Pre-opening Comments for Wednesday January 27th
U.S. equity index futures are mixed this morning. S&P 500 futures are up 1 point in pre-opening trade. Traders are waiting for news from a series of news events include testimony by Treasury Secretary Tim Geithner, minutes from the FOMC meeting and President Obama’s State of the Union address.
Apple added 1% in anticipation of launch of its tablet product this morning.
Toyota fell 7% after suspending production and sales of many of its North American products due to a recall triggered by sticky accelerator pedals.
Several S&P 500 companies reported higher than consensus fourth quarter earnings including Caterpillar, Boeing, United Technologies, Abbot Labs and ConocoPhillips. In addition, Yahoo reported higher than consensus revenues.
Canadian National Railway reported slightly lower than consensus fourth quarter earnings. However, the company also announced a small increase in its dividend and offered positive guidance for 2010.
‘Tis the season for U.S. oil service stocks to move higher! Baker Hughes was upgraded from Market Perform to Outperform by Calyon. Target was raised from $45 to $55. Rowan Companies was upgraded from Neutral to Buy at MKM Partners.
Bank of America/Merrill reinstated coverage of the fertilizer sector by giving Agrium, Mosaic and Potash Corp. a Buy recommendation. Target for Agrium is $71. Target for Mosaic is $75. Target for Potash Corp is $140.
Cenovus was upgraded by Macquarie from Market Perform to Outperform. Target is $31.
Amazon.com added 1% after several investment firms upgraded the stock.
Aurizon Mines was upgraded from Market Perform to Outperform by Raymond James.
Technical Action Yesterday
Technical action by S&P 500 stocks remains bearish. Two S&P 500 stocks broke resistance (Sherwin Williams and Target) and six stocks broke support (Allegheny Energy, CME Group, Freeport McMoran Copper & Gold, Intercontinental Exchange, Metro PCS Communications and Molson Coors). The Up/Down ratio fell from 4.11 to (338/87=) 3.89.
Technical action by TSX Composite stocks remains bearish. One TSX stock broke resistance (Keyera) and five stocks broke support (Cenovus, Fairfax Financial, Inmet, Silver Wheaton and Suncor). The Up/Down ratio fell from 4.31 to (151/40=) 3.70.
The S&P Metals and Mining Sector
(A sub-sector of the S&P Materials sector)
According to Thackray’s 2010 Investor’s guide, the S&P Metals and Mining Sector has a period of seasonal strength from November 19th to May 6th. The trade has been profitable in 14 of the past 20 periods. Average return per period was 13.8%. Average return per period exceeded the S&P 500 Index returns by 7.9%.
The sector has a seasonal sweet spot between January 29th and May 6th. The trade has been profitable in 13 of the past 20 periods for an average return per period of 6.3%.
Chart courtesy of Brooke Thackray
Strength during the period of seasonal strength can be attributed to rising demand and prices for basic commodities including copper, zinc, nickel, steel, iron ore, silver and platinum.
Technical influences
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Global Mining ETF has a mixed technical profile. Intermediate trend recently changed from up to neutral when the Index fell through support at 98.39. The Index has dropped 12.3% since its high two weeks ago. Short term momentum indicators are trending lower and already are oversold. However, they have yet to show technical signs of bottoming. Strength relative to the TSX Composite Index is negative and has not shown technical signs of recovering.
Fundamental influences
Earnings growth prospects in 2010 are exceptional. Demand for materials is expected to accelerate as spending from economic stimulus programs announced by the world’s largest nations last year start to focus on infrastructure programs. Planning and engineering have been completed. The shovels for many of these programs go into the ground this spring. Prices of basic materials including copper, zinc, lumber, steel, iron ore, silver and platinum are expected to continue their uptrend from depressed 2009 levels.
