www.stockcharts.com
Crude oil has stalled. Last week it eased $2.22 U.S. per barrel. Intermediate trend remains up. Favourable seasonal influences are rapidly coming to a close. Short term momentum indicators (MACD, Stochastics) have rolled over from overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Gasoline has a similar technical profile. It was virtually unchanged last week. Resistance has formed at 1.552. Its period of seasonal strength is rapidly coming to a close. MACD and Stochastics have rolled over from a short term overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
Ditto for Heating Oil! It also was virtually unchanged last week. Resistance has formed at 1.515. MACD and Stochastics have rolled over from a short term overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
Natural gas showed signs of life on Friday. Several technical analysts offered positive comments on natural gas and “gassy” stocks last week (including Bill Carrigan. See his comments at the end of this report). Intermediate trend remains down.
Chart courtesy of StockCharts.com www.stockcharts.com
One of the reasons why technical analyst have “taken a shine” recently to natural gas is the ratio between natural gas and crude oil prices. Natural gas prices rallied strongly on six of the past seven occasions when the ratio recovered from near the 0.07 level. The seventh occasion occurred last summer when a recovery in the ratio from the 0.07 level was more than offset by an accelerated drop in the price of crude oil. The ratio once again has fallen to near the 0.7 level and has started to recover.
Chart courtesy of StockCharts.com www.stockcharts.com
Energy stocks on both sides of the border virtually ignored the mixed picture on energy prices. The TSX Energy Index gained 1.34% last week and is testing resistance at 246.65. Several energy stocks broke resistance on Friday including CNQ and TriStar.
Chart courtesy of StockCharts.com www.stockcharts.com
Notably stronger in the energy sector on both sides of the border were oil service stocks. Oil Service HOLDRS gained 7.6% last week. On Friday, it broke above resistance at 87.71 to complete a reversal pattern.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold continues to struggle. It lost another $9.70 U.S. last week. Short term momentum indicators (MACD, RSI and Stochastics) are oversold, but have yet to show signs of recovery. Support is possible at its 200 day moving average at $860.37.
Chart courtesy of StockCharts.com www.stockchart.com
Silver has a similar technical profile. It lost another $0.46 per ounce last week and broke below support at $11.93. Short term momentum indicators are oversold, but have yet to show signs of recovery.
Chart courtesy of StockCharts.com www.stockcharts.com
Platinum remains the precious metal of choice. It gained another $16.30 U.S. per ounce last week on anticipation of a platinum ETF. ’Tis the season for platinum to move higher into May!
Chart courtesy of StockCharts.com www.stockcharts.com
Ditto for Palladium. An ETF on Palladium also is planned. Palladium completed a reversal pattern last week on a breakout above resistance at $238.60 U.S. per ounce.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold equities are struggling. On Friday, several more TSX gold stocks broke support: Goldcorp, Eldorado and Silvercorp.
Chart courtesy of StockCharts.com www.stockcharts.com
StockCharts.com recently began to show the Bullish Percent Index for the Gold Miners Index. Bullish Percent Index peaked three weeks ago and broke below its 15 day moving average. It continued to trend lower last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Copper continues to move higher. It rose another 12.7 cents U.S. per lb. last week. However, it is struggling to move above its 200 day moving average.
Chart courtesy of StockCharts.com www.stockcharts.com
Lumber remains in an intermediate uptrend. However, it also found resistance at its 200 day moving average.
Chart courtesy of StockCharts.com www.stockcharts.com
Other Factors
The VIX Index continues to trend lower after breaking support at 36.88%. Stock market fears continue to decline.
Chart courtesy of StockCharts.com www.stockcharts.com
On the other hand, trader willingness to take on additional risk in equity markets is showing early technical signs of diminishing. Dennis Gartman’s favourite indicator, the Euro/Yen ratio has rolled over at its 200 day moving average, implying that upside potential for equity markets in the medium term is limited.
Chart courtesy of StockCharts.com www.stockcharts.com
Mild signs of a continuing thaw in U.S. credit markets appeared last week. The yields on one month, three month and six month Treasuries were virtually unchanged while the yields on two year, five year, ten year and thirty year Treasuries rose. Most of the increase in yield occurred on Friday. Conversely, bond prices came under significant pressure on Friday, but remain above key support.
Chart courtesy of StockCharts.com www.stockcharts.com
Financial service stocks on both sides of the border led the advance by equity markets last week thanks mainly to better than expected first quarter earnings by major U.S. banks in the sector. A significant reversal pattern has been completed.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
The China story may be stalling. Traders were sellers of Chinese equities and commodities on news that China’s GDP in the first quarter was in line with expectations.
Economic news to be released this week will be less friendly for equity markets. Housing data will show additional declines in home prices. Durable goods will continue to struggle on a month over month basis. Leading economic indicators also continue to struggle.
The focus this week is on first quarter earnings reports. A total of 130 S&P 500 companies are scheduled to announce results. Key high tech companies such as IBM and Apple report early in the week. Generally, first quarter earnings will be depressed, but better than consensus. Analysts have underestimated results. In addition, CEOs are trying to give hope to shareholders by suggesting that the worst is over. Stock prices generally have been moving higher prior to release of results, but come under profit taking pressures shortly after their release.
