Pre-opening Comments for Monday May 3^rd

U.S. equity index futures are higher this morning. S&P 500 futures are up 5 points in pre-opening trade. Index futures are responding to an agreement between Greece, European finance ministers and the International Monetary Fund on Greece’s sovereign debt.

Responses by equity indices to economic news released at 8:30 AM EDT were minimal. Consensus for April Personal Income was a gain of 0.3% versus a gain of 0.3% in March. Actual was a gain of 0.3%. Consensus for April Personal Spending was a gain of 0.6% versus a gain of 0.3% in March. Actual was a gain of 0.6%.

UAL and Continental Airlines reached an agreement to merge in a $3 billion stock swap. UAL is trading slightly higher on the news.

Commodity prices are higher this morning including crude oil, gold and silver. Strength in commodity prices is expected to buoy the TSX Composite at the opening.

Apple gained 1% after announcing sales of one million iPads since launch.

Piper Jaffray initiated McDonalds at an Overweight rating.

CAE received an order for flight simulators valued at $50 million.

Stock of the Day from EquityClock.com

Technical Analysis: Find “utility” in this defensive play: Edison International (EIX)

http://www.equityclock.com/2010/05/02/find-utility-in-this-defensive-play-technical-analysis/

Performance by Equity Markets and Sectors in the Month of May

The month of May historically has been an encouraging month for the Canadian equity market. During the past 10 periods, May has been the best performing month for the TSX Composite Index. It advanced in 7 of the past 10 Mays for an average gain per period of 3.23%.

May also has been a good month for most major U.S. equity indices and sectors:

Index                       Average Return   Frequency of + ve    Monthly rank

                               Per Period (%)    Returns out of 10

S&P 500                       1.07                          7                        2

Dow Jones Industrials    1.04                          5                        3

Russell 2000                 1.39                           7                       4

Dow Jones Transport    2.64                           9                       3

Among developing nations, Brazil’s Bovespa Index has been the best performer. It gained an average of 3.26% per period (third best month).

Strongest U.S. sectors based on 20 years of data were Consumer Staples, Consumer Discretionary, Financials and HealthCare. Weakest sector was the Semi-conductors. Strongest sub-sectors were gold, retailing and banks. Data came from Thackray’s Investor’s Guides.

Most of the gains in equity markets were registered during the first week in May.

Among commodities, crude oil was notably higher. May was the strongest month of the year with gains in 6 of the past 10 periods for an average gain of 7.38% per period.

Gold and gold stocks also were on the list of top performing commodities. Gold gained an average of 2.04%, the Amex Gold Bug Index advanced an average of 7.23% per period (rank #2) and the Philadelphia Gold & Silver Index improved an average of 7.03% (rank #1)

Related to strength in gold was strength in platinum. Platinum moved higher in 8 of the past 10 periods for an average gain per period of 3.96%.

Economic News

The focus this week is on the employment report on Friday

March Personal Income to be released at 8:30 AM EDT on Monday is expected to increase 0.3% from unchanged in February.

March Personal Spending to be released at 8:30 AM EDT on Monday is expected to increase 0.6% versus 0.3% in February.

March Construction Spending to be released at 10:00 AM EDT on Monday is expected to slip 0.3% versus a decline of 1.3% in February.

April ISM to be released at 10:00 AM EDT on Monday is expected to increase to 60.0 from 59.6 in March.

March Factory Orders to be released at 10:00 AM EDT on Tuesday is expected to slip 0.2% versus a 0.6% gain in February.

April ISM Services to be released at 10:00 AM EDT on Wednesday is expected to improve to 56.1 from 55.4 in March.

First Quarter Preliminary Productivity to be released at 8:30 AM EDT on Thursday is expected grow at a 2.4% rate versus a 6.9% rate in the fourth quarter.

April Non-farm Payrolls to be released at 8:30 AM EDT on Friday is expected to increase to 187,000 from 162,000 in March. The April unemployment rate is expected to remain unchanged at 9.7%. April Hourly Earnings are expected to improve 0.1% versus a decline of 0.1% in March.

Earnings Reports

The frequency of Canadian first quarter reports ramps up. The frequency of U.S. first quarter earnings reports ramps down.

Monday sees Magna International

Tuesday sees Baker Hughes, Cameco, Hudbay Mining, Kinross, Loblaw, Mastercard, Molson Coors, Pfizer, Suncor, Thomson Reuters and WestJet.

Wednesday sees Agrium, ARC Energy Trust, Devon Energy, Enbridge, MacDonald Dettwiler, Onex, SunLife, Talisman, Torstar and TransOcean.

