ShareThisPre-opening Comments for Wednesday August 25th
U.S. index futures are lower this morning. S&P 500 futures are down 8 points in pre-opening trade. Index futures are responding partially to a downgrade of Ireland’s sovereign debt rating by Standard & Poor’s.
Index futures further weakened following release of the July Durable Goods Orders report at 8:30 AM EDT. Consensus was a gain of 2.5%. Actual was a gain of 0.3%. Excluding transportation related to aircraft sales, orders fell 3.8%. The Dow Jones Industrial Average is expected to open below the 10,000 level.
![clip_image001[1]](http://www.timingthemarket.ca/techtalk/wp-content/uploads/2010/08/clip_image00111.gif "clip_image001[1]")
Canadian Imperial Bank of Commerce reported higher than expected third quarter earnings. Consensus was $1.53 per share. Actual was $1.66.
Penn West Energy was downgraded by Macquarie from Outperform to Neutral.
Rogers Communications was downgraded by TD Newcrest from its Action Buy list to Hold.
Technical Action Yesterday
Technical action by S&P 500 stocks was notably bearish yesterday. No S&P 500 stocks broke resistance and 15 stocks broke support (Allegheny Tech, Dell, Fastenal, Fifth Third, H&R Block, Huntington Bancshares, Medtronic, Nucor, Office Depot, Sprint Nextel, Starbucks, Teradyne, Tenet Healthcare, Valero and Yahoo. The Up/Down ratio slipped from 0.67 to (159/243=) 0.65
Technical action by TSX Composite stocks also was notably bearish yesterday. Two TSX broke resistance (Couche Tard and Metro) and seven stocks broke support (Bank of Montreal, National Bank, PetroBank, Peyto, Research in Motion, Royal Bank and Westjet. The Up/Down ratio fell from 1.55 to (98/69=) 1.42.
BMO InvestorLine and Horizons AlphaPro Presents:
A Conversation with Don Vialoux
When: Thursday August 26th starting at 5:00 PM EDT
Where: York Room, First Canadian Place, 68th floor, Toronto
Everyone is welcome
Please RSVP by sending an email to rsvp@hapetfs.com or call 866 641 5739
Interesting Charts
Canadian bank stocks were a focus after Bank of Montreal reported lower than expected fiscal third quarter results. Several stocks in the sector broke key long term support levels and appear poised to move lower including Bank of Montreal, National Bank and Royal Bank. The TSX Financial Services Index and its related ETF also broke support on higher than average volume and completed a massive head and shoulders pattern.
U.S. Steel stocks were notable on the list of stocks breaking support (Nucor and ATI Technologies). The sector is a leading indicator for U.S. industry.
Weekly Technical Review of Select Sector SPDRs
All sectors are trading above their July 1st low. Financial services are closest to breaking below July 1st lows.
Short term momentum indicators for all sectors are trending lower. Stochastics for all sectors already are oversold, but have yet to show signs of bottoming.
Best performing sectors relative to the S&P 500 Index since July 1st lows were Industrials, Energy, Utilities, Materials and Consumer Staples. Equally weighted sectors were Technology and Consumer Discretionary. Under performing sectors were Financial Services and Health Care.
Best performing sectors during the past week were Energy, Utilities and Consumer Staples. Health Care was a neutral performer. Under performing sectors included Technology, Consumer Discretionary, Industrials, Materials and Financial Services.
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The Financial Philosopher |
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Ken Norquay, CMT |
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Partner, CastleMoore Inc. |
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Cold War: Yellow Alert |
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August 6, 2010 |
Do you remember Barry McGuire’s 1965 hit, Eve of Destruction? “If the button is pushed, there’s no runnin’ away . . . Can’t you see the fears that I’m feeling today?” His protest song reflected the wide-spread belief that we lived in a time of danger.
In the 1950s, The Saturday Evening Post featured articles like Will A-bombs Fall? and College Communists. The underlying sentiment was the same as McGuire’s protest song: we live in a time of danger and we need to stay alert and protect ourselves.
That sentiment was a big part of life in the 1950s and ‘60s: two generations had been involved in massive world wars. The parents and grandparents of baby boomers were directly involved in these wars. War had become part of their personal psyche. Danger was part of their upbringing. For them, world politics involved constant vigilance: in order to protect ourselves, we need to see danger ‘way earlier and respond ‘way earlier. They lived their lives on yellow alert.
