Pre-opening Comments for Friday October 30^th

U.S. index futures are slightly lower this morning. S&P 500 futures are down 5 points in pre-opening trade. Weakness can be attributed mainly to strength in the U.S. Dollar. Commodities priced in U.S. Dollars including crude oil, gold, silver and copper moved slightly lower.

Responses by index futures markets to economic news released this morning were minimal. Consensus for September Personal Spending was down 0.4%. Actual was down 0.6%. Consensus for September Personal Income was unchanged. Actual was unchanged.

Canadian economic growth in August was less than expected. Consensus was a gain of 0.1%. Actual was a decline of 0.1%. Recent strength in the Canadian Dollar dampened the economy in August.

Companies continue to report higher than expected third quarter earnings. In the U.S., Dominion Resources, Constellation Energy, Este Lauder, ITT Industries and Coventry Health Care reported higher than consensus earnings. In Canada, Tim Horton and Imperial Oil reported higher than consensus earnings.

Barrick Gold was upgraded from Buy to Action Buy by TD Newcrest.

Agnico Eagle was upgraded by UBS from Neutral to Buy.

Telus was upgraded from Sector Perform to Outperform by RBC Capital. Target price was raised from $36 to $44.

Rogers Communications was upgraded from Sector Perform to Outperform by RBC Capital. Target price was raised from $33 to $40.

Kellogg was upgraded from Hold to Buy by Citigroup. Target was raised from $50 to $53.

Texas Instruments was upgraded from Market Perform to Outperform by Bernstein. Target was raised from $28 to $30.

Ivanhoe Mines was initiated by CIBC as a Sector Outperform.

Technical Action on Wednesday and Yesterday

Technical action by S&P 500 stocks was substantially bearish on Wednesday and mixed yesterday. On Wednesday one S&P 500 stock broke resistance (Verizon) and 64 stocks broke support. The Up/Down ratio fell from 4.54 to (313/113=) 2.77. Yesterday, two S&P 500 stocks broke resistance (Care Fusion and O’Reilly Auto) and two stocks broke support (First Solar and Monster Worldwide). The Up/Down ratio slipped to (312/113=) 2.76.

Technical action by TSX Composite stocks also was substantially bearish on Wednesday and mixed on Thursday. No TSX stocks broke resistance on Wednesday and 22 stocks broke support. The Up/Down ratio plunged from 4.49 to (140/48=) 2.92. Yesterday, two TSX stocks broke resistance (Maple Leaf Foods and Dundee Bancorp) and one stock broke support (Husky Energy). The Up/Down ratio slipped to (140/49=) 2.86.

Weekly Bullish Percent Index Sector Review

All sector Bullish Percent indices fell last week. Seven more indices fell below their 15 day moving average from an intermediate overbought level and achieved the requirement for a Bullish Percent Index sell signal. Only the index for Consumer Staples remains above its 15 day moving average. All indices remain intermediate overbought and most have established a downtrend.

THE CASTLEMOORE INVESTMENT COMMENTARY

Please see yesterday’s National Post for another interview with CastleMoore’s President and PM Robert “Hap Sneddon, seeking his and the Company’s views on the current markets.

It is difficult to deal with daily market movements or any “daily” data for that matter in pursuing trends, and accordingly profits, unless you are a trader or what is really called a speculator. In management of client assets on a portfolio basis, CastleMoore uses primarily weekly data to make large, slower decisions. We do manage a portfolio, The TWO-WAY, using shorter-term data, and we also use shorter-term data for compiling entry and exit points for the bulk of our portfolios which are intermediate term based – for those large, slower decisions. We also look to shorter term data to see how it may buttress or refute longer term investment theses, but we don’t really invest using shorter term data.

Here’s a few “canaries in the coal mines” that we are watching, that are shorter term in nature. But first, here is a technical case that the last 7 months have been only been one act in a larger play that started a few years back.

If one uses Elliott Wave counts to measure the markets we can see a 5 wave down count, followed by the A-B-C corrective pattern. Elliott Wave use, of all the technical tools, lends itself to longer term investment approaches. In fact, using EW on a shorter term can be down right tough. Where do you start your counts? Where do you end them? Was that a 3^rd of a 5^th? Even when you stick with the longer term, your starting points can be debated. For now it seems that we have completed the first leg two legs (1 through 5 =1 leg, and A-B-C=2 leg) of a 5 wave down pattern. We are open to opposing counts.

Now on the shorter term, here’s what’s caught our eyes:

The VIX

Last Friday the VIX popped 7% (smaller oval). Including Friday it’s now up almost 37% (larger oval) in four sessions.

C$

As a proxy for global growth due to its commodity bias (maybe perfectly inverse to the US?) we noted a month ago that it appeared the Loonie (as is the possibility everything else on the planet, with the exception of bonds, is too) was making a rising wedge pattern.

Here’s the same chart today….

COPPER

Copper as a proxy for global economic barometer has been stuck just below $3.00lb/USD since July when over that time the markets have been on a tear. Today it closed down over 3%. True it finally broke through at the end of last week to possible complete a cup and handle which is bullish, but patterns don’t always come through, they fail.

SHANGHAI

The Shanghai which bottomed in November 2008 (as did the NASDAQ and Copper) and did not retest in March 2009 has not participated in the market push since August. It maybe a leading indicator like NASDAQ’s break yesterday of 2050 could be. For the global story to continue the Shanghai needs to accelerate here and now.

DOW THEORY

This chart of the Dow Jones Transports forged an “outside week” last week, making a new high on the week then closing below the lows of the week. The Transports are an indicator that confirms or overall economic conditions and the Dow Industrial’s price movement.

