ShareThisPre-opening Comments for Tuesday September 7th
U.S. equity index futures are lower this morning. S&P 500 futures are down 7 points in pre-opening trade. Traders are responding to a Wall Street Journal article suggesting that recent stress tests of European banks were not a rigorous as previously announced. Many of the banks’ reserves are based on sovereign debt in countries such as Greece where valuations are somewhat suspect.
Gold also responded to the Wall Street Journal article. It gained $10 in pre-opening trade and is testing its all time high at $1,265.00 U.S.
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Both the Philadelphia Gold and Silver Index and the AMEX Gold Bug Index are poised to break above six month highs. ‘Tis the season for gold and gold stocks to move higher!
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Art Cashin noted on CNBC this morning that equity markets move in 17.6 year cycles on average. A good cycle is followed by a bad cycle where equity returns are close to nil. He claims that equity markets currently are in a bad cycle and have another seven years to go. As Art noted, “Buy and hold is dead”!
Oracle added 7% after Goldman Sachs upgraded the stock from Buy to Conviction Buy. Target price is $27. Over the weekend Oracle announced that Mark Hurd, former CEO at Hewlett Packard has been hired as co-President of Oracle.
Goodrich was upgraded by Goldman Sachs from Neutral to Buy. Target price is $85
General Dynamics slipped 1% after Goldman Sachs reduced its rating on the stock from Buy to Neutral.
Canadian Imperial Bank of Commerce added 0.50% after RBC Capital raised its rating on the stock from Sector Perform to Outperform. Target price is $89.
Economic News This Week
Economic news is quiet this week.
The Bank of Canada announces its overnight lending rate at 9:00 AM EDT on Wednesday. Economists are equally split on the possibility of a 0.25% increase in the overnight lending rate.
The Federal Reserve’s Beige Book is released at 2:00 PM EDT on Wednesday
Weekly jobless claims to be released at 8:30 AM EDT on Thursday are expected to slip from 472,000 to 470,000.
July U.S. Trade Deficit to be released on Thursday is expected to slip from $49.9 billion to $47.2 billion.
Canada’s July Trade Balance to be released at 8:30 AM EDT is expected to be a deficit of $0.8 billion versus a deficit of $1.1 billion in June.
Canada’s August Housing Starts to be released at 8:15 AM EDT is expected to slip to 185,000 from 189,100 in July.
Canada’s August employment to be released at 7:00 AM EDT on Friday is expected to increase 25,000 versus a decline of 9,300 in July. Canada’s August unemployment rate is expected to remain unchanged at 8.0%.
Earnings News This Week
Earnings reports are sparse this week.
Wednesday sees Transcontinental and Viterra
Thursday sees Empire Companies.
Equity Trends
The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) increased last week from 0.61 to (191/227=) 0.84
Bullish Percent Index for S&P 500 stocks improved last week from 44.20% to 49.80% and matched its 15 day moving average. Intermediate trend remains down.
The Up/Down ratio for TSX Composite stocks increased last week from 1.46 to (191/227=) 1.83
Bullish Percent Index for TSX Composite stocks improved from 62.63% to 65.66% and remained above its 15 day moving average. Intermediate trend remains down.
The S&P 500 Index gained 39.92 points (3.75%) last week. Intermediate trend remains down. Support remains at 1,010.91. Resistance remains at 1,129.24. The Index moved back above its 50 day moving average and recovered to just below its 200 day moving average. Its 200 day moving average has proven to be a reliable intermediate resistance level during the past four months. MACD and Stochastics have recovered to a neutral level. Stochastics have recovered to an overbought level, but have yet to show signs of peaking.
Percent of S&P 500 stocks trading above their 50 day moving average jumped last week from 40.00% to 72.40%. Percent has reached an intermediate overbought level, but has yet to show signs of peaking.
Percent of S&P 500 stocks trading above their 200 day moving average improved last week from 41.20% to 52.60%. Percent has recovered to a neutral level.
The Dow Jones Industrial Average gained 297.28 points (2.93%) last week. Intermediate trend remains down. Support remains at 9,614.32. Resistance remains at 10,719.94. The Average improved above its 50 day moving average and is approaching its 200 day moving average. The Average has a recent history of finding resistance just above its 200 day moving average. MACD and RSI have recovered to a neutral level. Stochastics already have recovered to an overbought level, but have yet to show signs of peaking. Strength relative to the S&P 500 Index is turning from positive to negative.
Bullish Percent Index for Dow Jones Industrial Average stocks fell last week from 46.67% to 40.00% and remains below its 15 day moving average. Intermediate trend remains down.
