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Pre-opening Comments for Thursday November 5th
U.S. equity index futures are slightly higher this morning. S&P 500 futures are up 4 points in pre-opening trade.
Response by futures to the preliminary third quarter Productivity report was slightly positive. Consensus was an increase of 6.5% versus 6.6% in the second quarter. Actual was an increase of 9.5%, a record since data was recorded.
Research in Motion added 2% after announcing plans to re-purchase stock valued at $1.2 billion.
Cisco gained 3% after reporting higher than consensus fiscal first quarter earnings and after offering positive second quarter guidance.
Eldorado Gold is slightly higher after RBC Capital upgraded the stock from Sector Perform to Outperform. Target price was raised from $12 to $16.
Molson Coors is expected to open lower after Goldman Sachs downgraded the stock from Buy to Neutral. The company reported lower than expected third quarter earning yesterday and broke badly on the charts on higher than average volume.
![clip_image001[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2009/11/clip_image00111.gif "clip_image001[1]")
Chart courtesy of StockCharts.com www.stockcharts.com
Toyota is slightly higher after reporting a surprising profit in its fiscal second quarter.
Technical Action Yesterday
Technical action by U.S. equities was quietly bearish yesterday. Two S&P 500 stocks broke resistance yesterday (DaVita and Mylan Labs) and three stocks broke support (Bank of New York, CH Robinson and Comcast). The Up/Down ratio slipped from 2.09 to (201/139=) 2.02.
Technical action by Canadian equities was bullish. Six TSX stocks broke resistance (Barrick Gold, Eldorado Gold, Home Capital, Saputo, Sears Canada and West Fraser) and one stock broke support (Chartwell). The Up/Down ratio improved from 2.35 to (127/53=) 2.40.
Interesting Charts
Recent weakness has provided an opportunity to refine the seasonal entry point into Canadian and U.S. equity markets. Average optimal date to enter North American equity markets over the years is the level at the opening on October 28th. The optimal entry point can be fine tuned each year using technical analysis. This year, the optimal entry point was delayed until yesterday when many of the technical indicators finally flashed the “okay to accumulate/buy” signal. Signals included a recovery by Stochastics above the 20% level, a recovery in RSI from an oversold level, signs of a bottom by MACD and at least one day of trading where price exceeds the previous day.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Strongest response to the FOMC’s meeting minutes released yesterday afternoon was recorded in the U.S. bond market. Longer term Treasury bonds fell sharply (i.e. the interest rate on long term bonds rose). Negative anticipation to responses to a series of longer term Treasury bond issues coming to market next week also contributed to weakness.
Chart courtesy of StockCharts.com www.stockcharts.com
During the past six months the U.S. Dollar has recorded brief upward spurts to its 50 day moving average where resistance is found and its intermediate downtrend is resumed.
Chart courtesy of StockCharts.com www.stockcharts.com
THE CASTLEMOORE “FOCUS” PORTFOLIO
What does CastleMoore think its typical Canadian investors should be invested in NOW?
We have sold out of our positions in Gold Bullion, and, as the above chart might indicate, we did so just to force bullion prices higher and give the market a false sense of security. We did so on the 26th of October, which, as you can see, was just before the MACD troughed before heading back north. We will be examining re-entry points.
We also sold out of our position of XGD, the Canadian gold-producer ETF.
The Fed left unchanged it key overnight lending rate, leaving some surprised as some expected a slight raising of the rate pursuant to a better-than-expected GDP report of 3.5% versus a consensus estimate of 3.2%. Virtually all the reported growth in the U.S. economy is rooted in the economic stimulus package; Of note, the Cash-for-clunkers program helped goose car sales. However, recent strength in the U.S. dollar, which helps keep inflation in check, was a likely contributor in the decision not to raise rates.
We are expecting short-term strength in the U.S. dollar against most currencies except the yen:
On Wednesday, the yen ETF opened lower, sold off following the Fed announcement to keep rates steady, then regained lost ground and them some to trade higher than the open. It is interesting to note that our monthly international momentum models showed the Japanese market right at the bottom, followed Germany and the U.S. At the top; Israel (technology), Latin America (emerging market), and Australia (commodities). We figure to be more active in the international arena once we are more optimistic about our local markets.
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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. We are also accepting interest for seminar attendance.
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
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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November 5th, 2009 at 5:12 am
Great to see you back in the markets.
November 5th, 2009 at 6:05 am
So what sectors should one be prepared to buy now?
November 5th, 2009 at 7:06 am
Good Morning Don,
Is there an ETF that represents the S&P500 and another for the TSX ? If so, does it serve a trader or investor well to buy into these on the pullbacks ? What percentage of ones portfolio would you suggest allocating to it if I am a medium risk investor.
Richard
November 5th, 2009 at 7:16 am
I have a question about gold. As per time you are out of gold and gold is moving upward, India is converting from US$ to Gold, so is it time to short gold?
I really enjoy your comments, and make better decision on my trade.
Thank you
November 5th, 2009 at 7:46 am
Hi Don,
As per your comments above the optimal entry point was yesterday, does that mean that we should start buying now, because previously you had said to expect a pull back, do you still expect a pull back between now and year end.
Thanks
November 5th, 2009 at 7:47 am
Richard, ETFs commonly used are SPY for the S&P 500 and XIU.TO for the TSX 60.
November 5th, 2009 at 8:02 am
@ Richard: SPY is a non-leveraged ETF tracking the S&P500, SSO is a 2x leveraged ETF that tracks the same, though with the all usual risks associated with leveraged products.
November 5th, 2009 at 8:11 am
Hi Don,
I am kind of confused, if you sold out of bullion, should not the price of bullion have gone down not up as there is more gold in the market?