But 60 or 70 years of relative peace have lulled their baby-boomer children and grandchildren into complacency. Bobby McFerrin’s reggae song, Don’t Worry, Be Happy reflects their rosy optimistic state of un-alertness.
We see the same phenomenon in the financial world. The 1929-to-1932 collapse of the stock market and the Great Depression of the 1930s had a deep effect on our parents and grand-parents: they handled their investments with caution, constantly maintaining monetary yellow alert.
In my investment book, Beyond the Bull, I discuss the concept of yellow alert as it applies to investing. In my CD, The Five Levels of Investor Consciousness, I cite modern-day examples of financial disasters and how they destroyed investors’ wealth. My goal is to help people do their investing with the mindset of yellow alert.
But so far, it’s not working. It seems the impact of the 1982-to-2000 bull market has lulled investors into complacency. In the 1990s mutual-fund boom, we were told we could become rich like Warren Buffet by buying mutual funds and holding them for the long term. But when the bear market began in the year 2000, the rules changed. And now, ten years later, Warren Buffet is even richer, but investors in typical equity mutual funds are not. After ten years of poor performance, stock market investors should be getting back to the yellow alert attitude of previous generations. But that’s not happening. Stock market investors are still complacent.
What will it take to wake people up?
That’s the problem. We know from studying the alertness of the population for 100 years that it takes a disaster to wake people up. Two world wars put our parents and grandparents on “international politics yellow alert.” A stock market crash and a depression put the same generations on “financial yellow alert.” Will it take another mega-war to alert this generation to the notion of international self-defence? Will it take another stock market crash to alert us to the notion of financial self defence? What will it take?
Here’s how it looks so far:
- Yellow Alert International Politics Observation: A dictator in North Korea has openly threatened nuclear war. He is intentionally provoking a war with South Korea and with the West. Rosy Complacency Response: This dictator no longer has the unfailing support of the People’s Republic of China and is not going to start a war without it.
- Yellow Alert Observation: The government of Iran is developing a program designed to give them nuclear weapons. The Iranian president is openly denying it, but Iran’s nuclear program just keeps rolling along. Rosy Complacency Response: When Iraq tried to do the same thing decades ago, the Israeli Air Force bombed the nuclear installation. No problem. If worst comes to worst and Iran doesn’t stop its nuclear program, the Israelis will stop it for us.
- Yellow Alert Financial Observation: America’s biggest bank, biggest insurance company, biggest auto manufacturer, biggest stock broker, and biggest mortgage company all had to be bailed out in the last two years. Certain sovereign states are unable to pay their debts and are being bailed out by the European Common Market. This indicates that the decline of corporate America may not be over. Rosy Complacency Response: The stock market climbs a wall of worry. The early stages of all long-term bull markets are accompanied by unfavourable economic news (the so-called wall of worry).
- Yellow Alert Observation: Americans are currently debating re-stimulating their economy because some are worried that a second wave of recession could start at any time. Such an occurrence could trigger another dramatic 2008-style sell-off in the stock market. Rosy Complacency Response: Same as above. The stock market climbs a wall of worry. The early stages of all long-term bull markets are accompanied by unfavourable economic news.
Advice for those who have achieved yellow-alert status: Reduce risk in your portfolios. For most people, this means investing less in the stock market and more in the bond market. Change your asset mix and become more safety-oriented and less growth-oriented.
Advice for those who are continuing with their original plan of buying and holding for the long term: Listen more to your own instincts and less to your financial planner, your mutual-fund salesman, or your stock broker.
To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).
This article and others by Ken are available at http://kennorquay.blogspot.com.
Contact Ken directly at ken@castlemoore.com.
Interesting observation from a top ranked technical analyst
Jeff Degraff, the technical analyst rated number #1 in the U.S. noted on Fast Money last night that he remains bearish on U.S. equity markets during the next few weeks. He also noted that U.S. equity market on average bottom on October 7th during a mid-term election year. Sound familiar?
