Pre-opening Comments for Wednesday November 4th
U.S. equity index futures are higher this morning. S&P 500 futures are up 8 points. Higher futures were supported by a weaker U.S. Dollar. Commodities priced in U.S. Dollar including gold, silver and crude oil are trading higher.
Futures were unchanged after the October ADP report on private employment was released. Consensus was job loss of 190,000 versus 227,000 in September. Actual was 203,000.
Traders are waiting for news from the FOMC meeting to be released at 2:15 PM EST. Consensus is that the Federal Reserve will maintain its Fed Fund rate at 0%-0.25%. The focus is on the Fed’s statement that may show a change in policy toward less economic stimulus.
Third quarter earnings report continue to exceed expectations. Companies reporting better than consensus third quarter reports this morning include Kraft, Time Warner, Comcast, Watson Pharmaceutical, TransOcean, Marsh & McLennan, Foster Wheeler, R.R. Donnelley, Agrium and Enbridge.
Magna International is down 1% in pre-opening trade after General Motors decided not to sell its Opel division to Magna.
Technical Action Yesterday
Technical action by S&P 500 stocks was quietly bearish yesterday. Two S&P 500 stocks broke resistance (Burlington Northern and Black & Decker) and five stocks broke support (Conagra, Campbell Soup, Corning, Merck and Charles Schwab). The Up/Down ratio eased from 2.20 to (284/136=) 2.09.
Technical action by TSX Composite stocks was mixed yesterday. One TSX stock broke resistance (IAMGold) and two stocks broke support (Open Text and Paramount Energy Trust). The Up/Down ratio was unchanged at (127/54=) 2.35.
Relative Strength in Sector SPDRs since the first week in August
No changes in relative strength from last week! Outperforming sectors are Technology, Consumer Staples, Energy and Consumer Discretionary. Industrials were Market Perform. Underperforming sectors were Utilities, Financials, Materials and Health Care.
Technical deterioration was significant during the past week. Seven of the nine SPDRs broke below their 50 day moving average. Four SPDRS broke short term support levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Ken Norquay’s Column
Big Bank Bailouts: the second wave. November 3, 2009.
Here we go again: Lloyd’s Bank and Royal Bank of Scotland raised even more capital today. Lloyd’s got most of theirs from investors; RBS got theirs from the British government. Deja vu, anyone? Last year at this time the world’s banks were all in trouble and needed bail outs; the stock market was collapsing; the economy was in trouble.
Although there are many causes to these problems, the most important of all is the collapse of the value of the US dollar. Most banks hold their reserves in US dollar-denominated securities. When the US dollar goes down, the worlds’ banks’ reserves shrink. Eventually the banks need to add more reserves: and that day came today for Lloyd’s and RBS.
Observation: today, the US dollar is up against a basket of non-US currencies. Usually when the US dollar is up, gold is down. But not today: today the US dollar is up AND gold is up. What could be causing this unusual occurrence?
The main action in the world’s banking system involves banks quietly selling some of their US dollar assets and quietly buying securities denominated in other currencies. Some banks will buy gold too. For the past seven or eight months this quiet selling and buying has pushed the US dollar lower and gold higher. The stealthy buy-sell action of these banks in the open markets causes the price of the US dollar and gold to go in opposite directions. But something is dramatically different today. Both are up today.
Why? Why has the usual pattern been broken on the day the two big British banks made their big announcements? Of course we never know for sure what might be happening behind the banks’ closed doors; but here’s my guess:
Perhaps the British government [and possibly other governments] are supporting the US dollar so other banks that are “close to the line” might experience less downward pressure on their reserves. A stronger US dollar helps stabilize those banks’ reserves. And perhaps the smaller investors, the so-called gold bugs, are bidding up the price of gold, speculating that another crisis is upon us.
We can also offer a more concrete opinion about the price trend of the US dollar and gold. We noticed that the overwhelming majority of investors are very bullish on gold and very bearish on the US dollar. The bearishness of US dollar is occurring after 7 months of decline. The bullishness on gold is occurring after 7 months of increase. Bearishness occurs at bottoms; bullishness at tops. We think there is a good chance that the US dollar will go up and gold will go down. In my book, Beyond the Bull, I talk about the contrary nature of market psychology. Banks and governments will continue to do what they do: but it’s human nature that decides the direction of prices. Right now too many investment gurus love gold and hate the US dollar. Those seven month trends are in for a surprise change: gold down, US dollar up.
Ken Norquay, CMT
Financial Philosopher.
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
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.
November 4th, 2009 at 5:52 am
Interesting comments on Gold. For those of you interested, Kitco has an index which reflects the change in gold adjusted to the USD.
http://www.kitco.com/kitco-gold-index.html
November 4th, 2009 at 7:04 am
Hi Don, would this drop in SMH be a dip on which you recommend we start/add to our positions? Thanks again Jon
November 4th, 2009 at 7:08 am
Hello Don,
When an equity or ETF breaks below a moving average (example XLK with the 50dma above) does that signify high downside risk ? It there a thumb rule or average percentage downside that is expected ?
Regards,
Richard
November 4th, 2009 at 8:59 am
Hi Don,
With regards to the seasonal play for the TSX, are the charts ‘letting us know’ right now that the time to get in is at hand? I put 30% of my holdings in on Monday and with the strength since I am contemplating putting the remaining in today.
