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Pre-opening Comments for Monday November 16th
U.S. equity index futures are higher this morning. S&P 500 futures are up 8 points in pre-opening trade. Strength came mainly from weakness in the U.S. Dollar. Commodities priced in U.S. dollars including gold, silver, copper and crude oil are trading higher. Gold is trading at another all time high.
Traders will be watching comments from Federal Reserve Chairman Ben Bernanke today. He is expected to give an update on the U.S. economy at a speech to the New York Economic Club at 12:15 PM.
Economic news released this morning was mixed at best. S&P 500 futures slipped slightly after the news. Consensus for October retail sales was a gain of 0.9% versus a decline of 1.5% in September. Excluding autos sales, consensus was a gain of 0.4%. Actual was a gain of 1.4%. However, September sales were revised to a decline of 2.3% and October sales ex autos improved only 0.2%. In addition, the November Empire State Manufacturing Index came in lower than expected. Consensus was 29.00 versus 34.57 in October. Actual was 23.5.
Economic news from Canada also was mixed. Consensus was September manufacturing was a gain of 1.7%. Actual was a gain of 1.4%.
Lowes is down 2% in pre-opening trade after reporting third quarter earnings in line with consensus estimates.
Dell added 2% after Goldman Sachs re-iterated its Buy recommendation and raised its target price to $19.
Costco added 1% after Goldman Sachs raised its target on the stock from $57 to $61.
General Motors announced plans to start repaying loans on a quarterly basis to the U.S. government, Canadian government and Ontario government.
Sprint Nextel added 7% after Credit Suisse raised its rating on the stock from Neutral to Outperform and added the stock to its Focus List. Target price was raised from $4 to $6.
Barclays launched coverage on the Canadian bank sector. Toronto Dominion was rated Outperform. Commerce Bank and Bank of Montreal were rated Equal Perform. Bank of Nova Scotia and Royal Bank were rated Under Perform.
Economic News This Week
U.S. economic data is starting to show signs of a stall in economic recovery.
October Retail Sales to be released at 8:30 AM EST on Monday are expected to increase 0.9% versus -1.5% in September. Ex autos, Retail Sales are expected to increase by 0.4% versus 0.5% in September.
The November Empire State Index to be released at 8:30 AM EST on Monday is expected to decline to 29.00 from 34.57 in October.
September Business Inventories to be released at 10:00 AM EST on Monday is expected to decline by 0.6% versus a decline of 1.5% in August.
October Producer Prices to be released at 8:30 AM EST on Tuesday are expected to increase 0.5% versus -0.6% in September. Core PPI is expected to increase 0.1% versus an increase of 0.2% in September.
October Capacity Utilization to be released at 9:15 AM EST on Tuesday is expected to increase to 70.8% from 70.5% in September.
October Consumer Prices to be released at 8:30 AM EST on Wednesday are expected to increase by 0.2% versus 0.2% in September. Core CPI is expected to increase by 0.1% versus 0.2% in September.
October Leading Indicators to be released at 10:00 AM EST on Thursday are expected to rise by 0.4% versus an increase of 1.0% in September.
November Philadelphia Fed to be released at 10:00 AM EST on Thursday is expected to slip to 10.8 from 11.5 in October.
Equity Index Trends
The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) rose last week from 2.01 to (296/122=) 2.43. Number of S&P 500 stocks in an uptrend increased by 18. Number of stocks in a downtrend fell by 16. The ratio remains intermediate overbought, but is moving higher.
Bullish Percent Index for S&P 500 stocks increased last week from 73.20% to 76.60%. On Friday it moved above its 15 day moving average, a mildly encouraging technical event. The Index remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Up/Down ratio of TSX Composite stocks rose last week from 2.71 to (131/43=) 3.05. Number of TSX stocks in an uptrend increased by 1. Number of TSX stocks in a downtrend fell by 5. The ratio remains intermediate overbought, but moved higher for the second consecutive week.