The circled bar represents just Friday’s price action. Two bars to the left (Wednesday) shows the new highs. In addition, the volumes are now surging on down days, not what should be happening in a secular (longer term) bull market.

While it is very difficult to get every decision and turn correct, it is not difficult to use good risk management or stop loss levels. That we all can deal with.

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CastleMoore Investor Centre – If you like to receive bi-monthly newsletter, know more about our model portfolios or access an audio file of our investment philosophy, “Modern Financial Fiascos”, click on the link http://www.castlemoore.com/investorcentre/signup.php.

If you would be interested in participating in a CastleMoore online webinar or if you would be interested in attending live an upcoming CastleMoore investment seminar, send an email to info@castlemoore.com.

CastleMoore Inc. uses a proprietary Risk/Reward Matrix that places clients within one of 12 discretionary portfolios based on risk tolerance, investment objectives, income, net worth and past investing experience. For more information on our discipline and methodology please contact us.

CastleMoore Inc.

Buy, Hold…and Know When to Sell

www.castlemoore.com

Ken Norquay’s Column

Financial Swine Flu          Oct 27, 2009

In 1918 millions of people died because a serious flu spread throughout the population. A similar pandemic happened over 500 years ago in Europe when the Black Death wiped out millions. More mass deaths occurred when the earliest immigrants from Europe spread deadly diseases among the native population. Pandemics are serious.

But it’s the false alarms that help us think clearly.

Remember the avian bird flu? Apparently it had the potential to kill millions.

[http:www.who.int/csr/disease/avian_influenza/en/index.html] But so far this threat has not materialized.

We never know ahead of time whether a flu warning will be really important, or just another warning. This article is taken from a Los Angeles doctor’s article for her patients:

The swine flu and its vaccine are not new.  In 1976, an army recruit based in Fort Dix died following a mysterious illness.  In addition, four of his fellow soldiers were hospitalized. Health officials disclosed to America that the illness was swine flu.  Without knowing much about the details of their medical history and why they were susceptible to severe reactions to this illness, people became anxious that this could lead to a flu pandemic similar to 1918, and a vaccine was quickly prepared to be given to the masses.  In the end, the illness never transpired.  It came to be known as the swine flu fiasco of 1976 after twenty-five people died and five hundred became paralyzed all from the vaccine.  In other words, more people suffered from the effects of the vaccine than the illness itself. [www.DrFeder.com]

Dr Feder recommends that we learn the facts and make a responsible decision about defending ourselves against disease. Good advice.

But it’s not the reaction we are seeing right now, is it? Right now, swine flu 2009 [H1N1] has hit Canada again. Government health organizations are scrambling to do the right thing. There is a huge campaign in the media to persuade us all to wash our hands a lot and get a vaccination. It’s in the news every day. Some say it’s serious, some say it’s not. Some advise getting vaccinated, some advise not. What should we do?

Let’s revisit Dr Feder’s advice: learn the facts – then decide on your course of action.

The problem with the swine flu media blitz is that no-one is trying to teach us – they all want to persuade us. And, as we know, when someone is trying to persuade us to take a certain course of action, the truth is the first thing to go. That’s why there are so many confused people in Canada. They’re getting the old razzle-dazzle. Politicians and civil servants are posturing to promote their own careers by doing “the right thing;” shills and mountebanks are taking advantage of people’s fear to build up their own egos. And relentless reporters are documenting the confusion with great aplomb. All this makes it difficult to learn the facts.

Normally the medical world is not this confusing.

Not so, in the investment world. Ego and persuasion are the norm in the realm of high finance. In my book, Beyond the Bull, Taking Stock Market Wisdom to the Next Level, I point out that all “facts” are suspect because they are always presented by some salesman trying to convince you to buy or sell. Salesmen’s “facts” are presented in such a way as to persuade you to do what the salesman wants. The typical investment professional does not present the pros and cons about a certain investment and ask you to make a decision. He presents the “facts” that will persuade you to do what he recommends.

Confused investors should take their cue from the current swine flu conundrum. Follow Dr Feder’s advice: learn the facts, make a decision.

And what might that decision be?

Last year at this time the stock market was in a full fledged sell off. From top to bottom, most equity mutual funds lost 45%! Most investors wish they had sold out in spring 2008.

And now that the market has rallied and most mutual funds have regained over half the loss, what do you think the mutual funds salesmen are saying? Are they be presenting the reality that mutual funds investors can lose 45% in 9 months? Or do they emphasize how well the market has gone up since the bottom in March?

Ordinary people really do want to make an informed Dr Feder decision when it comes to their health. But when it comes to their wealth, they prefer not to decide. Why? Health and wealth are important parts of our human lives. Why we are so anxious about the second wave of the swine flu and so oblivious toward a possible second wave of the stock market sell off?

Ken Norquay, CMT

Financial philosopher,

Ken@castlemoore.com

Links to Beyond the Bull:

Canada
http://www.amazon.ca/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246016&sr=8-1
US
http://www.amazon.com/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228246055&sr=8-1
UK
http://www.amazon.co.uk/Beyond-Bull-Taking-Market-Wisdom/dp/0980923182/ref=sr_1_1?ie=UTF8&s=books&qid=1228245979&sr=8-1

Tech Talk’s Weekly Comment in the Financial Post

(Available in hard copy or by paid subscription as www.nationalpost.com)

The column focuses on “Seeking an Entry Point for the Seasonal Trade in North American Equity Markets”.

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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