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Pre-opening Comments for Monday November 9th
U.S. equity index futures are higher this morning. S&P 500 futures are up 9 points in pre-opening trade. Strength comes mainly from weakness in the U.S. Dollar, down another 0.69 to 75.12. The U.S. Dollar is testing support at 74.94. A break below support implies downside risk to 73.10.
![clip_image001[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2009/11/clip_image00112.gif "clip_image001[1]")
Chart courtesy of StockCharts.com www.stockcharts.com
Weakness in the U.S. Dollar has triggered strength in commodities priced in U.S. Dollars. Gold has moved to another all time high. Silver, copper and crude oil prices also are trading higher.
CGI Group is up 6% after reporting higher than expected third quarter earnings. Consensus was $0.24 versus $0.19 per share. Actual was $0.25 per share.
Adobe added 3% after Goldman Sachs raised its rating from Neutral to Buy with a target price of $42.
GAP stores eased 1% after Barclays downgraded the stocks from Overweight to Equal Weight. Target was reduced from $26 to $25.
General Electric added 3% after General Electric and Comcast agreed on the value of General Electric’s NBC Universal unit at $30 billion. General Electric currently is negotiating sale of part or all of the unit to Comcast.
Abercrombie & Fitch jumped 6% after Goldman Sachs raised its rating on the stock from Neutral and added the stock to its Conviction Buy list. Target was raised from $36 to $45. In addition, Credit Suisse upgraded the stock from Neutral to Outperform.
RadioShack added 10% after announcing plans to sell iPhones in its stores before Christmas.
Research in Motion eased 2% after Susquehanna downgraded the stock.
Economic News this week
Economic news is sparse this week. The September Trade Deficit is scheduled to be released on Friday at 8:30 AM EST. Consensus is $31.9 billion versus $30.7 billion in August. In addition, the November Michigan Sentiment Index is to be released on Friday at 9:55 AM. Consensus is an increase to 71.8 versus 70.6 in October.
Earnings News this week
The third quarter earnings season begins to wind down this week.
Monday sees CGI Group, CI Financial, Freddie Mac, Power Corp. and Power Financial.
Tuesday sees Cineplex Galaxy, Finning International and Pan Am Silver.
Wednesday sees Applied Materials, CAE, Macy’s, Onex and Shoppers Drug.
Thursday sees BCE, Canadian Tire, Encana, FNX Mining, Gammon Gold, Sino-Forest, Wal-Mart and Walt Disney.
Friday sees Aeroplan and JC Penney.
Equity Index Trends
The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) fell last week from 2.21 to (278/138=) 2.01. The ratio continued to trend lower from an intermediate overbought level.
Bullish Percent Index for S&P 500 stocks eased last week from 74.80% to 73.20% and remains below its 15 day moving average. The Index remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Up/Down ratio of TSX Composite stocks increased from 2.38 to (130/48=) 2.71.
Bullish Percent Index for TSX Composite stocks improved from 73.53% to 75.00% last week. It remains below its 15 day moving average. It remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P 500 Index improved 33.11 points (3.20%) last week. Intermediate trend remains up. The Index once again moved above its 50 day moving average. Resistance exists at 1,101.36. Support may be forming at 1,029.38. Short term momentum indicators (MACD, RSI and Stochastics) are trying to recover and currently are at neutral levels. Seasonal influences have turned positive. Notice the Stochastics buy signal early in the week.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 50 day moving average rose sharply last week from 34.00% to 57.60%. Percent bottomed at a slightly oversold level and continues to trend higher.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 200 day moving average increased last week from 88.20% to 90.40%. Percent remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Industrial Average added 310.69 points (3.20%) last week. Intermediate trend remains up. Resistance has formed at 10,119.47. The Average managed to bounce from near its 50 day moving average once again, an encouraging technical sign. Short term momentum indicators are recovering from short term oversold levels and currently are neutral. Strength relative to the S&P 500 Index continues to show signs of turning positive. Seasonal influences are positive. Notice the Stochastics buy signal early last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for Dow Jones Industrial Average stocks slipped last week from 86.67% to 83.33% and remains below its 15 day moving average. It remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for NASDAQ Composite stocks slipped last week from 62.33% to 59.04% and remains below its 15 day moving average. The Index remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The NASDAQ Composite Index gained 67.33 points (3.29%) last week. Intermediate trend remains up. The Index moved once again above its 50 day moving on Friday. Short term momentum indicators have recovered from neutral levels. Resistance has formed at 2,190.64. Support may be forming at 2,024.27. Strength relative to the S&P 500 Index remains neutral. Notice the Stochastics buy signal early last week.
