Pre-opening Comments for Friday December 11^th

U.S. equity index futures were higher this morning. S&P 500 futures are up 6 points in pre-opening trade. Futures are responding to news that China’s industrial production grew at a 19.2% annual rate in November. Commodities traded higher. Gold added $10 U.S. per ounce.

The news from China had a significant impact on economically sensitive commodities such as copper and silver. Copper gained $0.03 to $3.14 U.S. per lb. Silver rose $0.29 U.S. to $17.48 U.S per ounce. Mining stocks in Europe were notably higher this morning.

Futures rallied slightly following release of an encouraging November retail sales report. Consensus for retail sales was a gain of 0.7% versus a gain of 1.4% in October. Actual was a gain of 1.3%. Consensus for retail sales ex auto was a gain of 0.4% versus 0.2% in October. Actual was a gain of 1.2%.

Piper Jaffrey initiated coverage on Biovail with an Overweight rating. Target is $18 U.S.

TD Newcrest downgraded Gilden Activewear from Buy to Hold.

Husky Energy purchased 90 Ontario gasoline distribution outlets from Suncor.

Forzani reported higher than expected third quarter earnings. Consensus was $0.26 versus $0.28 per share. Actual was $0.37 per share.

Technical Action Yesterday

Technical action by S&P 500 stocks was quietly bullish yesterday. Five S&P 500 stocks broke resistance (Dun & Bradstreet), Interpublic, Rockwell Automation, Teradata and United Health) and none broke support. The Up/Down ratio improved from 2.85 to 317/110=) 2.88.

Technical action by TSX Composite stocks also was quietly bullish. One stock (Research in Motion) broke resistance and none broke support. The Up/Down ratio improved from 3.38 to (136/39=) 3.49.

Chart courtesy of StockCharts.com www.stockcharts.com

Weekly Bullish Percent Sector Index Review

Bullish Percent indices were mixed last week. Seven indices increased (Information Technology, Consumer Staples, Health Care, Financial Services, Telecom and Transportation) and five indices moved lower (Consumer Discretionary, Industrials, Energy, Gold and Materials). All indices remain intermediate overbought. Notably weaker were gold and energy. Two indices fell below their 15 day moving average (Industrials and Gold). The Utilities index moved above its 15 day moving average. Only three indices are above their 15 day moving average while nine indices are below their 15 day moving average.

Charts courtesy of StockCharts.com

In Praise of Equally Weighted ETFs

Equally weighted Exchange Traded Funds have a history or outperforming well diversified capitalization weighted Exchange Traded Funds despite their slightly higher MER. A good example is the performance of the equally weighted ETF on the S&P 500 Index (Symbol: RSP) relative to S&P 500 SPDRs (SPY). RSP has consistently outperformed SPY since market lows in March and the difference in return has become significant.

Chart courtesy of StockCharts.com www.stockcharts.com

Bank of Montreal recently launched equally weighted Canadian ETFs on a Bank Index, Oil Index and Base Metal Index. They have been included on the list of preferred Exchange Traded Funds that can be included in the Horizons AlphaPro Seasonal Rotation ETF (HAC).

THE CASTLEMOORE INVESTMENT COMMENTARY

At CastleMoore one of the tools of our trade to gauge sectors of the equity market—at home and abroad—in order to determine which sectors are gaining momentum, which are losing it, and which are holding steady. We do this on a weekly and monthly basis; the latter is what we take into account for portfolio decisions and the former gives us some insight as to how the monthly figure will look by month end.

So here we are at the ending of another month, and what do our momentum observations tell us? Well, in Canada—and this should come as no surprise anyone who isn’t in hibernation—is the metals and mining sector, whose underlying index is up over 300% in the last ten months. A distant second and third is Financials and Energy, respectively. The lowest momentum sectors in Canada are Telecom and Consumer Staples.

Of particular note is the Materials Index, which moved up considerable from the previous month in momentum ranking. Granted, this sector includes gold, which is making new highs, but also includes the Forestry Sector.

The graph above depicts the January 2010 lumber futures contract, which has quietly gained 28% in 12 trading days to November 18. Given that housing starts are weak and that the baseball season is over, what accounts in the strength in this sector?

Obviously forest products are cyclical and the economy is on the rebound. But such has been the case for the last six months, and yet the surge in lumber prices is much more recent.

Fundamental of a stock or sector don’t change on a daily basis, yet millions of shares and contracts do. What drives the volume or causes price change?

One possible answer lies in the money flow into or out of specific sectors. A money flow is calculated as the aggregate value of trades that occur on an uptick (at a price higher than the last trade) less the aggregate value of trades that occur on a downtick (at a price lower than the last trade). The net result is an inflow or outflow.

Typically, a substantial net inflow results from the desire of investors to buy on weakness, whereas a substantial outflows occurs when there are investors who wish to sell on strength. In other words, we often see sector rotation from overbought sectors to oversold ones, and the distance and slope between the two points is called a “trend”. Success comes from identifying trends as early in there formation as possible.

Since they measure the values of trades, money flow indicators have the advantage of incorporating both volume and price change. We use other indicators as well to help determine changes in the relative strength in sectors or stocks: obviously, RSI (relative strength indictor) is one. (RoC) Rate of Change is another). These two are price-only indicators. The benefit of RoC is than it not only helps identify strength or weakness in sectors, but it also helps us discover when, for instance, small caps are showing relative strength over mid-cap or large-cap stocks. Additionally, it helps identify which markets, eg. Canada, US, France, Singapore, etc. are showing relative strength.

