(Editor’s Note: No pre-opening comments today and tomorrow. Mr.Vialoux is presenting and participating in the Institutional Trading Technology Summit in Toronto)

Economic News This Week

Inflation is the focus this week.

April Producer Prices to be released on Tuesday at 8:30 AM EDT is expected to increase 0.1% versus a gain of 0.7% in March. Excluding food and energy, April Producer Prices are expected to increase 0.1% versus a gain of 0.1% in March.

April Housing Starts to be released on Tuesday at 8:30 AM EDT is expected to increase to 656,000 units from 626,000 units in March. April Building Permits also to be released at 8:30 AM EDT are expected to remain unchanged from the March report at 680,000.

April Canadian Producer Prices to be released on Tuesday at 8:30 AM EDT are expected to increase 0.1% versus a gain of 0.7% in March. Excluding food and energy, April PPI is expected to increase 0.1% versus a gain of 0.1% in March.

April Consumer Prices to be released on Wednesday at 8:30 AM EDT is expected to increase 0.1% versus a 0.1% increase in March. Excluding food and energy, April Consumer Prices are expected to remain unchanged versus no change in March.

April Leading economic indicators to be released on Thursday at 10:00 AM EDT are expected to increase 0.2% versus a gain of 1.4% in March.

May Philadelphia Fed to be released on Thursday at 10:00 AM EDT is expected to increase to 21.3 from 20.2 in April.

April Canadian Consumer Prices to be released on Friday at 7:00 AM EDT is expected to increase 0.2% versus an increase of 1.6% in March. April core CPI on a year over year basis is expected to increase to 1.8% versus 1.7% in March.

March Canadian Retail Sales to be released on Friday at 8:30 AM EDT is expected to be unchanged versus a gain of 0.5% in February. Excluding auto sales, Retail Sales are expected to increase 0.4% versus a decline of 0.1% in February.

Earnings News This Week

Monday sees Lowe’s and Sears Holdings

Tuesday sees Hewlett Packard, Home Depot, TJX Companies and Wal-Mart

Wednesday sees Applied Materials, Deere, Limited Brands and Target

Friday sees Gap Stores

Equity Index Trends

The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) improved last week from 1.47 to (242/158=) 1.53. Intermediate trend remains down.

Bullish Percent Index for S&P 500 stocks improved last week from 61.40% to 63.20% but remained below its 15 day moving average. The Index remains in an intermediate downtrend.

The Up/Down ratio for TSX Composite stocks improved last week from 0.94 to (89/77=) 1.16. Intermediate trend remains down.

Bullish Percent Index for TSX Composite stocks improved last week from 70.00% to 70.85% but remained below its 15 day moving average. Intermediate trend remains down.

The S&P 500 Index gained 24.80 points (2.23%) last week. Intermediate trend remains up. Resistance is at 1,219.80. Support is forming at 1,065.79. The Index found short term resistance near its 50 day moving average. Short term momentum indicators tried to recover from oversold levels last week, but the recovery quickly faded on Thursday and Friday.

Percent of S&P 500 stocks trading above their 50 day moving average improved from 14.80% to 55.00%, but faltered badly on Thursday and Friday to close at 30.20%. Percent has reached an intermediate oversold level, but has yet to show signs of bottoming.

Percent of S&P 500 stocks trading above their 200 day moving average improved from 67.00% to 82.40%, but faltered to 71.80% by Friday. Percent remains intermediate overbought and is trending down.

The Dow Jones Industrial Average gained 239.73 points (2.31%) last week. Intermediate trend is up. Intermediate resistance is at 11,258.01. Support is forming at 9,869.62. Short term resistance has formed near its 50 day moving average. Short term momentum indicators tried to recover early last week, but faltered on Thursday and Friday. Strength relative to the S&P 500 Index continues to improve.

Bullish Percent Index for Dow Jones Industrial Average stocks improved last week from 62.22% to 66.67%, but remained below its 15 day moving average. The Index remains intermediate overbought and trending lower.

Bullish Percent Index for NASDAQ Composite Index stocks improved last week from 62.27% to 63.50%, but remains below its 15 day moving average. The Index remains intermediate overbought and trending down.

The NASDAQ Composite Index jumped 81.21 points (3.58%) last week. Intermediate trend is up. Intermediate resistance is at 2,535.28. Support is forming at 2,185.75. Short term resistance is forming near its 50 day moving average. Short term momentum indicators recovered from oversold levels early last week, but stalled on Thursday and Friday. Strength relative to the S&P 500 Index remains positive.

The Russell 2000 Index added 40.98 points (6.28%) last week. Intermediate trend is up. Intermediate resistance is at 745.95. Support is forming at 637.69. Short term momentum indicators recovered from oversold levels early last week, but stalled on Thursday and Friday. Strength relative to the S&P 500 Index remains positive.