Thursday sees Biovail, Canadian Natural Resources, CCL Industries, ManuLife and SNC Lavalin.

Friday sees IAMGold.

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 8.06 to (397/62=) 6.40. Most of the decline occurred on Friday. The ratio remains intermediate overbought and has started to trend lower.

Bullish Percent Index for S&P 500 stocks fell last week from 86.80% to 84.20% and dropped below its 15 day moving average. The Index is intermediate overbought and showing early signs of trending lower.

The Up/Down ratio for TSX Composite stocks fell last week from 3.07 to (136/49=) 2.78. The ratio is intermediate overbought and showing early signs of trending lower.

Bullish Percent Index for TSX Composite stocks fell last week fro 80.50% to 79.00% and remained below its 15 day moving average. The Index is intermediate overbought and trending lower.

The S&P 500 Index gave up 30.59 points (2.49%) last week. Intermediate trend remains up. Short term momentum indicators have rolled over from overbought levels and are trending lower. Favourable seasonal influences expire this week. The Index already is testing its 50 day moving average currently at 1,165.30. A break below its 50 day moving average implies an intermediate test of its 200 day moving average currently at 1,090.52. A short term break below 1,181.62 would not be friendly.

Percent of S&P 500 stocks trading above their 50 day moving average fell last week from 87.00% to 70.40%. Percent remains intermediate overbought and trending lower.

Percent of S&P 500 stocks trading above their 200 day moving average fell last week from 92.80% to 87.60%. Percent is intermediate overbought and has started to trend lower.

The Dow Jones Industrial Average dropped 195.67 points (1.05%) last week. Intermediate trend remains up. Favourable seasonal influences expire this week. Short term momentum indicators are overbought and are trending lower. Strength relative to the S&P 500 Index remains negative, but is showing early signs of change. A short term break below 10,965.38 would not be friendly.

Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week at 93.33% and remains below its 15 day moving average. The Index is intermediate overbought and showing signs of rolling over.

Bullish Percent Index for NASDAQ Composite stocks increased last week from 73.24% to 73.47% and remained above its 15 day moving average. The Index remains intermediate overbought.

The NASDAQ Composite Index fell 68.96 points (2.73%) last week. Intermediate trend is up. Short term momentum indicators are overbought and trending lower. Strength relative to the S&P 500 Index remains positive. A break below its 50 day moving average currently at 2,394.59 implies intermediate downside risk to its 200 day moving average at 2,192.94. A short term break below 2,451.72 would not be friendly.

The Russell 2000 Index lost 25.82 points (3.41%) last week. Intermediate trend is up. Short term momentum indicators are overbought and are trending lower. Strength relative to the S&P 500 Index remains positive. A break below its 50 day moving average currently at 685.73 implies intermediate downside risk to its 200 day moving average currently at 617.69.

The Dow Jones Transportation Average gave up 80.41 points (1.69%) last week. Intermediate trend is up. Short term momentum indicators are overbought and trending lower. Strength relative to the S&P 500 Index remains positive. A break below its 50 day moving average currently at 4,404.16 implies intermediate downside risk to its 200 day moving average currently at 4,015.91. A short term break below 4,574.89 would not be friendly.

The TSX Composite Index slipped 28.94 points (0.24%) last week. The Index currently is testing its 50 day moving average currently at 12,003.76. Intermediate trend remains up. Favourable seasonal influences expire this week. Short term momentum indicators are overbought and are trending lower. Strength relative to the S&P 500 Index has been negative, but is showing early signs of change. Intermediate downside risk is to its 200 day moving average currently at 11,454.33. A short term break below 11,953.95 would not be friendly.

Percent of TSX Composite stocks trading above their 50 day moving average fell last week from 60.00% to 50.50%. Percent remains intermediate overbought and trending down.

Percent of TSX Composite stocks trading above their 200 day moving average slipped last week from 75.00% to 70.50%. Percent remains intermediate overbought and trending lower.

The Australia All Ordinaries Composite Index fell another 79.60 points (1.62%) last week. Intermediate trend is up. Resistance has formed at 5,048.60. The Index fell below its 50 day moving average last week. Favourable seasonal influences expire this week. Daily MACD and RSI are trending down from overbought levels. Stochastics already are short term oversold. Strength relative to the S&P 500 Index remains negative. Intermediate downside risk is to its 200 day moving average currently at 4,676.80.