Bullish Percent Index for TSX Composite stocks increased from 75.00% to 76.96%. It also moved above its 15 day moving average last week. The Index remains intermediate overbought, but moved higher for the second consecutive week.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P 500 Index added 24.18 points (2.26%) last week. Intermediate trend remains up. The Index briefly moved above resistance at 1,101.36. It remains above its 50 and 200 day moving averages. Short term momentum indicators (MACD, RSI and Stochastics) continue to trend higher. Stochastics already have reached an overbought level. Seasonal influences are positive. Intermediate upside potential based on the move above resistance is to 1,180.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 50 day moving average rose from 57.60% to 66.20% last week. Percent is intermediate overbought, but 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 90.40% to 91.60%. Percent remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Industrial Average added 247.05 points (2.46%) last week. Intermediate trend remains up. The Average broke above resistance at 10,119.47 last week to reach a 13 month high. The Average remains above its 50 and 200 day moving averages. Short term momentum indicators continue to trend higher. Stochastics already are short term overbought. Strength relative to the S&P 500 Index has turned positive. Seasonal influences are positive. Intermediate upside potential is to 10,580.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week at 83.33%. The Index is below its 15 day moving average. The Index remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for NASDAQ Composite stocks was virtually unchanged last week at 58.87% 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 55.44 points (2.62%) last week. Intermediate trend remains up. The Index remains above its 50 and 200 day moving averages. Resistance is at 2,190.64. Support is forming at 2,024.27. Short term momentum indicators are trending higher. Stochastics already are short term overbought. Strength relative to the S&P 500 Index remains neutral. Seasonal influences are positive. A break above resistance implies intermediate upside potential to 2,370.
Chart courtesy of StockCharts.com www.stockcharts.com
The Russell 2000 Index added 6.00 points (1.03%) last week. Intermediate trend remains down. The Index remains below its 50 day moving average. Resistance is at 625.31. Short term momentum indicators continue to recover from oversold levels. Support is at 553.31. Strength relative to the S&P 500 Index remains negative, typical of year end seasonal influences. The period of outperformance for small cap equities and ETFs according to Thackray’s 2010 Investor’s guide is from December 19th to March 7th.
Chart courtesy of StockCharts.com www.stockcharts.com
The Dow Jones Transportation Average gained 108.10 points (2.81%) last week. Intermediate trend remains up. Resistance is at 4,066.40. Support is forming at 3,546.48. The Average remains above its 50 and 200 day moving averages. Short term momentum indicators are trending higher. Stochastics already are overbought. Strength relative to the S&P 500 has turned from negative to neutral. Seasonal influences currently are positive, but are reaching an end. Stay tuned for an exit strategy.
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Composite Index added another 157.26 points (1.40%) last week. Intermediate trend remains down. Resistance remains at 11,648.55 set eight weeks ago. The Index remains above its 50 and 200 day moving averages Short term momentum indicators are trending higher. Stochastics already are overbought. Strength relative to the S&P 500 Index remains negative. Seasonal influences are positive. A move above resistance will change the trend from down to up. Intermediate upside potential is to 12,600 following a breakout.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX Composite stocks trading above their 50 day moving average slipped last week from 58.33% to 55.39%.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX Composite stocks trading above their 200 day moving average slipped last week from 84.80% to 81.37%. Percent remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
The Australia All Ordinaries Composite Index gained 203.40 points (4.42%) last week. Intermediate trend remains up. The Index moved above its 50 day moving average. Resistance is at 4,897.50. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index remains undetermined.
Chart courtesy of StockCharts.com www.stockcharts.com
The Nikkei Average slipped 19.04 points (0.19%) last week. Intermediate trend remains down. Support is at 9,628.67. The Average removes below its 50 day moving average. Strength relative to the S&P 500 Index remains negative. Short term momentum indicators are trending lower. Stochastics already are oversold and trying to recover.
Chart courtesy of StockCharts.com www.stockcharts.com
The Shanghai Composite Index added 23.61 points (0.75%) last week. The Index continues to move higher after breaking above a bullish triangle pattern. Resistance is at 3,478.01. The Index remains above its 50 and 200 day moving averages. Short term momentum indictors continue to trend higher. Stochastics already are overbought. Strength relative to the S&P 500 remains positive.
Chart courtesy of StockCharts.com www.stockcharts.com
The London FT Index added 218.52 points (4.25%), the Frankfurt DAX Index gained 198.58 points (3.62%) and the Paris CAC (2.64%) last week. The London FT Index reached a new 2009 high. Charts courtesy of StockCharts.com
Currencies
The U.S. Dollar slipped another 0.53 last week, but showed signs of a short term recovery late in the week. Intermediate trend remains down. Short term momentum indicators are recovering from oversold levels with Stochastics showing early signs of bottoming. A short term recovery this week is possible, but resistance at its 50 day moving average has been consistent during the past six months and is likely to persist. The reasons for the intermediate downtrend remain: U.S. economic recovery currently is fragile at best and is almost entirely dependent on U.S. government spending at an unsustainable level.
Chart courtesy of StockCharts.com www.stockcharts.com
Conversely, the Euro added another 0.59 last week. Intermediate trend remains up. Its 50 day moving average is acting as support. Resistance is at 150.47. Short term momentum indicators (MACD and RSI) are neutral. However, Stochastics are overbought and showing early signs of peaking. A return to its 50 day moving average this week would not be unusual.