The Dow Jones Transportation Average increased 189.61 points (4.41%) last week. Intermediate trend is up. Intermediate resistance is at 4,812.87. Support is forming at 4,169.05. Short term momentum indicators recovered early last week, but faltered on Thursday and Friday. Strength relative to the S&P 500 Index remains positive.

The TSX Composite Index gained 322.54 points (2.76%) last week. Intermediate trend is up. Intermediate resistance is at 12,321.76. Support is forming at 11,422.73. Short term momentum indicators recovered from oversold levels, but faltered on Thursday and Friday. Strength relative to the S&P 500 Index remains positive.

Percent of TSX stocks trading above their 50 day moving average improved from 22.50% to 45.00% but faltered on Friday to close at 39.70%. Percent is intermediate oversold, but has yet to show signs of bottoming.

Percent of TSX stocks trading above their 200 day moving average improved from 55.50% to 66.00%, but faltered late in the week to close at 60.80%. Percent remains intermediate overbought and trending lower.

The Australia All Ordinaries Index recovered 135.60 points (3.01%) last week. Intermediate trend is neutral. Resistance is at 5,048.60. Support could be forming at 4,450.20. The Index remains below its 50 and 200 day moving averages. Short term momentum indicators tried to recover from oversold levels early last week, but failed to maintain momentum on Friday. Strength relative to the S&P 500 Index remains negative.

The Nikkei Average added 97.92 points (0.94%) last week. Intermediate trend remains up. Resistance is at 11,408.17. Support is at 9,867.38. The Average bounced from near its 200 day moving average. Short term momentum indictors are oversold, but have yet to show signs of recovery. Strength relative to the S&P 500 Index remains slightly negative.

The Shanghai Composite Index added 8.14 points (0.48%) last week. Intermediate trend remains down. The Index remains below its 50 and 200 day moving averages. Short term momentum indicators are oversold and are showing early signs of bottoming. Strength relative to the S&P 500 Index remains negative.

The London FTSE Index added 130.83 points (2.55%), the Frankfurt DAX Index improved 341.62 points (5.98%) and the Paris CAC Index gained 167.77 points (4.95%) last week.

The Athens Index added 27.82 points (1.71%) last week. Initial enthusiasm last Monday following news of the trillion dollar EU bailout quickly was met with skepticism. Most of the gain on Monday was lost. Intermediate trend remains down. The Index remains below its 50 and 200 day moving average. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Currencies

The U.S. Dollar gained another 1.64 last week and closed at its high on Friday. Intermediate trend is up. It remains above its 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking. Currency flows are in a “flight to safety” mode.

Conversely, the Euro lost another 3.98 last week and closed at its low on Friday. Support levels at 125.01 and 123.94 were broken on Friday. The Euro closed at a four year low. Intermediate trend is down. The Euro trades below its 50 and 200 day moving averages. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

The Canadian Dollar added 0.78 last week. Intermediate trend remains up. Support is at 93.15. Resistance is at 100.51. Short term momentum indicators are mixed.

Commodities

The CRB Index gave up another 2.77 points (1.0%) last week and currently is testing support at 256.89. The Index closed near its low on Friday. Most of the weakness occurred in the energy sector. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Crude oil lost another $1.47 U.S. per barrel (2.0%) last week and closed near its low on Friday. Support at $69.50 is being tested. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Unleaded Gasoline was unchanged last week. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Natural gas gained $0.31 (7.65%) last week and broke above resistance at $4.42. Short term momentum indictors continue to recover from oversold levels.

The S&P Energy was virtually unchanged last week. Strength relative to the S&P 500 Index remains negative. Intermediate trend remains down. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

The TSX Energy Index added 4.67 points (1.68%) last week. Seasonal influences are positive until the Canadian Association of Petroleum Producers’ Conference in Calgary. This year, the conference is scheduled between June 14^th and June 16^th. Performance of this seasonal trade has been less than average to date. Time for performance is approaching an end. Short term momentum indicators are oversold, but showing early signs of bottoming. Strength relative to the TSX Composite Index has been slightly positive during the past six weeks. The question now is “When is the time to liquidate the seasonal trade”? The charts will let us know.

Gold was the star performer last week. A “flight to safety” in currency markets included the purchase of gold. Gold broke resistance at $1,226.40 to reach an all time high. It gained $24.10 U.S. per ounce. Short term momentum indicators are overbought, but have yet to show signs of peaking.

A word of caution on gold’s short term outlook! Mark Leibovit noted that the gold ETF (GLD) recorded a volume reversal sell signal on Friday. Mark commented on gold on BNN after the close on Friday. Here is the link: http://watch.bnn.ca/#clip302338

The Philadelphia Gold & Silver Index gained another 6.94% last week. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Silver added another $0.94 (5.1%) last week and broke resistance at $19.45. Short term momentum indicators are overbought, but have yet to show signs of peaking.