To conclude the momentum rankings, the highest rated sectors in the U.S. are Internet stocks, Financials, and the above-cited Materials sector. Lowest rated are Biotech, Utilities and Telecom.

Internationally, the highest rankings are Latin American (developing market) Australia (commodity exports) and Israel (technology). Lowest ranked are Japan, the U.S. and Italy, all manufacturing-driven economies.

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If you live in the Toronto area and would be interested in attending an upcoming CastleMoore investment seminar, send an email to info@castlemoore.com. If you live outside of the Toronto area and would be interested in participating in a Castlemoore online webinar, we’d like to here from you too.

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

www.castlemoore.com

Tech Talk’s Weekly Column in the Financial Post

(Available by paid subscription at www.nationalpost.com )

Scheduled release was delayed last week. The following column appeared last Tuesday:

Silver’s Shining Outlook

Silver usually has a period of seasonal strength at this time of year. What are prospects this year?

Seasonal Influences

Silver has a period of seasonal strength from the end of October to the end of May. Silver has gained in nine of the past 10 periods for an average gain per period of 21.4%. Although silver is responsive to changes in the price of gold, it tends to have a greater correlation with base metal prices that also have a period of seasonal strength from the end of November to May.

Chart courtesy of Brooke Thackray

Technical Influences

Silver is considered as “Gold’s poorer cousin” and usually lags the performance of gold in times when speculators are focusing on gold as a monetary commodity. The silver/gold ratio has been in an intermediate uptrend since last October. However, the focus of gold as a monetary commodity briefly reversed this trend in September and October. The ratio bottomed at the beginning of November and is showing early technical signs of resuming its upward intermediate trend.

Technical action this week in individual silver equities confirms that trader interest once again is moving from gold equities to silver equities. Silver equities, that broke key resistance levels this week, included Pan American Silver, Silver Wheaton and Silver Standard.

Technical action by silver remains positive. Intermediate trend remains up. Short term momentum indicators are overbought, but continue to trend higher.

Fundamental Influences

The price of silver is based primarily on:

§ Its store of value as a quasi-monetary commodity (like gold),

§ Demand from a wide variety of industrial users,

§ Supplies from producing mines.

Fundamental factors expected to influence silver prices between now and next May include demand outstripping new mine supply, increasing demand for industrial purposes as world economies improve and increasing demand for investment purposes triggered by weakness in the U.S. Dollar.

What to do?

A variety of silver based Exchange Traded Funds and equities are available for the seasonal trade. Possible Exchange Traded Funds that track silver bullion prices include iShares Silver Trust (SLV) and Horizon Beta Pro Comex Silver ETF (HUZ). In addition, Claymore offers a Silver Bullion Closed End Trust (SVR/UN) that currently is trading at a 12.8% discount to Net Asset Value. A wide variety of equities track the price of silver. Preferred strategy is to own higher quality silver producer equities and to avoid more speculative offerings.

Editor’s Update: Silver maintains a positive intermediate technical profile. Intermediate trend is up. Next support is at $16.11 U.S. per ounce. Its short term technical profile based on short term momentum indicators has been negative during the past 10 days. Stochastics already are oversold, but have yet to show signs of bottoming. Start of a seasonal “sweet spot” based on the seasonality chart above normally appears in the second half of December. Comments by John Embry and Ian McIvity at a lunch presentation on precious metals yesterday confirmed that the outlook for silver is significantly more positive than gold. Stay turned for a more refined technical entry point.

Chart courtesy of StockCharts.com www.stockcharts.com

Tech Talk’s column in this Saturday’s Financial Post discusses, “Investment Opportunities related to Climate Change”.

Thackray’s 2010 Investor’s Guide

Tech Talk frequently mentions Brooke Thackray and his book entitled, “Thackray’s 2010 Investor’s Guide”. The book summarizes attractive seasonal trades that are available during the year. The book can be purchased electronically or directly at Chapters, Amazon.ca, Barnes & Noble and Amazon.com. Following are links to these book stores:

http://www.chapters.indigo.ca/books/Thackrays-2010-Investors-Guide-Brooke-Thackray/9780978220037-item.html?ref=Search+Books:+%27thackray%27s%27
http://www.amazon.ca/gp/product/097822003X/ref=s9_sims_gw_s0_p14_i1?pf_rd_m=A3DWYIK6Y9EEQB&pf_rd_s=center-1&pf_rd_r=0773ED3P045NMSDK94ZA&pf_rd_t=101&pf_rd_p=465532811&pf_rd_i=915398
http://search.barnesandnoble.com/Thackrays-2010-Investors-Guide/Brooke-Thackray/e/9780978220037/?itm=1
http://www.amazon.com/Thackrays-2010-Investors-Guide-Seasonal/dp/097822003X/ref=sr_1_1?ie=UTF8&s=books&qid=1252640152&sr=8-1

Seasonal trades in the book that currently are active include Agriculture, Information Technology, Consumer Discretionary, Natural Gas and Metals & Mining.

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.

Don Vialoux is a research analyst for JovInvestment Management Inc. All of the views expressed herein are the personal views of the author and are not necessarily the views of JovInvestment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by JovInvestment Management Inc

HAP Seasonal Rotation E.T.F. | HAC-T $10.13  December 10

Open	10.110			-
High	10.150		-
Low	10.110		-
Bid x45	10.110		-
Ask x50	10.140		-
Volume	9,650		-
52-wk High 12/03	10.400		-
52-wk Low 12/09	10.000		-

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