ShareThisPre-opening Comments for Friday September 18th
U.S. equity index futures are slightly higher this morning. S&P 500 futures are up 3 points in pre-opening trade. Traders are preparing for higher than average volume and volatility on Quadruple Witching Day.
International equity markets were mixed overnight. European equity indices were slightly higher prior to the election in Germany this weekend. Asian equity markets were lower with the Shanghai Composite Index down 3.2%
The U.S. Dollar is slightly higher this morning. Commodities priced in U.S. Dollars including crude oil, silver and copper are trading slightly lower. Dennis Gartman noted this morning that too many investors are betting on weakness in the U.S. Dollar and strength in commodities priced in U.S. Dollars, particularly gold. A short term countertrend reversal is overdue.
Apple was upgraded by Macquarie from Neutral to Outperform. New target is $220. Apple added 1% in pre-opening trade.
Toll Brothers and KB Homes were upgraded from Neutral to Overweight by JP Morgan. Target price on KB Homes was raised from $10 to $25. Both stocks are up 3% in pre-opening trade.
Canadian Pacific was downgraded by Stifel Nicolaus from Buy to Hold. The stock is down 1% in pre-opening trade.
Procter & Gamble was upgraded by Citigroup from Hold to Buy. The stock is up 2% in pre-opening trade.
Technical Action Yesterday
Technical action by S&P 500 stocks remains bullish. Another 19 S&P 500 stocks broke resistance yesterday and two stocks (Laboratory, Verizon) broke support. Notable on the list of stocks breaking resistance were U.S. oil refinery stocks (e.g. Sunoco, Valero). The Up/Down ratio rose from 13.22 to (427/31=) 13.77, another all time high.
Technical action by TSX Composite stocks was quietly mixed. One TSX stock broke resistance (Cogeco) and one stock broke support (Forzani). The Up/Down ratio slipped from 6.00 to (119/20=) 5.95.
Interesting Observations
Today is quadruple witching day. Look for higher than average volume and volatility today.
The technical analyst at Brown Brothers Harriman released an interesting report recently showing what happens to the S&P 500 Index following bear market lows. He identified 20 corrections since June 1932 (excluding the correction from September 2008 to March 2009). Average recovery from the bottom was 53.7% versus a 57.9% recovery in the current period to date. Next, he looked at the correction after the recovery and found that the correction was relatively shallow averaging a downside move of 12.2%. Look for history to repeat. A shallow correction between now and the end of October/mid November followed by resumption of a seasonal upturn lasting into spring appears to be unfolding.
Interesting Charts
Oil refinery stocks were notably stronger yesterday. Crack spreads (i.e. the spread between crude oil prices and refined product prices) have started to widen and stocks in the sector are responding. Valero Energy Corp. (NYSE: VLO $20.50) led the sector.
Chart courtesy of StockCharts.com www.stockcharts.com
Agriculture equities and ETFs finally are waking up. The Claymore Global Agriculture ETF (TSE: COW $17.86) recently broke above a bullish triangle pattern. A move above resistance at $17.90 likely will attract technical buying.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Indices for S&P Sectors
All Bullish Percent Indices for sectors (except Telecommunications and Gold) rose last week. All are at or above their 15 day moving average. All except Telecommunications are intermediate overbought with most at or near all time highs. Although overbought, they have yet to show signs of correcting.
A correction from the current overbought level is inevitable during the next few weeks. A CNBC commentator noted yesterday that the S&P 500 Index rarely has reached a 20% premium to its 200 day moving average (as currently stands). The last time that a 20% premium was reached was in late 2003 following the massive recovery after the 2002 recession. Subsequently, the S&P 500 entered into a six month corrective period with a loss of about 10%. After that, the S&P 500 resumed its intermediate uptrend.
Chart courtesy of StockCharts.com www.stockcharts.com
Previous all time highs for most Bullish Percent indices also were recorded at the end of 2003. Their subsequent weakness over the next six months provided an opportunity to buy the market on weakness.