The period of seasonal strength in Platinum (January/end of May) is ending.

Platinum gained $48.60 (2.92%) last week. It currently is testing resistance at $1,755 per ounce. Nice bounce from its 50 day moving average! Short term momentum indicators are short term overbought. Seasonal profit taking is approaching, but technicals currently suggest holding for now.

Copper was virtually unchanged last week. It is trying to find support near its 200 day moving average. Short term momentum indicators are oversold and trying to bottom.

The grains ETN slipped 2.6% last week despite news that the Chinese were big buyers of U.S. grain. Base building continues. Place this one on your radar screen for an interesting seasonal trade starting in July. The charts will guide us.

Lumber lost another 3.5% last week. Demand has dropped following completion at the end of April of the government incentive program for first home buyers. Not a good sign for the home building industry! Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Interest Rates

The yield on 10 year treasuries was virtually unchanged last week. It remains locked in a 12 month range between 3.26% and 4.01%. Short term momentum indicators are neutral.

The long term T-Bond ETF also was virtually unchanged last week.

Other Factors

The VIX Index plunged from 42.15% on Friday May 7^th to 24.30% on Thursday and rose sharply to 31.24% on Friday when uncertainties about Europe and financial regulation in the U.S. returned.

Historically, VIX above 40% has signaled a buying opportunity after the move has been completed. However, evidence, that the current move above 40% is over, is lacking. Please be patient.

The Baltic Dry Index gained another 8.9% last week, an encouraging sign that international trade continues to recover.

Economic news is expected to be neutral for equity markets this week.

The European financial crisis is far from over. Investors are skeptical. Size of the rescue package was enormous, but the political will to implement the plan is lacking. At least one major European investment dealer predicted on Friday that the Euro could drop to “par” relative to the U.S. Dollar before stabilizing. On the other hand, the short Euro trade is so overbought at present that the inevitable short covering rally will be violent. However, “catching a falling knife” can be dangerous for your financial health. Timing of the rally is uncertain.

“The gloves are off “between the left leaning Obama administration/ Democratic controlled Congress and private enterprise in the U.S. Consider the following that happened last week:

• Oil company executives were grilled by Congressional leaders led by some of the more left leaning members
• President Obama admonished oil company executives on Friday for their actions to defend themselves.
• A Senate Committee passed a bill that effectively placed price controls over debit card charges
• Excessively strict price limits on equity transactions were proposed and likely will be implemented by the SEC today.
• Financial regulation legislation continues to progress through Congress. Many of the proposed measures are needed. Some are onerous and will prompt capital flows to move to other markets if passed, most notably to China and the Middle East
• Goldman was charged for completing short transactions that were not covered by borrowed securities, an illegal practice that has become rampant on Wall Street. However, timing of charges launched by the SEC seems rather opportune given the current political environment. No other firms were charged.
• The New York attorney general announced his intention to probe potential legal action against the eight largest U.S. banks.
• Goldman Sachs’ executives were defending their actions and talking about a possible $1 billion settlement without admitting guilt. However, administration officials showed a distinct lack of interest.

This is typical of action taken by political parties prior to a mid-term election. Political rhetoric is just starting to ramp up. Net result will be increasing uncertainty until late fall, which, in turn will create growing uncertainties in equity markets. Congress has placed a “bull’s eye” on the back of Goldman Sachs and is using every possible means to attack the company. That’s not to say that Goldman does not deserve criticism. However, unrelenting attacks on the company that is the biggest “market mover” on Wall Street is not good news for U.S. equity markets. As they say, “As goes Goldman Sachs, so goes Wall Street”. Goldman currently has an ugly chart. It became uglier last week despite the recovery in equity markets.

First quarter earnings reports are not expected to have a significant impact on equity markets this week. The earnings report season is winding down on both sides of the border. Reactions to earnings reports have been consistent during the past three weeks. Unless a company substantially exceeded consensus expectations, most equities quickly came under profit taking pressures shortly after releasing results. Not an encouraging scenario for equity markets into early this summer!

And now, a brief hope! Thackray’s 2010 Investor’s Guide notes that U.S. equity markets have a short period of seasonal strength near the end of May during the Memorial Day holiday. According to the Guide, U.S. equity markets historically have moved higher from the two trading days prior to the Memorial Day holiday to the first five market days in June. Given that the U.S. Memorial Day holiday occurs this year on Monday May 31^st, the “sweet spot” this year is from the open on May 27^th to the close on June 7^th. The trade has been profitable 69% of the time since 1971. Average return per period by the S&P 500 Index was 1.3%. Preferred strategy is to watch the technicals closely to see if they line up for a short term trade this year. Is a short term recovery rally likely? It’s possible if geopolitical events stabilize during the next 10 days. However, short term strength is an opportunity to liquidate additional equity positions.