Special Free Services available through www.equityclock.com for a limited time only
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FP Trading Desk Headlines
FP Trading Desk headline reads, “TSX Mines and Metals sub index set to rise”. Following is a link to the report:
http://business.financialpost.com/2010/08/24/tsx-mines-and-metals-sub-index-set-to-rise/
Editor’s Note: Thackray’s 2010 Investor’s Guide notes that the period of seasonal strength for the Mines and Metals sector is from November 19th to May 5th. Fundamentals are lining up for an interesting seasonal trade late this year given the lower than average level for base metal inventories.
FP Trading Desk headline reads, “Hindenburg omen creator backs up crash claim with cash”. Following is a link to the report:
http://business.financialpost.com/2010/08/24/hindenburg-omen-creator-backs-up-crash-claim-with-cash/
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
HAC Seasonal Rotation ETF HAC $11.07 August 24th 2010
· Open 11.05
· Close 11.07 (Up $0.04)
· High 11.08
· Low 11.05
· Bid 11.05 x15
· Ask 11.14 x4
· Volume 9,587
· 52-week High 11.37 06/03
· 52-week Low 9.44 02/05
· Beta 2.30
· Net Asset Value per unit:$11.02 (Unchanged)
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Discussions from the Tech Talk Forum:
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August 25th, 2010 at 6:31 am
Welcome back! What are your thoughts on the health care sector? It’s oversold during its seasonal strength, but fundamentals seemed to be mixed.
August 25th, 2010 at 6:46 am
Welcome back from your holiday! I was wondering if you had any thoughts on this year’s Agriculture seasonal trade in light of the BHP/POT drama. Is it likely to peak earlier than usual this year, once the takeover mania subsides?
August 25th, 2010 at 6:54 am
Good morning Ron, any technical thoughts on SNDK? It’s on my possible buy list this morning.
August 25th, 2010 at 6:58 am
Slava: Only thing I noticed 1st thing was RIM bounce off support. What I didn’t mention is there is resistance at 51 and then 52 and then far more at 53. You would need to look at a 60 min chart to see this. So right now RIM is tagging 51 which is 1st resistance. With such a bearish market and bearish stock you have to question being long these stocks as there are more likely to respect resistance than support. I’ll look at SNDK but thought I should mention this 1st as I didn’t yesterday when discussing RIM.
August 25th, 2010 at 7:16 am
Slava: Good Morning. SNDK was in a nice uptrend and even made new highs in June. Until recently it has not suffered sell offs to any degree. It gaped down yesterday and continues to sell off today very bearishly breaking the 39-40 price support area. Next minor support is 34 but far more significant support would be at 32. That was the Jan high that price broke up over in March and successfully tested it as support also in March. It is also the 18 month uptrendline support and would be slightly more than a mild Fib 38.2% retracement. I wouldn’t touch it until 32 with this changing market. Most of the indicators I use are really rolling over hard and the weight of the evidence is getting very bearish overall. The S&P could find some support right now at 1040 and bounce but overall the markets do not look like its time to get long much. Many support levels are breaking down as well as the trend has rolled over and the tide has changed from incoming to outgoing. Just keep that in mind.
August 25th, 2010 at 7:20 am
Thank you Ron. I’m glad RIM didn’t crumble below $50 – one of the Canadian analysts was discussing RIM this morning and mentioned $90+ target. I don’t have too much hope short-term. If markets continue to be so weak it will probably head down again unless it gets more positive coverage, etc.
Manulife continues falling. It was interesting to see how CIBC beat expectations yet it didn’t move financials in a positive direction – bad sign.
August 25th, 2010 at 7:20 am
Ron/BC:
Now that HNU has broken support, how much more downside. Thanks for your thoughts.
August 25th, 2010 at 7:40 am
The market took SNDK from $45 down to $36 in one week on no bad news… this is how it works, I guess. Sometimes there is just no explanation. I am holding a few SNDK shares purchased at $41 but will not average down in the environment, too scary.