The Nikkei Average added 142.94 points (1.31%) last week. Resistance has formed at 11,408.17. Intermediate trend is up. Favourable seasonal influences are about to expire. The Index is testing its 50 day moving average currently at 10,806.93. Daily MACD and RSI continue to trend lower from overbought levels. Stochastics are recovering from an oversold level. Strength relative to the S&P 500 Index remains negative.

The Shanghai Composite Index gave up another 112.92 points (2.98%) last week and broke support at 2,890.02. Intermediate trend remains down. The Index remains below its 50 and 200 day moving averages. Short term momentum indicators already are oversold, but continue to trend lower. Strength relative to the S&P 500 Index remains negative.

The London FT Index gave up 170.36 points (2.98%), the Frankfurt DAX Index dropped 123.83 points (1.98%) and the Paris CAC Index fell 134.31 points (3.40%) last week. The FT Index and CAC Index fell below their 50 day moving average.

The Athens Index added 12.03 points (0.65%) last week. Intermediate trend is down. The Index broke support at 1,791.31 early in the week, but recovered 14% from its low set on Wednesday. Traders are expecting confirmation that a deal to finance its sovereign debt has been reached.

Currencies

The U.S. Dollar added 0.42 last week. It broke above resistance at 82.24. Intermediate trend remains up. Support is at 80.03. Its 50 day moving average has proven to be a reliable support level as well. Short term momentum indicators are overbought. Stochastics may have reached a short term peak. Weakness on Thursday and Friday can be attributed to anticipation of a settlement of the Greek financial crisis over the weekend.

Conversely, the Euro slipped 0.86 last week. It broke support at 132.69. Intermediate trend is down. Resistance is at 136.77. In addition, its 50 day moving average has proven to be a reliable resistance level during the past few months. Short term momentum indicators are oversold. Stochastics may be trying to bottom. As they say in the song, “Greece is the word”.

The Canadian Dollar slumped 1.86 cents U.S. last week. Intermediate trend remains up. Resistance has formed at 100.51. Short term momentum indicators are trending lower from overbought levels. A break below its 50 day moving average is imminent. Next support is at 97.06

Commodities

The CRB Index slipped 0.50% last week. It has formed a four week trading range between 272.68 and 280.83. Short term momentum indicators are mixed.

Crude Oil added $1.03 U.S. per barrel last week. Intermediate trend remains up. Resistance at $87.26 is being tested. Short term momentum indicators remain overbought.

‘Tis the season for gasoline to move higher! Nice breakout on Friday above resistance at $2.367. Declining inventories are the reason for strength. Gasoline is up 28% from its low early in February. Momentum indicators are overbought, but trending higher.

Natural gas fell 9.2% last week on a higher than expected inventory report. Short term momentum indicators are oversold. Looks like a base building pattern.

The S&P Energy Index fell 2.92% last week. Short term momentum indicators have rolled over from overbought levels. The end of the period of seasonal strength for the sector has come earlier than usual this year (Average date is May 9^th according to Thackray’s 2010 Investor’s Guide). Nice trade since the technical entry point in the second week in February!

One of the reasons for weakness in the S&P Energy Index is weakness in its subsector, oil services. The oil spill in the Gulf of Mexico has raised questions about the future of offshore drilling services. Short term momentum indictors have rolled over from overbought levels.

In contrast, the TSX Energy Index was unchanged last week. Interest in “oily” Canadian energy stocks increased partially due to realization that demand for Canadian oil by the U.S. is likely to increase if the oil spill in the U.S. curtails production or access to U.S. ports. On a seasonal basis, the Canadian energy sector has a history of moving higher until the first week in June.

Gold gained another $21.60 U.S. per ounce and broke above resistance at $1,169.70. Next resistance is at its all time high at $1,226.40. Short term momentum indicators are overbought, but continue to trend higher. Seasonality is positive in the month of May.

Gold equity indices broke resistance levels on Friday. Gold equities continue to outperform gold, a positive technical sign for both.

Nice breakout by Silver on Friday! Intermediate uptrend continues. Silver continues to outperform gold, an encouraging technical sign.

Platinum continues to move higher during its period of seasonal strength (ending May 31^st). Platinum also continues to outperform gold.

Technical deterioration in copper continues. Copper fell another $0.18 per lb. last week for a total declined during the past two weeks of 9%. Short term momentum indicators continue to trend down. Seasonal influences no longer are positive. Copper peaked with the recent peak in the Shanghai Composite Index.

Ditto for base metal stocks and ETFs!

The grain ETF continues to recover. Short term momentum indicators continue to improve from oversold levels.