Chart courtesy of StockCharts.com www.stockcharts.com
The Canadian Dollar rose 2.06 cents U.S. last week. Intermediate trend remains up. Short term momentum indicators are trending higher. Stochastics already are overbought. The Canuck Buck remains in a two month trading range between 92.16 to 97.69 cents U.S.
Chart courtesy of StockCharts.com www.stockcharts.com
Commodities
The CRB Index was virtually unchanged last week. Intermediate trend remains up. Resistance is at 285.18. Short term momentum indicators are trending lower. Stochastics already are oversold.
Chart courtesy of StockCharts.com www.stockcharts.com
Crude oil also was virtually unchanged last week. Resistance is at $82.00. Short term momentum indicators are trending lower from overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Ditto for unleaded gasoline! Resistance is at $2.10 per gallon. Short term momentum indicators continue to trend lower from overbought levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Ditto for natural gas! Short term momentum indicators continue to trend lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Ditto for energy equity indices on both sides of the border! They were virtually unchanged last week and remain range bound. Short term momentum indicators continue to drift lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Gold added another 24.00 U.S. per ounce last week and quickly exceeded its intermediate upside technical target of 1,117 U.S. Short term momentum indicators are overbought, but continue to trend higher. A retreat to the top of its previous trading range at $1,070.70 is possible if the U.S. Dollar briefly strengthens this week.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold equity indices (Phil. Gold Index, AMEX Gold Bug Index, TSX Global Gold Index) moved to new highs last week. Equity indices continue to underperform gold.
Chart courtesy of StockCharts.com www.stockcharts.com
Silver also is underperforming gold and failed to break above resistance at $18.08.
Chart courtesy of StockCharts.com www.stockcharts.com
Platinum broke resistance at 1380.50 on Friday. Strength relative to gold is neutral.
Chart courtesy of StockCharts.com www.stockcharts.com
Copper added $0.04 per lb. last week, an encouraging sign. Seasonal influences have just turned positive. Momentum indicators remain neutral. Resistance is at $306.90.
Chart courtesy of StockCharts.com www.stockcharts.com
Grain prices were notably stronger last week. JJG gained 5.4% and moved above its 200 day moving average. Short term momentum indicators are recovering. ‘Tis the season for strength in grain prices and agriculture equity prices!
Chart courtesy of StockCharts.com www.stockcharts.com
Lumber prices also were notably stronger, up another 6.3% last week. ‘Tis the season for lumber and forest product stocks to move higher!
Chart courtesy of StockCharts.com www.stockcharts.com
Financials
The yield on 10 year U.S. Treasuries slipped 0.11% last week. The market successfully absorbed several large issues released during the week. Yield remains locked in a six month trading range between 3.21% and 3.98%.
Charts courtesy of StockCharts.com www.stockcharts.com
S&P Financials recovered from near support at 185.53 last week, up 1.6%.
The TSX Financial Service Index also bounced from support at 163 last week, adding 2.3%. Short term momentum indicators are recovering. ‘Tis the season for the sector to outperform and move higher!
Chart courtesy of StockCharts.com www.stockcharts.com
Other Factors
The VIX Index eased last week from 24.19% to 23.36%. The Index is testing the bottom of a six month range between 20.10% and 31.84%.
Chart courtesy of StockCharts.com www.stockcharts.com
World trade continues to improve. The Baltic Dry Index gained another 718.00 points last week (21.2%) last week.
Chart courtesy of StockCharts.com www.stockcharts.com
Short term movements in the U.S. Dollar continue to dominate trading in equity and commodity markets. Short term rallies in the U.S. Dollar triggered by covering of short positions are likely, but intermediate trend remains down. ‘Tis the season for the U.S. Dollar to move lower until yearend.
Intermediate technicals (e.g. Up/Down ratios, Bullish Percent Indices, Percent of stocks trading above their 50 and 200 day moving averages) remain overbought, but continue to trend higher.
Third quarter earnings reports for the most part have been completed. The period of favourable anticipation followed by profit taking on news effectively is over.
Economic news this year likely will confirm that the recent recovery in North America has stalled.
Cash positions on the sidelines are returning to equity markets. Fund managers are concerned that they may have “missed the boat” and don’t want to show large cash positions in their portfolios as year end approaches.
U.S. political influences on equity markets remain troublesome. Bills on greater regulation of the financial services industry and higher taxes currently are being negotiated by Congress. Concerns about unrealistic expectations from the Copenhagen climate control conference in mid December were dampened over the weekend during the Asian leaders’ conference where key leaders agreed to disagree.