Seasonal influences remain positive for most sectors. However, their period of seasonal strength in most cases concludes between the end of April and the first week in June. Thereafter, seasonal influences are random. However, considering current overbought levels for most markets and sectors, chances are above average that equity markets and sectors benefiting from current favourable seasonal influences will see prices move sideways at best and significantly downward at worst when seasonal influences no longer are favourable.
Technicals remain positive with qualification. Indicators such as the Up/Down ratio, Bullish Percent Index and momentum indicators for the most part are trending higher. However, all are short and intermediate term overbought. Stick with their trends for now, but be aware that their trends are likely to change soon.
Currencies remain a focus. The U.S. Dollar is locked into a relatively tight trading range. Odds favour a break in the trading range on the downside, but technical signs of a break in the short term remain elusive.
Cash positions on the sidelines remain huge and nervous. Fund and hedge managers are becoming increasingly concerned that they “missed the boat” after lows were reached on March 6th.
The Bottom Line
The question remains, “When to take profits?”. Technicals and fundamental news flow remains positive. However, early technical signs of an intermediate peak appeared last week in several equity indices and sectors. The evidence is not sufficient to pull the trigger yet. Accordingly, vigilance is recommended. Watch the charts closely and take profits when technical signs of weakness appear. That hasn’t happened yet.
Tech Talk’s Weekly Comment in the Financial Post
(Published in the National Post on Saturday April 18th and available by paid subscription at www.nationalpost.com )
Updates to recent columns
Investing in equity markets during the past three months has been a challenge. The TSX Composite Index has gained 1.2% and the S&P 500 Index has fallen 7.1%. However, investors using a combination of seasonal, technical and fundamental analysis generally have avoided the challenge and in most cases have unrealized profits. The question is “When to take profits?”.
Since January 3rd when recommendations from previous columns were last reviewed, another 14 columns have been offered. Eleven of the 14 columns included specific recommendations. Ten of the eleven columns were buy recommendations and one was a profit taking recommendation. The remaining three columns provided general information including an update on the Exchange Traded Funds industry, the use of the Dow Jones Industrial Average as a benchmark index and seasonality myths. Following is a review of the performance of recommendations offered in the “What to do” section of the remaining 11 columns:
Sixteen of the 17 specific recommendations currently are profitable.
What to do
All of the above Exchange Traded Fund (ETF) with the exception of the gold equity Exchange Traded Fund have two characteristics in common. They have an attractive intermediate technical profile and they currently are in a period of seasonal strength that ends between the beginning of May and the end of June. Seasonal influences for each ETF become neutral after the end of their period of seasonal strength. Preferred strategy is to hold current positions until either the period of seasonal strength ends or until intermediate technical parameters no longer are attractive. Technical indicators such as trend, support, momentum and bullish percent indices will be useful when pinpointing a seasonal profit taking opportunity. Additional columns with the appropriate guidance will follow.
Bill Carrigan’s Blog
Bill offers a favourable comment on natural gas. Following is a link to his blog:
http://www.gettingtechnicalinfo.blogspot.com/
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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.
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April 20th, 2009 at 3:08 am
Hi Don,
Great report today! Thank you.
- Gary
April 20th, 2009 at 6:43 am
Hi Don,
Do you follow John Mauldin?
http://chrispycrunch.blogspot.com/2009/04/trend-is-your-friend.html
He is still quite bearish on the markets overall and cautions us not to forget the fundamentals don’t support a healthy market.
April 20th, 2009 at 7:48 am
Hi Don,
Wow-thanks a great track record you’ve got there! No wonder you’re my first site to read every morning.
Congrats and please keep on.
April 20th, 2009 at 8:19 am
Hi Don,
Congratulations on your excellent recommendations record.
While I read your column daily somehow I seem to miss most of your recommendations. Would it be possible within your daily column to include another bold heading “Recommendations” to cover these exclusively ? Thank you.
April 20th, 2009 at 9:38 am
Hi Chris. Haven’t been following John Mauldin’s comments on a regular basis. John is well knows as gold bug. He also is very knowledgable. Interesting source for information!
April 20th, 2009 at 12:06 pm
As previously posted, IMO markets are overbought and so far, this is just another “bear” market rally… and today it looks like a reversal is underway… for how long? who knows….
I do expect some sort of major test of the last March low anyway, fairly soon, but after a successful test I am fairly bullish into a summer rally.
Without some sort of test of the last low to provide support, we can’t really go forward.
April 20th, 2009 at 1:44 pm
Don
I just wanted to say how much I appreciate the information you make available to everyone.
It’s so helpful and your work is excellent.
Thank you so much
April 20th, 2009 at 5:02 pm
Hi Don,
It looks like it is almost time, if not already, to take profits (which would be very high if everyone followed your recent recommendations!). According to Americanbulls.com, which follows candlestick patterns, today marked a Bearish Kicking pattern and Bearish Evening Star. Americanbulls says that these are very reliable. This combined with the overbought conditions (Bullish Percent) leads me to believe it is time to start scaling out of positions. What are your thoughts after such a rough day today?
Thanks,
Jon
April 20th, 2009 at 5:03 pm
I just read over my above post and forgot to mention I was looking at SPY.