August 25th, 2010 at 8:28 am
Kay: HNU like most of the double ETFs has a downward bias unless price is trending. But price has broken below the 5 dollar support level that was holding up until this week when price broke below even the intraday low of 4.80. I have noticed HNU tracks closely to Oct Nat Gas more so than the continuous contract if you are following any of them. The only somewhat bullish observation I have seen with Nat Gas is since May the front months have been consistently outperforming the back months for a change. (The Oct contract is outperforming the Jan contract.) While that’s not a lot to jump up and down about it is a good sign to see front months doing better than back months with higher highs and higher lows even if prices of each are falling. Just might be the 1st crocus coming up in late winter type of thing……..oscillators are also in the very oversold zone as well. But price is king and what’s traded so it is still a bear even with positive seasonals beginning now. Fundamentals are still terrible with huge supplies and easy access. One could do a spread trade and be making money since May with a buy Oct NG/Sell Jan NG but you’d need a futures account to do such a thing. HNU would need to clear 5 again to suggest a signficant turnaround…..That’s all I see here…………
August 25th, 2010 at 8:41 am
Hi Kay and others. I occasionally play HNU and HOU as well. Inventory reports have been bearish for the past while, and expect the same for next report on nat gas (to be reported on Thursday at 10:30 EST). As a result, I like to see the report before taking a position, since I find that bearish news puts downward pressure on HNU (though the oil inventory report doesn’t always do the same for HOU).
August 25th, 2010 at 9:30 am
Would anyone like to comment on the following prediction for the market in the next several months:
The S+P500 could correct by between 11% and 16% to between 884 and 936. Why?
The 10 year yield is now at 2.5%. For the index to equal this yield would require a level of 884. Even if dividends expand at the 30 year historic average of 6% the index would still correct to 936. Yield seems to be more important than ever and the extremely low 10 year yields imply a distributing equity market.
884 to 936 seem like the correct range as well because this implies earnings of $77.4 and an 11.4 to 12 times multiple. These multiples are warranted due to “new normal” conditions of de-leveraging and regulation.
Earnings of $77.4 are likely as analysts expect $85 or so in 2011 and research shows US analysts overestimate earnings by 14 to 28% over the past 10 years.
August 25th, 2010 at 11:15 am
Any comment on Timberwest Forest Corporation(TWF.UN)? Seems to be losing ground? Any signs of bottom?
Thanks
Sunny
August 25th, 2010 at 12:05 pm
Ron, interesting action today in the markets, esp. financials. Big swing from morning to afternoon. I bought some Teck shares in the morning – don’t know if I should sell for a small profit or keep my fingers crossed and keep it for tomorrow (sounds like gambling, doesn’t it?).
August 25th, 2010 at 12:16 pm
Slava: Well if you look at a S&P 500 chart you can see why I said I expected a bounce off 1040. That was the May and early June lows with the big spike lower in July. You often see this pattern. It is actually a very “potentially” bullish pattern as well being a large multi month Inverse Head and Shoulder pattern coming back to 1040. I don’t expect it to complete with a cross above 1130 but with other technicals I follow I do expect a big rally to blow the socks off all those shorts out there. Far too much bearish opinion and short selling for the market to keep that many people happy. The market wants every one’s money not just the bulls. May not happen but I expect a sharp rally on some bullish viewed news soon to explain it all away. And they always explain it all away. The news was terrible today and look at the market bounce off 1040 and run. Same with Crude and its up too. So much for the news. You can day trade Teck and just get out or raise your stop up to break even like many day traders or swing traders do. Then you basically have a free trade. If it stops you out you break even and if it runs you raise you stop up to capture the bulk of the run up. I often just grab the money and run especially in a questionable market but to each his/her own.
August 25th, 2010 at 12:33 pm
Hi Don
Could you tell us support levels for MFC-T ?
Thanks
Jeff
August 25th, 2010 at 1:28 pm
“The market wants everyone’s money not just the bulls.” – love it, well said. I bet as soon as the “big boys” sensed that the small guys are fearful and shorting the markets in full swing, they turned the ship around which led to shortcovering, etc. Firms like Goldman must be making a killing in this volatile environment. Ron, don’t you think at some point individual investors will stop trading alltogether? I think it’s just too hard for an individual to succeed in equity markets on a consistent basis.