Seasonality in key stocks in the TSX Global Mining Index from Jan. 29th to May 5th
Company Average Return Frequency of
Per Period (%) Profits (out of past 10 periods)
BHP Billiton 23.7 5
Rio Tinto 2.4 7
Freeport McMoran Copper 21.4 7
Goldcorp 6.9 6
Teck Corp. B 22.3 9
The Bottom Line
The seasonal trade in the sector is lining up nicely this year. A refined technical entry point has yet to appear, but likely will arrive shortly. ETFs in the sector include the Claymore S&P/TSX Global Mining Index (CMW), BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD Index (ZMT), the Horizons double leveraged HBP S&P/TSX Global Base Metal Bull Plus ETF (HMU) and the S&P Metals & Mining SPDR (XME).
The U.S. Materials Sector
Seasonal influences
Thackray’s 2010 Investor’s Guide notes that the U.S. Material sector has a period of seasonal strength from January 29th to May 6th. The trade has been profitable in 16 of the past 20 periods. Average return per period was 8.0%. The sector outperformed the S&P 500 Index by 4.5% per period.
Strength can be attributed primarily to increasing prices and sales volumes. Demand for steel, lumber, base metals and chemicals increases during the February to May period when the spring construction season is in full swing.
Chemical stocks have a 60% weight in the S&P Materials sector.
Following is a summary of the seasonality of ten top holdings in the sector during the past 10 periods from January 29th to May 6th .
Company Average Return Frequency of
Per Period (%) Profits (out of 10)
Freeport McMoran 21.37 7
Dow Chemical 6.36 8
Dupont 5.18 8
Praxair 12.05 10
Newmont 0.77 4
Alcoa 8.29 7
Air Products & Chemicals 9.14 9
Nucor 17.09 8
International Paper (1.15) 6
Ecolab 3.52 5
Technical influences
The S&P Materials Index currently has a mixed technical profile. Intermediate trend recently changed from up to neutral when the Index broke below support at 191.95. The Index also broke below its 50 day moving average at 199.70, but remains above its 200 day moving average at 177.56. Intermediate downside risk is to support at 175.03. Short term momentum indicators are trending lower from overbought levels. Stochastics already are short term oversold, but have yet to show technical signs of bottoming. Strength relative to the S&P 500 Index has been negative since the beginning of January, but showed possible signs of improvement last week during difficult equity market conditions.
Chart courtesy of StockCharts.com www.stockcharts.com
Fundamental influences
Earnings growth prospects in 2010 are exceptional. Demand for materials is expected to accelerate as spending from economic stimulus programs announced by the world’s largest nations last year start to focus on infrastructure programs. Planning and engineering for these programs have been completed. The shovels for many of these programs go into the ground this spring. Prices of basic materials including copper, zinc, lumber, steel, iron ore and chemicals already are recovering from depressed 2009 levels.
Fourth quarter earnings reports released to date by companies in the sector have not helped their share price. Earnings were substantially lower than the same period last year, but have been in line or better than consensus estimates. Monsanto fell over 10% after its release and Freeport McMoran Copper &Gold dropped over 19% from its recent high.
Earnings prospects in 2010 are exceptional. Demand for materials is expected to accelerate as spending for economic stimulus programs announced by the world’s largest nations last year start to focus on infrastructure programs. Planning and engineering for programs have been completed. The shovels for many of these programs go into the ground this spring. Prices of basic materials including copper, zinc, lumber, steel, iron ore and chemicals already are recovering from depressed 2009 levels.
The Bottom Line
The seasonal trade in the sector is lining up nicely this year. A refined technical entry point has yet to appear, but likely will arrive shortly. Liquid ETFs in the sector include Materials SPDRs (XLB), iShares U.S. Basic Materials Sector (IYM), Materials VIPERs (VAW). Materials SPDRs are the most actively traded ETF in the sector.
The U.S. Oil Services Sector
Seasonal Influences
According to a recent seasonality study by Brooke Thackray, the U.S. oil services sector has a period of seasonal strength from January 31st to May 9th. The trade has been profitable in 17 of the past 20 periods. Average return per period was 14.2%. Return from the sector exceeded return from the S&P 500 Index by 11.0%.