Bullish Percent Index for NASDAQ Composite stocks improved last week from 42.71% to 43.86%, but remains below its 15 day moving average. Intermediate trend remains down.
The NASDAQ Composite Index gained 80.12 points (3.72%) last week. Intermediate trend remains down. Support is at 2,061.14. Resistance is at 2,309.43. The Index moved above its 50 day moving average last week and is testing its 200 day moving average. MACD and RSI have recovered to a neutral level. Stochastics have recovered to an overbought level, but has yet to show signs of peaking. Strength relative to the S&P 500 Index remains negative.
The Russell 2000 Index tacked on 26.60 points (4.31%) last week. Intermediate trend remains down. Support is at 587.67. Resistance is at 672.16. The Index recovered above its 50 day moving average and is testing its 200 day moving average. MACD and RSI have recovered to neutral levels. Stochastics already are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains negative.
The Dow Jones Transportation Average added 202.50 points (4.84%) last week. Intermediate trend remains down. Support is at 3,872.64. Resistance is at 4,524.78. The Average moved above its 50 and 200 day moving average last week. MACD and RSI have recovered to a neutral level. Stochastics have recovered to an overbought level, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains neutral.
The TSX Composite Index added 265.20 points (2.23%) last week. Intermediate trend changed from down to neutral after the Index moved above resistance at 12,077.01 on Friday. Support is at 11,065.53. Resistance is at 12,321.76. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.
Percent of TSX stocks trading above their 50 day moving average rose last week from 58.08% to 69.19%. Percent is intermediate overbought, but has yet to show signs of peaking.
Percent of TSX stocks trading above their 200 day moving average increased from 47.98% to 54.04% last week. Percent is at an intermediate neutral level.
The Australia All Ordinaries Composite Index added 173.56 points (3.94%) last week. Intermediate trend remains down. Support is at 4,213.00. Resistance is at 4,618.80 (also near its 200 day moving average). The Index moved above its 50 day moving average last week. MACD and RSI have recovered to a neutral level. Stochastics are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index has turned from neutral to positive.
The Nikkei Average gained 123.08 points (1.37%) last week. Intermediate trend remains down. The Average returned to previous support at 9,091.70 where a band of resistance has now formed. Short term momentum indicators are trying to recover from oversold levels. Strength relative to the S&P 500 Index remains negative.
The Shanghai Composite Index added 44.65 points (1.71%) last week. Intermediate trend remains neutral. Support is at 2,319.73. Resistance is at 3,181.66 and may be forming at 2,701.93. Short term momentum indicators are trending lower. The Index potentially could be forming a reverse head and shoulders pattern, but it’s too early to make the call. Strength relative to the S&P 500 Index remains positive.
The London FT Index added 226.50 points (4.36%), the Frankfurt DAX Index gained 183.45 points (3.08%) and the Paris CAC Index improved 164.76 points (4.70%) last week. All significantly outperformed the S&P 500 Index
Greece’s Athens Index led the advance in Europe. The Index gained 109.81 points (7.10%) last week. Intermediate trend remains up. Support is at 1,383.01. Resistance is at 1,793.37. The Index moved above its 50 day moving average. Short term momentum indicators are recovering from oversold levels. Strength relative to the S&P 500 Index is neutral.
Currencies
The U.S. Dollar Index fell 0.88 last week. Support is at 80.08. Resistance is at 88.71, but could be forming at 83.56. Resistance also was found recently near its 50 day moving average. .Short term momentum indictors have rolled over and are trending down. A break below support would be a major event because it implies completion of a head and shoulders pattern.
The Euro gained 1.02 last week. Support is at 119.13.$tand potentially could be developing at 125.94. Resistance is at 133.34. Short term momentum indicators are recovering from oversold levels.
The Canadian Dollar added 0.17 cents U.S. last week. It bounced nicely from near long term support at 93 cents. Short term momentum indicators are recovering from oversold levels.
Commodities
The CRB Index responded to weakness in the U.S. Dollar by tacking on 5.50 points (2.06%) and moving above its 200 day moving average. Short term momentum indicators are recovering from oversold levels. Stochastics already are overbought.
Crude Oil slipped $0.31 per barrel last week. Short term momentum indicators are recovering from oversold levels.
Gasoline was unchanged last week. Short term momentum indicators are recovering from oversold levels.
Natural Gas gained $0.18 per MBtu (7.6%) last week. Short term momentum indicators are recovering from oversold levels.
The gain by Canadian natural gas was more impressive. The Claymore Natural Gas ETF gained 11.9% last week. ‘Tis the season for natural gas prices to move higher in September! “Gassy” stocks were notably stronger last week.