U.S. equity markets continue to follow their historic trend during a mid-term election year. History shows a peak in the third week in April followed by a correction into the third week in May followed by a recovery into the first week in June followed by continuing weakness until the end of September.

The Bottom Line

Short term strength between now and the first week in June is an opportunity to liquidate additional equity positions. Specialty trades (e.g. pair trades) are possible.

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

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

The Consumer Switch Strategy

Sometimes the simplest investment strategies are the best. Thackray’s 2010 Investor’s Guide describes one of these strategies.

The strategy is to own an Exchange Traded Fund that tracks the Consumer Discretionary sector from October 28^th to April 22^nd, and to switch to an Exchange Traded Fund, that tracks the Consumer Staples sector from April 23^rd to October 27^th. Since 1990, the flip-flop between sectors has been profitable in 29 of 38 trades. To put the strategy into perspective, consider the following. Over the past 19 years the S&P 500 Index has gained 157 percent. At the same time, the gain by the S&P Consumer Discretionary Index was 158 percent, while the gain by the S&P Consumer Staples Index was 277 percent. The compounded return for investors who completed the switch strategy was 1,096 percent!

Preferred investment vehicles for the strategy are Consumer Staples SPDRs (Symbol: XLP) and Consumer Discretionary SPDRs (Symbol: XLY). The Consumer Staples SPDR holds shares in the titans of everything that is part of your daily routine from Coca-Cola to Phillip Morris. Mind you these are American ETFs, which explains why a junk food company and a tobacconist are considered staples. Conversely, the Consumer Discretionary SPDR holds all of the stocks that are discretionary in nature, or at least classified in that way, including McDonalds, Walt Disney, and Home Depot. All of these stocks are part of the S&P 500 Index.

The reason why the strategy works most of the time is that discretionary stocks tend to outperform the S&P 500 Index during the November to April period when seasonal gains benefit from favourable economic events. Conversely, staple stocks tend to outperform the S&P 500 Index during the more volatile April to November period when investors are seeking safety and stability from the market’s ups and downs. The mix of safety and risk is what makes this strategy work well by investing in the appropriate sector at the appropriate time.

Investors can determine optimal times for the twice yearly switch by examining technical indicators. Short term momentum indicators against a chart showing an overlay of the two sectors can fine tune entry and exit points. The latest date for the switch from the consumer discretionary sector to the consumer staple sector occurred on May 3^rd. That’s when daily Stochastics, Relative Strength Index and Moving Average Convergence Divergence recorded buy signals on the overlaid chart.

With the two plays in order, why not pair them up? In May, an investor buys a consumer staples Exchange Traded Fund on the optimal entry date and sells short a consumer discretionary Exchange Traded Fund with comparable value. A profit is made when performance between the two sectors widens in favour of the consumer staples sector. As economic uncertainties during this mid-term U.S. election year become apparent, the spread between the consumer staple and consumer discretionary stocks is expected to widen in favour of the staples sector until this fall. Make this strategy a staple in your portfolio.

Jon and Don Vialoux are authors of free daily reports on equity markets, sectors, commodities, equities and Exchange Traded Funds. Reports are available at http://TimingTheMarket.ca and http://EquityClock.com

Tom Rogers’ “Elliott Wave” Blog

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

EquityClock.com reports released on Friday

Signs of deflation you might not be able to see clearly

http://www.equityclock.com/2010/05/15/signs-of-deflation-you-might-not-be-able-to-see-clearly/

Gaining on the day: Newmont Mining (NEM)

http://www.equityclock.com/2010/05/14/gaining-on-the-day-newmont-mining-corporation-nysenem/

Market sentiment: Options activity for May 14^th 2010

http://www.equityclock.com/2010/05/14/market-sentiment-options-activity-for-may-14-2010/

FP Trading Desk Headline

Headline reads, “Gulf oil spill may have killed climate change bill”. Following is a link to the report:

http://business.financialpost.com/2010/05/14/gulf-oil-spill-may-have-killed-climate-change-bill/

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 most of 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://search.barnesandnoble.com/Thackrays-2010-Investors-Guide/Brooke-Thackray/e/9780978220037/?itm=1

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 $10.61 May 14 2010

· Close 10.61 (down $0.04)

· High 10.67

· Low 10.60

· Bid 10.61 x0

· Ask 10.65 x0

· Volume 7,655

· 52-week High 10.91 04/14

· 52-week Low 9.44 02/05

· Beta 2.29

· Net Asset Value per unit: $10.61 (Down $0.01)

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