Seasonality is influenced by rising crude oil and refined product prices during the February to May period as well as an increase in the demand for rigs during the winter drilling season. Following is a chart showing seasonality in the Oil Equipment and Services Index during the past 10 periods from January 31st to May 9th
Chart courtesy of Brooke Thackray
Following is a summary of the seasonality of the top holdings in Oil Services HOLDRs during the January 31st – May 9th period
Company Average Return Frequency of
Per Period (%) Profits (out of 10)
Baker Hughes 13.7 9
BJ Services 16.5 8
Cameron International 21.5 10
Diamond Offshore Drilling 16.4 9
Halliburton 18.2 9
Noble Energy 17.6 8
Schlumberger 16.6 8
Transocean 19.5 8
National Oilwell Varco 20.6 8
Weatherford 28.3 10
Technical Influences
Oil Services HOLDRs currently have a mixed to mildly positive intermediate technical profile. Intermediate trend is up. The stock is testing its 50 day moving average and remains well above its 200 day moving average. Short term momentum indicators are trending lower from an overbought level. Stochastics already are short term oversold. Support is indicated at 110.43 and its 200 day moving average at 109.59. Resistance is indicated at $134.45. Strength relative to the S&P 500 Index has weakened since the beginning of January, but strengthened last week during a period of weak equity markets.
Chart courtesy of StockCharts.com www.stockcharts.com
Fundamental influences
Fourth quarter earnings reports released to date by companies in the sector have recorded substantial earnings declines, but have beat consensus estimates. Schlumberger and Halliburton quickly came under profit taking pressures following release of results. That trend is expected to continue.
Prospects for 2010 are encouraging. Year-over-year earnings comparisons are expected to turn positive in the third quarter. Gains will come from a ramp up of horizontal drilling in gas prone shale areas, drilling in offshore Brazil and expansion of Middle East capacity. Notable will be an increase in activity in Iraq.
The Bottom Line
The seasonal trade in the Oil Equipment and Services sector is lining up nicely this year. A technical entry point has yet to arrive, but is expected to occur shortly. Oil Services HOLDRs is the most actively traded ETF in the sector. Other liquid ETFs in the sector include Dynamic Oil and Gas Services (PXJ) and Oil and Gas Equipment and Services SPDRs (XES).
Adrienne Toghraie’s Trader’s Coach Column
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Blind Sighted
By Adrienne Toghraie, Trader’s Coach
Who is doing the trading?
Unless you have a black-box system or someone who pulls the trigger for your trades, the history of your life is in control of the execution and management of your trades. Your life is filled with beliefs, conflicts and emotional issues that sit beside you for every trade you make. Opportunity that is passed over, not taken or mismanaged is a reflection of whether you have dealt with those issues effectively. Most people are blind sighted to their issues.
Over the years I have been surprised when after the first hour of presenting a workshop or seminar, a participant will say that a comment I made was worth the price of the seminar. In contrast I have also been surprised when I have completed a seminar or workshop and someone has said “But I thought that I would leave this workshop and all my discipline issues would be solved.”
I know it all
TJ was the kind of guy who repeated technical trading courses ten times over at a school where they only charged for the first go-round. If you would ask him anything about the markets, most forms of strategy in various commodities and securities, he would give concise good answers. But when it came to execution, that was a different story.
Before taking my workshop, TJ asked two questions that when asked under normal circumstances, I would tell a trader that the workshop was not for him. I did not have that flexibility because I was presenting this workshop for a school. What TJ asked was, “Will you give a money-back guarantee” and “Can I repeat this workshop without charge?” When a person is focused on these questions, it has been my experience that he will not be able to receive the benefits of the material offered.