How did this drive up gold?
And why did you sell your gold if gold is the place to be?
November 5th, 2009 at 8:37 am
Hi Mr. Vialoux,
I was wondering if you could speak a little to the question of the phases we’ve been passing through in the intermediate cycle and how that relates to entry points if you’re wanting to position yourself in a broader index like the tsx composite. You’ve been reporting the abrupt downward moves in the up/down ratio and how we’d entered the distribution phase of the cycle. Do you therefore think it’s likely this autumn that we’ll see a progression into the breakdown and markdown and bottoming phases? I’m assuming this would trigger a definitive buying opportunity, such as if the UDR moved from above 1/3 or 1/2 combined with positive momentum signals.
thanks and best regards,
James1
November 5th, 2009 at 9:17 am
Richard – To answer your question about allocation it isn’t fair to anyone if you are asking such an open ended question. you should let us know what else you hold – bonds, real estate, other Canadian equities (because you wouldn’t buy xiu if you have a large weighting of energies and financials already) your age, time frame until retirement etc. But maybe a financial advisor may be better. Just a thought.
November 5th, 2009 at 9:21 am
I like Castlemoore’s (Ken Norquay?) sense of humour when he says they forced the price of gold higher by selling their position. I do that all the time; the last time was Saputo (SAP). The time before that was Agrium, but I bought back into AGU.
November 5th, 2009 at 10:30 am
The Market is really caught in between a rock and a hardplace.
On one hand it can’t just keep rallying higher forever and the other seasonal strength is just around the corner.
Should be exciting entertainement!
November 5th, 2009 at 10:33 am
Hi Don:
LME reported today that copper inventories continue to rise. I subscribe to their free service, but that does not include inventory data. Unlikely as it seems, does anyone know where you can access base metals inventory data for free?
Regards,
jordy
November 5th, 2009 at 10:39 am
Don: It appears as many of your followers are wondering how to interpret some of your remarks today (me included). Is this a good time to enter the markets, and if so, which sectors? Related to this, should we wait to see what the Friday US jobs report says before making a move?
Thanks
November 5th, 2009 at 10:58 am
Hi Fred,
Actually, that was my comment. I’m the funny one at CastleMoore. Check out our archived newsletters if you need verification. Cheers.
November 5th, 2009 at 10:59 am
Hi Don
If the fundamentals are neutral to mixed, how much weight do you give to technical’s and seasonality (example %50/%50) in forming your decision. The comments above seem to say that the season is here, “check” , but are the technical’s strong enough to take action at this time
November 5th, 2009 at 11:12 am
Hi Don,
Are we to deduce from this report (http://www.td.com/economics/special/dc1109_agri_pr.pdf) that agribusiness equities will not follow their seasonal trend this year or do you still think its safe to hold on till the end of December ?
Regards,
Richard
November 5th, 2009 at 11:50 am
i was looking at the claymore site and they have and UNHEDGED US ETF (CLU.C)and HEDGED US ETF (CLU). it tracks the FTSE RAFI US 1000. would CLU.C (unhedged) be beneficial to buy for the North american seasonal buying or would you actually benefit more from buying the HEDGED US ETF (CLU) or ishares XSP?
November 5th, 2009 at 11:54 am
Hi Roy. Sectors that are attractive at this time of year include information technology, consumer discretion, industrials (sub sector transportation) and basic materials.
November 5th, 2009 at 11:55 am
Looks to me, newbie that I am, that XSU.TO (Russell 2000 hedged to $CDW) has just completed a short term reverse head and shoulders pattern.
November 5th, 2009 at 11:55 am
Hi Richard. Another way to play the S&P 500 Index is through xsp. It tracks the S&P 500 Index and is hedged against a decline in the value of the U.S. Dollar.
November 5th, 2009 at 11:58 am
Hi David and Smita. Sorry, Tech Talk does not offer short recommendations. Sectors and markets tend to go through periods of strength at different times of the year based on annual recurring events. Outside of the period of seasonal strength markets and sectors show random performance (sometimes up and sometimes down).
November 5th, 2009 at 12:03 pm
Hi James. Phases of the market are based on the Up/Down ratio published each day on this site. The Up/Down ratio is one of several technical indicators that are useful for determining entry and exit points in markets and sectors (albeit a fairly reliable indicator over the years). In recent weeks, the Up/Down ratios for S&P 500 and TSX Composite stocks have moved down from eqregiously overbought levels and currently are near the 2.00 level(versus over 13 six weeks ago for S&P 500 stocks).
November 5th, 2009 at 12:04 pm
Hi Jordy. Try http://www.kitco.com. It provides reliable information and comment on base metals and base metal inventories.
November 5th, 2009 at 12:07 pm
Hi Double D. Tech Talk uses a combination of technical, fundamental and seasonality analysis when making investment suggestions. Each is given an equal weight. The analysis frequently starts with seasonality analysis.
November 5th, 2009 at 12:09 pm
Hi Richard. TD is welcome to its opinion on the Ag sector. My analysis based on fundamentals, technicals and seasonality is that the sector remains in a period of seasonal strength.
November 5th, 2009 at 12:11 pm
David, I do not think Don said he sold out of gold… it is Castlemore who did so.
November 5th, 2009 at 12:55 pm
Hi Marc. Given the current intermediate downtrend in the U.S. Dollar and given its period of seasonal weakness until the end of the year, the preferred strategy is to own hedged products when investing in U.S. equity market indices (e.g. XSP and hedged CLU).
November 5th, 2009 at 1:33 pm
Don, is there a hedge equivalent for XLY-U (discretionary)
thanks