Chart courtesy of StockCharts.com www.stockcharts.com
The Russell Index improved 17.58 points (3.12%) last week. Intermediate trend remains down. The Index remains below its 50 day moving average. Resistance exists at 625.31. Short term momentum indicators are recovering from oversold levels. Strength relative to the S&P 500 Index remains negative.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Transportation Average gained. 239.13 points (6.62%) last week thanks partially to Warren Buffet’s offer to buy Burlington Northern for $100 per share. Intermediate trend remains up. The Average managed to move once again above its 50 day moving average on Friday. Resistance exists at 4,066.40. Short term momentum indicators are recovering and have returned to neutral levels. Strength relative to the S&P 500 Index remains negative. Seasonal influences are positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Composite Index recovered 339.67 points (3.11%) last week. Intermediate trend remains down. Resistance at 11,648.55 was set seven weeks ago. The Index managed to move above its 50 day moving average on Friday, an encouraging technical sign. Short term momentum indicators have recovered to a neutral level. Strength relative to the S&P 500 Index remains negative. Seasonal influences are positive. Notice the Stochastics buy signal early last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX Composite stocks trading above their 50 day moving average jumped last week from 37.25% to 58.33%. Percent is recovering from a slightly oversold level.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX Composite stocks trading above their 200 day moving average improved slightly from 76.95% to 84.80%. It remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Australia All Ordinaries Composite Index slipped 42.50 points (0.91%) last week. Higher central bank interest rates and a rising Australian Dollar took their toll. Intermediate trend remains up. The Index remains below its 50 day moving average, but above its 200 day moving average. Resistance is at 4,897.50. Short term momentum indicators are oversold, but have yet to show significant signs of recovery. Strength relative to the S&P 500 Index remains undetermined.
Chart courtesy of StockCharts.com www.stockcharts.com
The Nikkei Average also came under pressure last week. It fell 245.40 points (2.45%). Intermediate trend remains down. Support at 9,628.67 is being tested. Short term momentum indicators are oversold, but continue to trend lower. Strength relative to the S&P 500 Index remains negative.
Chart courtesy of StockCharts.com www.stockcharts.com
The Shanghai Composite Index added 168.19 points (5.61%) last week on improving Chinese economic news. The Index broke above a three month triangle pattern, an encouraging technical sign. Next resistance is at 3,378.01. Short term momentum indicators are approaching overbought levels, but continue to trend higher. Strength relative to the S&P 500 Index is turning positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The London FT Index gained (98.17 points (1.95%), the Frankfurt DAX Index added 73.29 points (1.35%) and the Paris CAC Index improved 99.60 points (2.76%) last week. Charts courtesy of StockCharts.com
Currencies
The U.S. Dollar slipped 0.60 last week. Intermediate trend remains down. Notice that once again it found resistance at its 50 day moving average. Short term momentum indicators have rolled over and are trending lower. A test of support at 74.94 is imminent. A break below support implies downside risk to 73.10. Seasonal influences are negative until the end of the year.
Chart courtesy of StockCharts.com www.stockcharts.com
Conversely, the Euro added 1.30 last week. It remains in an intermediate uptrend. Notice how it bounced once again from its 50 day moving average. Resistance is at 150.47. A break above resistance implies upside potential to 154.75. Short term momentum indicators have recovered to a neutral level.
Chart courtesy of StockCharts.com www.stockcharts.com
The Canadian Dollar added 0.57 last week. Intermediate trend remains up. Resistance is at 97.69. Support is at 89.91. Short term momentum indicators are recovering from slightly oversold levels. Look for the Canadian Dollar to test resistance when the U.S. Dollar tests support.