Lumber finally is showing technical signs of peaking. It also peaked shortly after the Shanghai Composite Index reached its recent high. Short term momentum indicators have rolled over from overbought levels.

Interest Rates

Yield on 10 year Treasuries slipped 0.14% last week. Short term momentum indicators are oversold. Its 200 day moving average has proven to be a reliable support level..

Conversely, long term bond prices rallied last week.

Other Factors

The VIX Index jumped 32.7% last week and broke above its 50 and 200 day moving average, implying that traders have acknowledged greater risk in equity markets.

The Baltic Dry Index gained 11.3% last week, an encouraging sign for international trade.

First quarter earnings reports remain a focus. Equity prices are moving higher prior to release of reports. Most companies are reporting higher than consensus first quarter earnings and revenues. Following release of reports, three responses have been observed:

• When earnings and revenues substantially exceed consensus, stocks move higher.
• When earnings and revenues slightly or significantly miss consensus, stocks move sharply lower.
• When earnings and revenues slightly exceed consensus, stocks initially move higher, but quickly come under “sell on news” pressure.

Look for more of the same reactions this week. All of these reactions are typical of a market that is intermediate overbought and looking for a reason to move lower. The peak in frequency of U.S. earnings report season passed last week. The peak for frequency in Canadian earnings reports comes this week.

Political events in the U.S. will have a significant impact on equity markets this week. Equity markets responded strongly on Friday to the Goldman Sachs’ inquisition. Senator Levin’s bullying tactics were disgusting and clearly showed his lack of understanding of capital markets. His questions were not designed to elicit answers, but to embarrass the presenters. That’s not to say that Goldman Sachs was not culpable at least at an ethical level. News of a possible legal challenge by a Federal prosecutor announced on Friday effectively was “piling on”. All this comes at a time when the Democrats are trying to ram through a financial regulation bill this week. Greater regulation is needed, but some of the proposals in the current bill will encourage capital markets to “look for better opportunities elsewhere” (most notably in Asia and the Middle East). Unfortunately, the average American watching the “show” has less knowledge about capital markets than Levin and does not understand the longer term implications.

Other political events that are likely to influence equity markets this week include the British election next weekend (likely to end in a minority government), the oil spill controversy that is spilling into Obama’s lap and the continuing Greek financial crisis. Late last week, equity markets responded favourably to a possible political solution in Greece. However, acceptance of a solution by politicians and acceptance by the people in Greece is far from a “fait accomplis”. Civil disorder has broken out in small areas of Greece and could escalate. “It ain’t over until the fat lady sings”.

Economic events are expected to be mixed this week in the U.S. The focus is on a “big number” on Friday when April Non-farm payrolls are announced. This report is notorious for its revisions. This month the report is more uncertain than previous reports and is more difficult to assess. It will include the hiring of census workers, a figure that could vary by several hundred thousand. Did the federal government hire these workers in April or did they wait until May? Adding to the question is news released over the weekend that computer reports used by census workers showing people who did or did not file are not ready for processing by newly hired employees. More government bureaucracy and waste!

Seasonal influences for most major equity markets around the world and many major sectors end this week. According to Thackray’s 2010 Investor’s Guide, the average optimal date for the end of the period of seasonal strength in U.S. equity markets during the past 60 years has been May 5^th. Technicals suggest that the end of the period of seasonal strength this year actual happened two weeks ago when most equities in the S&P 500 Index reached a high.

Technical action by a wide variety of short and intermediate technical indicators (Up/Down ratios, stocks above their 50 and 200 day moving averages, Bullish Percent indices, number of stocks breaking support versus resistance by S&P 500 stocks at a 21 to 5 ratio on Friday) suggest that an intermediate peak for U.S. equity markets has passed. Risk based on current technical parameters suggests intermediate downside of 7%-10%.

History is repeating itself. The four year U.S. presidential cycle implies a peak in most equities and indices in the third week in April during a mid-term election year.

The Bottom Line

The 2-3 week period to take profits in seasonal trades on a wide variety of indices and sectors is drawing to a close. Technical indicators are useful for fine tuning exit points.

Tech Talk and EquityClock.com’s Weekly Column in the Financial Post Published on Saturday

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

It’s Time to Take Seasonal Profits

It’s time for a review of previous columns. Headline in the column last October 31^st was entitled, “Buy in October and go away: Best gains between October 28^th and May 5^th”. The column on January 30^th was entitled, “Material stocks to bloom in spring”. Both columns mentioned a period of seasonal strength in equity markets and sectors that ends on May 5^th. What happened to securities mentioned in these columns and what is the preferred strategy now?