Chart courtesy of StockCharts.com www.stockcharts.com
Following are Bullish Percent Index charts for each sector:
Weekly Financial Post Column
(To appear tomorrow in the National Post. Available in hard copy or electronically as a paid subscription at www.nationalpost.com)
Focus of the column is weakness in the U.S. Dollar and its impact on U.S. equities for Canadian investors.
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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Tags - Previous posts for stock ticker: COW, VLO
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Discussions from the Tech Talk Forum:
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September 18th, 2009 at 4:37 am
88% of SP500 stocks are above their 10 day moving average – overbought? The SP500 is trading along the upper band of a 3% 21 day trading envelope – the last two times it did this at the same time there was a deterioration in the number of stocks trading above their 10 day moving average there was a correction 7% the first one, 3-4% the second. Also look for “panic buying” or a rise to 7-8-9 billion shares suddenly. Interestingly the 50 day moving average hugs the 3% lower band of the 21 day MA – currently 1000 or a 6% correction from here. The 200 MA is about a 12% correction.
September 18th, 2009 at 5:18 am
Most interesting that you do not anticipate a massive sell-off. What are the macro-fundamental factors do you attribute to this eg u.s. dollar, international trade, consumption rates?
September 18th, 2009 at 6:25 am
Hi Chris. Mainly the U.S. Dollar.
September 18th, 2009 at 6:53 am
Good morning Don,
End of September coming up and the XGD staring to roll over, is it time to step aside from the golds? Is a test of the 200 day a good place to be looking to re-enter for the next period of seasonal strength?
Thanks,
Ken
September 18th, 2009 at 7:45 am
Hi Don,
What are the seasonals for agriculture?
September 18th, 2009 at 8:01 am
Hi Don ,
Every One knows Markets are Over Bought ,Media is saying that there will be a Correction it has been happening for a long time now But who is buying at these levels is there chance that correction will not happen yet ????
September 18th, 2009 at 8:27 am
Don,
As we’re approaching the end of September, I’d like to take advantage of infrastructure seasonality. Can you comment on TA for the sector and perhaps on IGF, CIF.to, PXR. Where do you feel is the right entry point and/or support ?
Would’nt mind your insight on SNC, STN, ARE or TIH as well. Thanks again.
Richard
September 18th, 2009 at 9:08 am
Hi Don,
The bullish percent index charts are looking quite scary!
Do you advise selling XGD and AGU and take the small profit or wait until the end of the seasonality period?
September 18th, 2009 at 9:32 am
TSX is still around the RSI 70ish, STO overbought and looks like it is rolling over, MACD overbought and slowing down… chart index at top end of Keltner Channel (overbought and reversal territory).
Looking to double up on HXD today. Easy money…. short term.
September 18th, 2009 at 9:32 am
Hi Ken. Yes, several short term momentum indicators on gold equities and ETFs are giving early warning signs, but are not definitive yet. Two seasonal time horizons for the trade are available. End of the first time horizon is approaching ( near September 25th). The second time horizon is early February. My bias is to stick with the trade until early February fully realizing that a short term corrective phase is likely between now and early February. You choose which time horizon fits your investment style.
September 18th, 2009 at 9:33 am
Hi David. Ag’s period of seasonal strength is from August to December.
September 18th, 2009 at 9:34 am
Hi Rob. Major U.S. and Canadian equity indices remain in a rising wedge pattern. A rising wedge pattern is a bullish pattern until its bottom trend line is broken. That hasn’t happened yet.
September 18th, 2009 at 9:40 am
Hi Richard. Interesting idea on the infrastructure sector. All three ETFs and most of the stocks in this sector are substantially overbought at present. It’s a good sector to put on your radar list. will continue to monitor.