At the end of the workshop when I was receiving praise from everyone about the benefits that they received, TJ said, “I already knew most of what you taught, but you did not get to the heart of my problem.” I responded by asking, if he had completed the workbook as he took the workshop. (As an aside, TJ was late to the workshop, took longer breaks, several times left to answer the buzzer on his cell phone and did not fill out the workbook during the workshop.) He said that he planned to fill the workbook out at home.
During the course of the workshop, TJ made sure that everyone knew how he fled another country, where he lost his family in a civil war, went through two divorces and had a child with Down syndrome. I made sure to let him and everyone know that there was not enough time to work on each person’s personal issues in a four-hour workshop. TJ brought uncontrollable laughter to the group when he said, “My personal issues do not have anything to do with why I cannot trade.”
“Macho, macho man”
A trader named Bud, who produced phenomenal results in his trading for the gas company he worked for, was asked to put together a trading group. Always wanting to be on the winner’s side, he was determined that his group would be highly profitable. Rather than hiring trained traders who already showed good results, he decided to hire his old football buddies and train them. Needless to say, the group was bleeding money.
The head of the company hired me to come in to work with the traders and see what was going on. Bud did not like me “messing” with his group and decided to do everything to sabotage my results. When I saw what I was dealing with, I went back to the person that hired me and said that we had to have a group meeting with Bud and his traders. Bud chose to have the meeting during the lunch hour. The minute we were seated, Bud said, ‘Beer for everyone,” at which point the head of the company said, “No.” Bud walked out of the luncheon and encouraged three of his five buddies to come with him. The remaining two said that they needed their job and would do whatever it took, but since they had not left with the group, they were sure that they would be harassed for not supporting Bud.
Bud, was fired along with the three that worked with him. I worked with the remaining two on their discipline issues and found that Bud had done an excellent job in teaching them the technical part of trading. One of the two became an exceptional trader and the other was an average steady trader.
Conclusion
Open your eyes and look at the bottom line of your performance. If you have all the technical skills that should bring in good results, and you are not producing the results you should, then it is all about the psychological issues that you have not dealt with.
FREE Upcoming Workshops in New York City
Adrienne Toghraie Presents
Overcoming Sabotage Traps Workshop
Thursday – February 11 – 5:30 P.M. EST
New York City – Call for location details – 919-851-8288
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Monday – February 15 – 1:30-2:30 P.M. EST
At the Trader Expo February 14 – 17 – Marriott Marquis Time Square
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S&P Fourth Quarter Earnings and Revenue Score Card
According to CNBC, 24% of S&P 500 companies have reported calendar fourth quarter earnings to date. 80% reported earnings in excess of consensus estimates and 65% reported revenues in excess of consensus. Revenue growth on a year-over-year basis was 12%. Of the 118 reporting companies, 56 were financial service and information technology companies. Earnings from reporting companies rose 196% on a year-over-year basis. Excluding earnings from financial service companies, earnings rose 11%.
Keith Richard’s Blog
Keith discusses, “The beginning of the end”. Following is a link to his blog:
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 directly at Amazon.ca and Amazon.com. Following are links to these book stores:
Seasonal trades in the book that currently are active include Information Technology, Consumer Discretionary, Small Cap, Platinum 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 $10.03 January 26th 2010
|
Open |
10.010 |
|
) |
- |
|
High |
10.030 |
- |
||
|
Low |
10.000 |
- |
||
|
Bid x2 |
|
- |
||
|
Ask x50 |
|
- |
||
|
Volume |
12,075 |
- |
||
|
52-wk High 01/18 |
10.650 |
- |
||
|
52-wk Low 12/09 |
10.000 |
- |
Net Asset Value: $9.96 per unit.
January 27th, 2010 at 8:03 am
Thanks for the TA on metals and energy, Don. That is much appreciated.
January 27th, 2010 at 9:02 am
Hi Don,
What signals are you looking for to make the call to enter into the seasonal sectors you talk about above?
MACD > 0?
RSI > 30?
Stochastics > 20?
Thanks.