The October 31^st column noted “Prepare for a refined entry point for the annual period of seasonal strength in North American equity markets” based on short term momentum indicators. Daily Moving Average Convergence Divergence, Relative Strength Index and Stochastics recorded buy signals on November 5^th with the S&P 500 Index at 1,066 and the TSX Composite Index at 11,181. Since then, the S&P 500 Index has gained 11.4 percent and the TSX Composite Index has improved 9.8 percent. As May 5^th approaches, short term momentum indicators are overbought. Anticipation of strong first quarter earnings reports are helping equity markets this spring. However, earnings reports will be a tough act to follow. Investors are in a “sell on news” mood. Chances are high that an intermediate peak in equity markets will occur this year between now and May 5^th. A rollover of short term momentum indicators will provide a profit taking signal for seasonal investors.

The January 30^th column favourably mentioned Materials SPDRs (XLB), iShares Dow Jones U.S. Basic Materials Sector (IYM) and Vanguard Materials ETF (VAW). The column noted that that “The seasonal entry point is lining up nicely this year. A refined technical entry point has yet to appear, but likely will arrive shortly”. Short term momentum indicators recorded a buy signal on February 5^th. Since then, Materials SPDRs have added 15.6 percent, iShares Dow Jones U.S. Basic Materials Sector improved 19.5 percent and the Vanguard Materials ETF advanced 17.9 percent. Units currently are overvalued. Short term momentum indicators already have rolled over. The end of the period of seasonal strength occurred earlier than usual this year. It’s time to take seasonal profits.

Enclosed is a chart showing the seasonality of the Materials sector:

An important subsector in the Materials sector is the Metals and Mining Sector. A favourable column on the sector entitled, “Base metals look solid” was released on November 14^th. Since then, the sector has recorded significant gains. Best performing Exchange Traded Fund in the sector was the S&P Metals and Mining Index SPDRs (XME). Since November 14^th, units have gained 26.3 percent. Units currently are technically overvalued. Short term momentum indicators already have rolled over. It’s time to take seasonal profits.

Jon Vialoux and Don Vialoux are authors of free daily reports on equity markets, sectors, commodities, equities and Exchange Traded Funds. Reports are available at www.timingthemarket.ca and www.equityclock.com

Tech Talk’s appearance on BNN Television on Friday

Following are links to the clips:

http://watch.bnn.ca/#clip296491

http://watch.bnn.ca/market-call-tonight/april-2010/market-call-tonight–april-30-2010/#clip296492

http://watch.bnn.ca/market-call-tonight/april-2010/market-call-tonight–april-30-2010/#clip296493

Tom Rogers’ Blog

Following is a link to Tom’s blog:

http://www.tomrogers.net/signpost.htm

EquityClock.com reports released on Friday

How to channel an impulse wave on a price chart

http://www.equityclock.com/2010/05/01/how-to-channel-an-impulse-wave-on-a-price-chart/

Technical Analysis: Closing the book on tax month

http://www.equityclock.com/2010/04/29/close-the-book-on-tax-month-technical-analysis/

Market sentiment: Options activity for April 30^th 2010

http://www.equityclock.com/2010/04/30/market-sentiment-options-activity-for-april-30-2010/

FP Trading Desk Headlines

FP Trading Desk headline reads, “U.S. Dollar decoupling from gold”. Following is a link to the report:

http://network.nationalpost.com/NP/blogs/tradingdesk/archive/2010/04/30/us-dollar-decoupling-from-gold.aspx

FP Trading Desk headline reads, “Fewer upside earnings surprises could temper stocks”. Following is a link to the report:

http://network.nationalpost.com/NP/blogs/tradingdesk/archive/2010/04/30/fewer-upside-earnings-surprises-could-temper-stocks.aspx

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:

U.S. Customers: Thackray’s 2010 Investor’s Guide: How to Profit from Seasonal Market Trends (Thackray’s Investor’s Guide)

Seasonal trades in the book that currently are active include Consumer Discretionary, Platinum, U.S. Materials, U.S. Retail, U.S. Oil Exploration & Production, U.S. Energy 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 $10.79 April 30 2010

· High 10.85

· Low 10.79

· Bid 10.79×0 lots

· Ask 10.84×0 lots

· Volume 2,900

· Open 10.84

· Close 10.79

· 52-week High 10.91 on Apr 14

· 52-week Low 9.44 on Feb 5

· Beta 2.26

· Net Asset Value per unit: $10.77

Sponsored By...

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