Chart courtesy of StockCharts.com www.stockcharts.com
Commodities
The CRB Index slipped 0.94 points (0.35%) last week. Intermediate trend is up. Resistance is at 285.18. Momentum indicators have rolled over from overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Crude oil was virtually unchanged last week. Resistance has formed at $82.00. Intermediate trend remains up. Short term momentum indicators have rolled over from overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Unleaded gasoline slipped $0.03 per gallon last week. Resistance at $2.10 is formidable. Short term momentum indicators have rolled over from overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Ditto for Natural Gas. Seasonal influences currently are negative.
Chart courtesy of StockCharts.com www.stockcharts.com
Canadian and U.S. energy stocks continue to underperform. Momentum indicators continue to trend lower from an overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Gold popped nicely on the charts after India announced purchase of 200 tonnes of gold. Gold gained $49.50 U.S. per ounce. Intermediate trend remains up. Resistance at $1,070.70 was broken, implying a short term upside technical to $1,117 U.S. Short term momentum indicators are overbought, but continue to trend higher.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold equity investors remain skeptical on both sides of the border. Gold equity indices have yet to reach new highs and gold equities continue to underperform gold. A break by the U.S. Dollar below support is a likely trigger for gold equities to outperform gold once again. Stay tuned.
Chart courtesy of StockCharts.com www.stockcharts.com
Silver quickly followed gold on the news from India, but failed to move above resistance at $18.00. Short term momentum indicators already are overbought.
Platinum also gained slightly, but failed to break to a new high.
Chart courtesy of StockCharts.com www.stockcharts.com
Copper was virtually unchanged last week. It remains in a three month trading range between $2.6400 and $306.90 per lb. Momentum signals are neutral. Watch for a seasonal trade in copper and the base metal sector to appear shortly.
Grain prices were virtually unchanged last week. Momentum indicators are oversold. Seasonal influences recently turned positive.
Chart courtesy of StockCharts.com www.stockcharts.com
Lumber also was virtually unchanged last week. Seasonal influences have turned positive. The forest product sector was one of the strongest sectors last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Financials
The yield on 10 year U.S. Treasuries rose 0.13% last week and could continue to rise this week as several longer term Treasury issues come to market. Yield remains locked into a six month trading range between 3.21% and 3.98%.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P Financial Services sector is holding in a three month trading range between 185.53 and 212.09. Short term momentum indicators are oversold and recovering.
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Financial Services Index also is range- bound between 163.00 and 181.93. Momentum indicators are recovering from oversold levels. Seasonal influences are positive. See comments at the end of this report for more information.
Chart courtesy of StockCharts.com www.stockcharts.com
Other Factors
The VIX Index plunged last week from 30.69% to 24.19%. Resistance was found at its 200 day moving average. The Index fell below its 50 day moving average on Friday. The bottom of its trading range between 20.10% and 31.84% is being tested.
Chart courtesy of StockCharts.com www.stockcharts.com
World trade continues to improve. The Baltic Dry Index gained another 290 points (9.35%) last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Seasonal influences finally “clicked in” early last week. Many key North American equity and sector indices saw moves above their 50 day moving averages. Short term Stochastics buy signals were frequent.
Intermediate technicals (e.g. Up/Down ratios, Bullish Percent Indices, Percent of stocks trading above their 50 and 200 day moving averages) remain overbought
Political and environmental issues likely will not help equity markets this week. Passage over the weekend of the health care bill by the House of Representatives with a public option will not be greeted favourably by the health care sector. Concerns about H1N1 flu and Hurricane Ida also could weigh on equity markets.
The winding down of third quarter earnings reports likely is a positive for equity markets. Generally, equities moved higher at the beginning of October in anticipation of better than consensus third quarter results, but quickly came under profit taking pressures following news.
Fluctuations in currencies continue to dominate short term trading activity. Continuation of pressure on the U.S. Dollar will have a positive impact on U.S. equity markets and commodities priced in U.S. Dollars.
Positive responses last week to a series of mixed economic reports were encouraging.
The Bottom Line
The “Buy when it snows, Sell when it goes” strategy has started to work once again. Overbought intermediate technicals suggest that magnitude of an advance between now and year end is likely to be muted, but positive. Accumulation of broadly based equity index ETFs as well as sector ETFs with favourable seasonal characteristics makes sense during the next few weeks (particularly on any weakness). Sectors with favourable seasonal influences at this time of year include Information Technology, Consumer Discretionary, Industrials (including Transportation), Canadian Financial Services and Basic Materials.