January 27th, 2010 at 9:13 am
Hi Don,got into HND recently, already up 16%, and taking profits on 50%, see resistance around $ 8.50 for a doubling of buying price, could it go higher. also HXU looks to have found support around $16.30, do you see this as a good entry point. Thanks for your great call on Canadian Financials back in March. Jan Mohammed.
January 27th, 2010 at 10:05 am
Hi Don
I know agriculture is not in seasonality now. I am looking at JJG-N, as it is getting close to it’s low over the past year. Any advice on JJG-N would be greatly appreciated.
Thanks
Jeff
January 27th, 2010 at 10:16 am
Hi Don:
Can you pls comment on the seasonality of small cap stocks with a highlight on those listed in the venture exchange. Is the market correction going on right now lying up for a good entry point?
January 27th, 2010 at 12:38 pm
Hi Don:
I was interested in what your thoughts were about stock to bond ratios and charting them. I was hoping to chart the S&P 500 index over the 10 Year US Treasury Note Price over a long period of time like 20 years. I have been able to chart a couple years of data on StockCharts.com but have been much more interested in using 20 years worth of data. I have been able to find historical prices on T-bill yields but nothing on the actual prices of T-bills themselves. From the chart I have made it appears the stock/bond ratio is strongly correlated with S&P 500 chart maybe I am wasting my time.
The whole point of this is I am trying to build upon your HAC fund strategy for a project in school and thought using a tactical asset allocation approach outside of your seasonal investing though sector rotation strategy would help my lower risk and possible enhance returns since you can earn capital gains on bonds as well.
Is the stock to bond ratio a good indicator to help decide whether we should overweight equities or debt?
Steve
January 27th, 2010 at 3:35 pm
Hi Don,
Thank-you for including the appropriate seasonal ETF’s with your analysis. I also really appreciated the inclusion of U.S. individual company names with their return/profit information. How did you find the individual company information? Is there a possibility of including Canadian companies as well?
I find your weekly/daily analysis is the fast track to increasing my skill level.I also purchased the Brooke Thackray book as a way of accessing more information on seasonal rotation and as a way to track how the current season is progressing. Thanks for all of your great work.
Debora
January 27th, 2010 at 3:53 pm
Don,
Noticed that HAC had a lower low and higher high compared to yesterday and todays close was higher than yesterdays high. According to your teachings this is a very Bullish event. Any comment?
Allan
January 27th, 2010 at 5:59 pm
Hi Huy. Several technical indicators are used including Stochastics ( a move above 20%), RSI (a recovery from 30%), MACD (a narrowing of the moving average spread when the moving averages are below the 0 line), price (at least one day when trading moves above the previous day’s price range) and recent positive strength relative to a benchmark index such as the S&P 500 Index).
January 27th, 2010 at 6:05 pm
Hi Jeff. Brutal draw down during the past two weeks, down 15%. Momentum indicators for JJG are short term oversold, but have yet to show signs of bottoming. Support is indicated at $34.23. Better opportunities are available elsewhere (including opportunities in several sectors that shortly will enter their period of seasonal strength.
January 27th, 2010 at 6:11 pm
Interesting idea, Steve. Sorry, haven’t completed an equity/bond ratio study yet. Thackray’s 2010 Investor’s Guide may be helpful. The book shows that total returns from long term U.S Treasuries have a period of strength from May to December. Equities have a period of seasonal strength from November to April.
January 27th, 2010 at 6:13 pm
Hi Debra. Seasonal studies on individual stocks within a sector is a new service that will be expanded over time and includes information on Canadian sectors (A study on the Canadian energy sector recently was completed and will be issued when more timely)
January 27th, 2010 at 6:18 pm
Hi Allan. HAC reached a new low today, not a good technical sign. On the other hand (from a completely biased point-of-view) Stochastics at 9.47% began recovering today (positive cross over of its moving averages) and are about to record a Stochastics buy signal on a move above 20%. Cheers!