The Bottom Line
The “Buy when it snows, Sell when it goes” strategy continues to work. North American equity markets have a long term history of moving higher from late October to early May. As noted in Tech Talk on November 6th, technical requirements for the seasonal entry point in North American equity markets were achieved on November 5th this year. Accumulation of Canadian and U.S. equities on weakness is preferred with a focus on favoured sectors that show above average performance at this time of year. Sectors in Thackray’s 2010 Investor’s guide that show favourable seasonality at this time of year include Consumer Discretionary, Agriculture, Retail and Information Technology.
Tech Talk’s Weekly Column in the Financial Post
The column, that normally appears each Saturday, is to be published this week on Wednesday, November 18th. The column makes reference to a seasonality event on Thursday November 19th. The focus is on the base metal sector.
Montreal and Ottawa CSTA chapters: Next monthly meeting: November 17, at 5:00 PM EST
The Ottawa Chapter will dial in to the Montreal monthly meeting scheduled for November 17th
All CSTA members in the Ottawa region are invited to join the meeting:
Location:
Recognia
Suite 220
1140 Morrison Drive
Ottawa (Nepean)
Montreal Chapter:
New location:
Dundee Wealth Management
2300-1200 avenue McGill College
Montreal, QC H3B 4G7, Canada
(514) 940-3510
Registration Information
Members – Free $0.00
Non – Members $20.00 (please pay at the door)
Non – Members (First Time Attendees – Free) $0.00
Speaker: Don Vialoux by conference call.
Topic: Timing the market
Registration: at www.csta.org
Interesting Article in MarketWatch.com yesterday discussing Seasonal Investing
Tech Talk agrees with most of the following article with a couple of exceptions. The last paragraph suggests that the strategy did not work in 2008. Actually, the S&P 500 Index gained 6.2% from October 28th 2008 to May 5th 2009 using the average optimal entry and exit points for the S&P 500 Index during the past 59 years.
Also, Tech Talk suggests that the term “Sell in May and go away” has been misused in this article. It implies that the U.S. equity market historically has moved lower from May to October and therefore the investor should avoid the U.S. equity market during this period. In fact, the S&P 500 from May 5th to October 28th during the past 59 periods has gained in 35 periods and has declined in 24 periods. However, returns by the S&P 500 Index during these periods (excluding the extraordinary loss during this period last year) were virtually nil because losses during periods of a decline were larger than profits during periods of gain. Performance in terms of frequency of profit and return by the S&P 500 Index is close to random from May to October because significant annual recurring events influencing equity markets during this period are virtually non-existent.
In contrast, the period from October 28th to May 5th has a series of significant annual recurring events that favourably influence the S&P 500 Index. Many of these events are tax related. According to Thackray’s 2010 Investor’s Guide, average return per period from October 28th to May 5th during the past 59 periods was 7.6%. The trade has been profitable in 48 of the past 59 periods. Conversely, the S&P 500 Index (including the 39.7% decline recorded last year) declined an average of 1.1% during the May 6th to October 27th period.
The TSX Composite Index shows similar performance. The trade between October 28th and May 5th has been profitable in 26 of the past 32 periods. Conversely, the trade from May 6th to October 27th was profitable in 16 of the past 32 periods (i.e. random).
“Sell in May and go away” is a myth. The correct expression is “Buy when it snows, sell when it goes”. The preferred strategy is to own North American equities during the period of seasonal strength from October 28th to May 5th. Performance between May 6th and October 27th is random, not necessarily negative.
Timing the cycle
By Jonathan Burton, MarketWatch
SAN FRANCISCO (MarketWatch) — Any investor who followed the old market adage to "Sell in May and go away" is probably feeling left behind, with the benchmark Standard & Poor’s 500-stock index up 25% since the end of April.
No regrets; there may be more where that came from. The period from November through April historically has been the best six months of the year for U.S. stocks, and even better for the market’s most cyclical sectors.
Sector investors win in winter
November through April has historically been the best period for U.S. stocks, but that six-month period is even better for the market’s most cyclical sectors, says Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research. MarketWatch’s Jonathan Burton reports.
"Whether you look back to 1990, 1970, 1945 or 1929, the S&P 500’s /quotes/comstock/21z!i1:in\x (SPX 1,093, +6.24, +0.57%) performance from November through April substantially outperformed the market’s typical price change from May through October," Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research, wrote in a recent report to clients.
Moreover, the S&P 500’s cyclical, economically sensitive sectors have been the warmest places to invest through the winter. During this timeframe, the Industrials, Materials, Financials, Consumer Discretionary and Information Technology sectors traditionally recorded their strongest price gains and frequencies of beating the market.