Tech Talk’s Weekly Column in the Financial Post
(As published last Saturday in the National Post and available by paid subscription at www.nationalpost.com )
Canada’s Financial Services Sector: Is now the time to buy?
One of the more interesting and profitable seasonal trades at this time of year historically has been a trade in Canada’s Financial Services sector. Will the trade work this year?
Seasonal influences
The TSX Financial Services Index has moved higher from the end of October to the end of December during 14 of the past 17 periods. The reason for strength has been anticipation of a series of favourable annual recurring events related to the release of fiscal fourth quarter results by Canada’s major banks for the period ending October 31st. Historically, their reports have been a time of celebration. The reports frequently were supplemented by news of dividend increases, stock splits and share repurchase programs. In addition chief executive officers frequently offered encouraging comments about prospects for the following fiscal year. Fourth quarter reports were followed by encouraging annual reports and annual meetings in January However, favourable annual recurring seasonal influences changed two years ago when conditions in the global financial services industry began to deteriorate. Accordingly, investors were unwilling to anticipate events such as dividend hikes, stock splits and they did not expect favourable comments from chief executive officers. Suggestions to participate in the sector for a seasonal trade were not offered. Deterioration by the TSX Financial Services Index during the past two periods was so substantial that most of the gains (excluding dividends) during the past 17 periods were wiped out.
Seasonal performance by the TSX Financial Services Index during the past two years confirms that fundamental analysis of annual recurring events plays an important role when deciding if and when to enter a seasonal trade.
The following chart shows the seasonality of the Canadian Bank sector since 1990 (Courtesy of Brooke Thackray).
Technical Influences
Intermediate technical profile for the TSX Financial Services Index is mixed at best. Intermediate trend is neutral. The Index has been stuck in a four month range between 163.00 and 181.93. Strength relative to the TSX Composite Index has been negative since August. The Index recently fell below its 50 day moving average.
Its short term technical profile is more positive. The Index found short term support three weeks ago. Its short term momentum indicators (Moving Average Convergence Divergence, Relative Strength Index and Stochastics) are oversold and trying to recover. Stochastics recorded a short term buy signal this week.
Fundamental Influences
Fundamental prospects are unattractive in the short term, but mildly encouraging in the medium term. The sector came under significant pressure this week when Sun Life and Manulife Financial reported less than expected third quarter earnings. In addition, consensus for fiscal fourth quarter earnings to be reported by Canada’s biggest banks at the end of this month show a mixed picture. Three banks expected to report higher earnings and three banks expected to report lower earnings. On average, they are expected to report about an 11% gain on a year-over-year basis
Fiscal Fourth Quarter Consensus Earnings Per Share Estimates
Bank Q4 2009 Estimate Q4 2008 Actual
Bank of Montreal $0.95 $1.06
Bank of Nova Scotia 0.86 0.93
Commerce Bank 1.33 1.54
National Bank 1.44 1.36
Royal Bank 1.01 0.81
Toronto Dominion 1.28 0.79
On the other hand, earnings prospects beyond their fiscal fourth quarter are more promising. Consensus estimates for the fiscal first quarter of 2010 and for the full year show a gradual improvement as the year progresses.
What to do
A mixed picture with mild encouragement! Once again favourable supplementary news such as dividend hikes, stock splits and share buy backs are unlikely to be included with fourth quarter reports by the banks this year. Will chief executive officers of Canada’s major banks offer an encouraging outlook for fiscal 2010? Probably! The seasonal trade this year looks okay, but not great.
Ways to invest in the sector include a variety of Exchange Traded Funds (ETFs). The most actively traded Canadian Financial Service ETF is iShares on the S&P/TSX Canadian Capped Financial Index (XFN). Claymore offers an ETF that is equally weighted in Canada’s top 10 financial services companies. Symbol is CEW. Bank of Montreal recently launched an ETF that is equally weighted in Canada’s top six banks. Symbol is ZEB. Horizon Beta Pro offers a Financial Bull + ETF that tracks two times the daily performance of the S&P/TSX Canadian Capped Financial Index.
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 9th, 2009 at 3:31 am
Hi Don.
Your advise is fantastic!! Could you please tell me the seasonal strength time for Uranium? I cannot find it in the “Investors Guide”. thanks for all the great insights.