September 18th, 2009 at 10:09 am
Don,
CNBC jounalists and analysts are tripping over themselves today calling for S&P 1100 and 1150. All bullish. Do technicals go out the window in significant recessions? Most techmical analysts have been calling for a correction for months…yet $$ on the sidelines has missed this rally.
Greg DS
September 18th, 2009 at 11:21 am
Hi Don, Could you please tell me the seasonalities for technology or semiconductors.I hold Vitesse Semi.(vtss)and wanted to sell it into the strength.Thanks in advance
September 18th, 2009 at 3:46 pm
Hi Kal. According to Thackray’s 2009 Investor’s guide, the period of seasonal strength in the high tech sector is from October 9th to January 17th. My seasonal studies on the semiconductor sector show a similar pattern.
September 18th, 2009 at 3:53 pm
Hi Greg DS. Depends on where you invested. Since the beginning of 2009, the TSX Composite Index has gained 15.6% and the Dow Jones Industrial Average has improved 11.1%. However, the Dow Jones Industrial Average in Canadian Dollars has declined 3.4%. Canadian investors holding unhedged U.S. equities, mutual funds and ETFs are not happy campers. More information is offered in Tech Talk’s Financial Post article to be released tomorrow.
September 18th, 2009 at 6:02 pm
Heads up. POT results tonight dont seem very good. Any comments on how would that effect the Agriculture sector on Monday?
September 18th, 2009 at 9:59 pm
Hi Don,
IMF announced today that it will sell 403 tonnes of gold !! How far will this effect the price of gold bullion and gold equities? Is it a good idea to purchase HGD.TO which shorts gold equities?
Thank you.
September 20th, 2009 at 8:55 am
Hi Mills. The sale of the 403 tonnes of gold by the IMF was announced several months ago. The questions are when will it sell and to whom? A major reason why gold has not moved to an all time high has been the overhang of this block. It’s widely anticipated that the Chinese will buy most if not all of the gold. At worst, this sale will create short term uncertainties in gold and gold stock. At best, the eventual elimination of this block is exceptionally bullish and will set the stage for gold to reach an intermediate technical target of 1,300 U.S. (ie. completion of a massive reverse head and shoulders pattern. Answer to the gold equity question is slightly different. According to Thrackray’s 2009 Investors’s Guide, the period of seasonal strength for gold equities is September 25th. Meanwhile short term technical indicators for gold equity indices (Philadelphia Gold and Silver Index, AMEX Gold Bug Index, TSX Gold Index)showed technical signs on Friday of rolling over from overbought levels. Investors who chose to play the seasonal trade in gold equities and gold equity ETFs with an expected expiry this week can start to take money off the table. A second period of seasonal strength in gold equities and ETFs ends in the first week in February. Investors using the second period of seasonal strength can continue to hold with the understanding that a period of turbulence in the sector is likely prior to the sale of the 403 tonnes. More information (including charts) will be offered in Monday’s Tech Talk.
September 20th, 2009 at 9:17 am
Hi Roy. Negative guidance by POT (Price: $101.87 Cdn.) released after the close on Friday is expected to trigger weakness in the stock at the opening on Monday. The stock has traded in a three month range with support at $93.25 and $95.00 and resistance at $109.53. Short term momentum indicators have turned positive recently implying that support levels likely will hold.
September 20th, 2009 at 10:40 am
Hi Don , with Barrick buying out/eliminating their fixed gold hedges , I would think that they feel gold will rise further and that the reported 400 ton sale by the IMF will have little impact short and longer term on rising gold prices……..any thoughts out there for us hanging on to our gold stocks ??
G
September 20th, 2009 at 6:07 pm
Hi George. An update following the IMF news. Gold at 9:00 PM Sunday evening is down $5.00 U.S. per ounce. However, much of the decline can be attributed to overnight strength in the U.S. Dollar. A full update on gold and gold stocks is offered in Monday’s Tech Talk. Prior to the IMF news, short term momentum indicators showed early signs of rolling over from a substantially overbought level.