Thanks,
Ron
November 4th, 2009 at 9:00 am
Hi Don,
In browsing your education section to review seasonalities this morning, I noticed the comment “Gold stocks and ETFs tend to be contra-cyclical. They move higher during periods of stock market weakness (particularly in summer months).” Sort of leaves me confused, since we’ve been reading about the rally in the past period or seasonality and also the next expected rally. A few weeks ago, I asked the question about the divergence gold equities and the commodity itself. I have been waiting for a good entry point into ELD, G, ABX or IMG since I missed out on the July to October run. However, if the quoted comment is true, the lack of an equal rally in gold stocks compared to the commodity and Ken N’s comments are true (contrary to gold running up to 1300), I’m having second thoughts about gold equities being a good bet for the Nov to Feb seasonality. Are we better off holding the commodity in some form and if so do you suggest an ETF ?
Bewilderingly,
Richard
November 4th, 2009 at 9:10 am
I dont know Ken, the $value of gold is only going up because the dollar is going down not because of greater demand or falling supply. The XGD.TO ETF hs been trading in a range for 7 months .. it also peaked in 06 about the same price. To me its seems theres been no real bull market – but maybe Im wrong.
November 4th, 2009 at 9:11 am
Hi Don
I notice that the US dollar chart has formed a Falling Wedge pattern.
Does this typically suggest a trend reversal if it breaches upper resistance?
If US$ rises, what are implications for Canadian stocks?
Thanks in advance
November 4th, 2009 at 9:13 am
Don, what signals are we waiting for for the entry point into the equity markets?
November 4th, 2009 at 9:58 am
Stag : I just spoke with my broker. From what I hear XGD.to is a basket of Canadian gold equities and not does not track the commodity itself (http://ca.ishares.com/product_info/fund_overview.do?ticker=XGD). I may be wrong but the only real pure gold play ETFs are GLD and XAU (with silver). GLD is 1/10th the price of the commodity. The fact that XGD is equities and GLD is based on the real deal might explain the difference in movements.
Don : I’d love your comments on the above and my previous question about Gold. Sounds like GLD is the way to go for pure play or does XAU have more upside considering your comments on the combined bigger upside in Silver? When is China expected to buy the 203 tonnes ?
Little time, lots to think about.
Richard
November 4th, 2009 at 10:03 am
Don,
Not sure if Agrium will be in tonight’s By the Numbers. If they missed earnings expectations today, why is the stock still up from yesterday’s close? Are MacD and Stoch turning around and is it about to break above the 200DMA (meaning thats its safe to buy again) ?
Richard
November 4th, 2009 at 10:59 am
DON,
The VIX is crossing the 200-day….what do we take from this??
GDS
November 4th, 2009 at 4:23 pm
Don, can you chart Transcanada pipline.They reported today.
Thanks
November 5th, 2009 at 12:16 pm
Thanks, Shawn. Yes, http://www.Kitco.com is an excellent source for information on precious as well as base metals.
November 5th, 2009 at 12:24 pm
Hi Richard. I like to use 50 day moving averages in as slightly different way than other technical analysts. Moving above or below the 50 day moving average by individual equities, ETFs and indices is not significant technical event unless the chart shows consistent support or resistance on multiple occassions. Your choice of XLK is a good example. Each time XLK has weakened to at or slightly lower than is 50 day moving average, a buying opportunity has appeared. Relevance becomes important when trading seasonal plays. Another good example of an index that tracks its 50 day moving average (but on the downside instead of the upside) is the U.S. Dollar. Earlier this week, it briefly moved higher than its 50 day moving average. Selling pressure quickly appeared.
November 5th, 2009 at 12:26 pm
Hi Fred and Ron. Yes, technicals for the TSX Composite Index and S&P 500 Index provided technical signals yesterday(Wednesday) that signaled the entry point for the current period of seasonal strength lasting until early next May.
November 5th, 2009 at 12:39 pm
Hi Richard. Just some background on XGD. It consists of a basket of global gold stocks. Content and weights are available http://ca.ishares.com/product_info/fund_overview.do?ticker=XGD
Gold equity indices on both sides of the border have been underperforming gold bullion during the past two months and have yet to show signs of changing trend. The seasonal trade in gold is slightly different than gold stocks. A good example is the tendency for gold bullion to peak late in January and for gold equities, ETFs and indices to peak a week later. News from the annual Prospector’s Convention in Toronto in the first week in February prompts equity investors to hold slightly longer in anticipation of positive corporate news. In the short term the preferred strategy with gold stocks is to watch them closely for technical signs of a change in trend relative to gold. That could be an interesting technical signal for entry into the next period of seasonal strength.
November 5th, 2009 at 12:44 pm
Hi SKK. TRP has a mixed intermediate technical profile. Intermediate trend is flat with support at $30.19 and resistance at $34.40. Strength relative to the TSX Composite Index is negative. Short term momentum indicators currently are neutral. If looking for an entry point, try the stock’s 200 day moving average currently at $31.69
November 7th, 2009 at 7:30 am
Hi Don,
Do you think XGD will go above the range it has been in for the last year? What ETF do I buy for gold bullion? Thanks,
Gary J.