August 25th, 2010 at 1:44 pm
Slava: Agree. When you constantly hear about doom and gloom on the markets you can bet you are being baited and set up to respond to their plan. There is an old saying “If it’s obvious,it’s obviously wrong.” That tends to be true. I always avoid obvious trades. Too many people on one side of the boat so to speak. Remember Nortel,lol… And yes investors are dwindling for sure. If you look at the SPY ETF of the S&P500 you can see the volume getting lower and lower right from the lows in March/09 despite the big rally. After being trashed in 2000 to 2002 and again from 2007 to 2009 the average trader/investor has thrown in the towel. Even faster since the May 6th flash crash. They are now heavily into bond funds or anything that gives them yield. The few stocks they do own are dividend paying ones that they will keep for income and not be concerned with capital appreciation so won’t be likely to sell them like regular stocks. That is why I have to ask who is going to do the selling for the big crash and burn everyone is talking about. A more likely scenario is a choppy wild swinging market both ways by technical traders. But I just watch my charts as that is reality not a story. Overall things are technically bearish and getting worse but the sentiment suggests it could be time to trash the bears for a little while on some phony economic story. Too many happy bears out there to continue down I think. But I’ll let the charts decide. They know better than I ever will…………
August 25th, 2010 at 3:53 pm
Don: we’re coming up to the Nat Gas rally season. Right now it seems to be lining up nicely. Can you please provide commentary on the entry point, and also what might drive it below $3.80 something support level? Recall last year it plummeted to ~$2.50 before taking a real quick jump. Are there enablers to take it below support this time? Is there a probability of a quick rise like last year? Thanks
August 25th, 2010 at 4:44 pm
Michael:
What do you mean for “Inventory reports have been bearish for the past”, do you compare with prior storage report/s or with estimates? situation now:
Region Stocks in billion cubic feet (Bcf) Historical Comparisons
08/13/10 08/06/10 Change Year Ago (08/13/09) 5-Year (2005-2009) Average
3012 2985 27 3197 -5.8 2816 7.0
last week estimated +23 and the real change is +27
I was watching to learn, HND opened at 7.01 went down to 6.70 and jumped up to 7.36 So with +4 more gas over estimated HNU lost and HND increased 5%
The estimated now is +43, please explain
what is your interpretation? Next week estimate is +43
August 25th, 2010 at 4:50 pm
08/13/10 08/06/10 Change Year Ago (08/13/09) 5-Year (2005-2009) Average
—-3012 —-2985 —-27 —-3197 %change-5. ==========2816 % change7.0
the numbers do not alig, spaces compacted
August 25th, 2010 at 7:33 pm
A few comments..
SP 500 index… Made it to just below the 1040 target posted last week. A nice bounce and reversal today. Will have to see if rebounds more than the Fib. 61.8% of this last minor wave drop.
MFC.. The falling knife continues as myself and Ron/BC posted recently. Since MFC is likely mainly owned as a dividend income stock, the div. cut last year hit really hard. The cut was announced Aug. 6/09 and MFC along with others such as SLF dropped sharply that day. Before the cut, MFC and SLF were both yielding about 4% and the day of the cut MFC was yielding 2.3% and SLF 4.4%. Today the yields are MFC 4.4% and SLF 6%. The yields have narrowed but are still apart. Put another way, MFC price is down 55% from the day before the cut and SLF is down 36%. For the yields to equalize MFC would have to drop to $8.67 assuming SLF stayed the same or if SLF price rises, MFC would have to rise slower. I know this is over simplified as it assumes MFC will not have better days ahead and SLF does not cut its div. But for me, as it was a year ago, I have followed MFC but will not think of buying until it is closer in yld to its peers. There is a lack of support below til last year’s $9 or so.
BNS PUTS.. With this morning’s spill-over from yesterday’s sharp drop and short term low targets met, and also BNS drop to 200 day EMA,which has been support recently,I sold Oct 46 BNS puts for $.72 with the stock near $50. I did this despite the seasonal worries that have kept me from new buys since July. Even if we do get a market drop and I am forced to buy, my cost will be $45.28. This is the 7th time I’ve sold puts on BNS in the last year.
John
August 26th, 2010 at 5:26 am
Maybe everyone is right in seeing a potential reversal in SP500. The fundamentals for tech sector and the technical indicators were bad in early 1999 and the market rose 60% after. US housing looked overbought and debt in 2006 but the market rose 40% after. Markets are irrational so the fundamentals maybe don’t matter right now.