Studies reinforce S&P’s data. Two researchers at New Zealand’s Massey University, Ben Jacobsen and Nuttawat Visaltanachoti, found that while all U.S. market sectors perform better in winter, the season is especially generous to stocks and sectors related to industrial production and raw materials than they are for companies tied to consumer consumption.
This timing tactic didn’t work in 2008, of course, as stocks failed on almost every front. History, after all, is only a guide. Still, sector investors can use history to their advantage — particularly since this calendar pattern, commonly known as the "Halloween Effect," is one persistent strategy that doesn’t seem to get much credit. Said Stovall: "Who’s going to arbitrage it away if nobody takes it seriously?"
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 16th, 2009 at 2:35 am
Hello Don,
I am still holding GAS.TO as part of the seasonal trade till December. Could you please provide an update? Where’s the bottom, and is patience still prudent in the current situation?
Thanks!
November 16th, 2009 at 3:34 am
Great report Don,
What are your current thoughts on a market correction for this year?
Thanks much
November 16th, 2009 at 4:23 am
Don
Could I have your thoughts on CGL.UN:
1. Why does it trade at a discount to NAV? Why does the market discount the value if the fund holds the bullion to generate the NAV?
2. When it converts to an ETF (assuming it does), does the ETF price become the unit trust NAV at that date?
3. I have some warrants from the initial subscription that I have yet to decide on exercising. Any thoughts?
Thanks
November 16th, 2009 at 5:20 am
Hi Kevin. See comments on natural gas in today’s Tech Talk. Technicals are short term oversold, but have yet to show signs of recovery.
November 16th, 2009 at 5:23 am
Hi David. Best to check out Claymore’s site for background about these units. Also, Claymore can be contacted directly through its site. Link is:
http://www.claymoreinvestments.ca/etf/?gclid=CKbzjp7Bj54CFSXyDAodtyP5rA
November 16th, 2009 at 7:49 am
HXD . . .still short the market and looking for a classic BULL TRAP today. I see a reversal later today and a negative close for all 3 markets. Something does not feel right???
November 16th, 2009 at 8:21 am
Hi Don
Any thoughts about ARE (Aecon) it seems to have amazing relative stregnth
November 16th, 2009 at 8:36 am
Hi Bill. Nice breakout on Friday to a 14 month high. Momentum indicators are positive. Strength relative to the TSX Composite Index is positive. Next upside technical target is $17.05.
November 16th, 2009 at 8:50 am
Hi Don
Thanks for all the great info. Just wondering, as there doesn’t seem to be a cdn etf covering the consumer discretionary play, would you suggest one simply trying to put together a basket (shoppers, sears etc.) or might there be a better strategy? Are you aware of any quick way to pull consumer/retail names out of the tsx to see what is available? Thanks for you help.
November 16th, 2009 at 9:21 am
Hi Don
Loblaw (L) seems to have hit strong support at $30. The trend is still down.
Would it be time to start accumulating or wait for an uptrend ? Does it have a seasonality?
November 16th, 2009 at 9:48 am
Hi Don:
Thank you for your insights. I have been a follower of your site for over a year now -Bang On information – Thanks.
With the U.S. Dollar on trending lower, would HDD be a solid choice. Or, Should the $US decline be played differenlty?
DOUG
November 16th, 2009 at 10:19 am
Hi Don,
Is there a seasonal play for uranium? Thanks for the info and providing a great site.
Cheers. Ralph.
November 16th, 2009 at 10:43 am
Hello Don,
Great work! Whats your take on the HOU oil etf now that Saudi Arabia (Aramco) will no longer benchmark oil to WTI as of January? How do you think it could affect the HOU which is benched on WTI? Perhaps HOU will alter bench to ARGUS? Is this a page 16 that should be closer to page 1? I figured it was a pretty big deal but have not heard nary negative or positive on the overall story. Thoughts? qf
November 16th, 2009 at 11:28 am
I am looking for an ETF for $SPTMN. Are there any?
November 16th, 2009 at 2:17 pm
Hi Fred. Just heard from the Financial Post. My article on the Metals and Mining stocks is to be published tomorrow. It includes the list of ETFs that track the TSX Global Mines and Metals Index.
November 16th, 2009 at 3:15 pm
Hi Don
What is opinion on BWR.TO? It has dropped a bit in the last 2 weeks. Is this a good 6-12 month hold. Company seems solid. Do you see any risks? thanks
November 16th, 2009 at 3:16 pm
Hi Don
What is the seasionality for Steel? I am holding X US Steel Corp.
November 16th, 2009 at 11:28 pm
Don, when are you next on BNN – we need some facetime?