Andrea
November 9th, 2009 at 5:50 am
Hi Don,
Really appreciate your info and guidance in these troubled times. Is the seasonal play in potash still on…buy on weakness, etc.? Thanks.
Ralph.
November 9th, 2009 at 6:41 am
Hi Don,
Does the stock appreciation in financial that precedes the favorable seasonal strength add caution for a call for the sector to still rise?
November 9th, 2009 at 6:56 am
Hi Don,
You have previously stated that the upside potential is greater than the downside in the markets. I’m noticing in the S&P 500 a head and shoulder reversal pattern with the left shoulder forming in Sept and head forming in Oct, and now the beginnings of the right shoulder in Nov. Could you tell me what other signals (MACD, RSI, Volume) is needed to confirm the pattern? And what would be the support level indicated by this pattern?
Thanks.
November 9th, 2009 at 6:59 am
Hi Don
What would be a better buy RIM.TO or AAPL at this time? Thanks.
November 9th, 2009 at 7:46 am
Hi Don
I am very interested in the grains, especially JJG-N. I would have to convert some CAN. dollars to U.S. dollars to buy this. It seems when there is strength in the price, there is also weakness in the U.S. dollar and this seems to negate any gains. Am I correct in this observation, and do you have any suggestions?
Thanks
Jeff
November 9th, 2009 at 7:48 am
Good morning Don,
Can you please explain your intermediate trend analysis? I have noticed similar comments on the different charts but I am going to use the Transports as an example. There was a lower closing low and the trend line drawn from the Mar low through July low and early Oct low broken. Chart reading is so different to different people and I would just like to know how you interpret them in your analysis?
Thanks,
Ken
November 9th, 2009 at 12:21 pm
Hi Don,
do you see a pullback between now and end of year ??
Thanks
November 9th, 2009 at 7:23 pm
Hi Andrea. A seasonality study on uranium has not been possible to date because a public index showing data for at least 10 years is not available. Closest we have is seasonality on Cameco. Its period of seasonal strength is from the end of October to the end of May with a sweet spot between the end of January to the end of May.
November 9th, 2009 at 7:29 pm
Hi Chrispycrunch. The comment in Saturday’s Financial Post and on this site today was far from a ringing endorsement. Looking for a relatively short term trade as analyst come out with favourable comments and as short term technicals recover from oversold levels. The National Bank analyst was the first to offer comments on fourth quarter expectations in a report released today. His comments were one of the reasons for the spike in the Canadian Financial Services sector today. Short term technicals continue to improve.
November 9th, 2009 at 7:31 pm
Hi Roy. AAPL currently has a more positive intermediate technical profile than RIMM. However, don’t give up on RIMM. Short term technical indicators (Stochastics, RSI)turned positive today. Seasonal influences are positive for both.
November 9th, 2009 at 7:34 pm
Hi Huy. A head and shoulders pattern by the S&P 500 is not clearly defined yet. A move by the S&P 500 to a new 2009 high (possibly as soon as tomorrow)would eliminate the possibility of the pattern.
November 9th, 2009 at 7:36 pm
Hi Jeff. Investing in U.S. equity ETFs includes significant downside currency risk for the average investor. A possible solution will be revealed by Bay Street shortly.
November 9th, 2009 at 7:43 pm
Hi Ken. My trend line for the Transportation Average in today’s Tech Talk is slightly misleading. Actual trend for the Average is neutral (i.e. a break to a 2009 high but a recent break below support. Short term technicals have turned positive (i.e. uptrending Stochastics and RSI as well as a move today above its 50 day moving average.
November 9th, 2009 at 7:47 pm
Hi Mills. The charts will let us know. Short term technicals and seasonality currently are favourable, but chances of a deterioration in short term technicals for at least a short period of time between now and year end are high.
November 9th, 2009 at 8:13 pm
Mr. Vialoux
I have a question about the declining volume on the TSX and as well the American Indices. Does the volume from ETF’s get added to the indexes? For example if HOU has a volume of 10 million will that volume be added to the TSX volume? Today I caught just the tail end of a guest on BNN and if I heard correctly he attributed the declining volume to more and more investors using ETF’s rather than stocks. That statement led me to believe that the volume is not added to the TSX. Your comments are greatly appreciated.
Donna