Following is a 19 year seasonality study offered by www.equityclock.com
Natural Gas Futures (NG) Seasonal Chart
Gold added another $9.10 U.S. per ounce last week thanks partially to weakness in the U.S. Dollar. Gold continues to test its all time high at $1,265.00. Short term momentum indictors are overbought, but have yet to show signs of peaking.
Gold equities and related ETFs are outperforming gold, an encouraging sign for both. The TSX Gold Index broke to an all time high last week. Short term momentum indicators are overbought, but have yet to show signs of peaking. Mid and small cap gold indices, equities and ETFs are outperforming big cap indices, equities and ETFs. (e.g. Market Vectors Junior Gold Miners ETF).
Silver gained $0.78 U.S. per ounce (4.09%) last week and broke above resistance at $19.81. Silver is outperforming gold, an encouraging technical sign for both. Short term momentum indicators are overbought, but have yet to show signs of peaking.
Platinum also recovered last week with other precious metals, but remains in a tight four month trading range.
Copper gained 11.55 cents U.S. (3.4%) last week and broke resistance at $3.4105. Strength was triggered by encouraging Chinese economic news, weakness in the U.S. Dollar and declining world inventories. Short term momentum indicators are overbought, but have yet to show signs of peaking. Resistance is at $3.68.
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The grain ETN gained 4.7% last week on rising volume and appears poised to break resistance at $43.59.
Agriculture stocks and ETFs are responding to higher grain prices. Nice breakout to a five month high last week by MOO! ‘Tis the season for Ag stocks to move higher!
Lumber prices remain in a tight two month trading range.
Interest Rates
The yield on 10 year Treasuries increased another five basis points last week. Short term momentum indicators are recovering from oversold levels. Strength occurred despite weakness in the U.S. Dollar.
Conversely, the long term Treasury ETF fell another $1.67. Short term momentum indicators have rolled over from overbought levels and are trending down.
Other Factors
The Baltic Dry Index recovered 6.0% last week and resumed an intermediate uptrend.
The VIX Index fell 12.8% last week and retreated to near long term support. Short term momentum indicators are oversold, but have yet to show signs of bottoming.
Short term momentum indicators for most equity markets and sectors are overbought. Most of the strength last week can be attributed to short covering. Many equity markets and sectors also are approaching their 200 day moving average and highs set in early August where resistance is likely.
Intermediate technical indicators (Bullish Percent indices, Percent of stocks trading above their 50 and 200 day moving averages, Up/Down ratios) have recovered recently to at least mildly overbought levels. Upside potential during the next few weeks is possible, but limited. Most equity markets remain in a four month trading range, typical of markets that are in a base building period.
September has a history as the weakest month for equity markets in the year. It also has a history of moving higher until just after the Labour Day weekend.
Equity markets also have a history of moving lower in September during a mid-term U.S. election year. Weakness is attributed to political uncertainty. Look for political rhetoric to start ramping up this week. Traditionally, the launch of political TV ads starts this week. Look for lots of negative “attack” ads.
Favourable responses to economic news last week was triggered by reports that were “less bad” than expected, not exactly a scenario for a sustained recovery. Selected better than expected economic news in August sets up the likelihood for a “return to mean” in September implying that news in September could revert to less than expected data (particularly in the U.S. housing industry where recent data was bolstered by a government program that has expired). The monthly employment report released on Friday is infamous for its number of revisions, both up and down. Significant additional gains in equity markets attributed to Friday’s report are doubtful.
Analysts are responding to the slowdown in economic activity by reducing third quarter earnings estimates. The frequency of companies reducing third quarter earnings and revenue guidance has increased during the past few weeks. Look for more negative guidance as the end of the quarter approaches.
Investors and corporations are flush with cash. Following confirmation of equity market bottoms, upside potential is significant as funds are employed. At least some of the cash already is being employed by corporations through takeover offers.
China is a key component of the inevitable recovery. Selected equities (most notably in the Materials and Agriculture sectors) moved higher last week on news that China’s economy may be growing at a faster rate that anticipated following a brief slowdown. However, the Shanghai Composite Index did not respond significantly to the news, a clear warning sign that a set up for the next intermediate upside in equity markets is not there yet. Watch technicals on the Shanghai Composite Index closely for a potential trigger.
The Bottom Line
Preferred strategy for equity investors is to be patient. Most equity markets appear to be forming a base pattern for an important intermediate upside move starting in the fourth quarter. Based on current technical data, chances are high that bottom of the four year cycle occurred this year on July 1st. Chances also are high that one more downside move in equity markets is likely before the next important intermediate upside move is in place. Stick with current favourable seasonal patterns (e.g. gold, agriculture, natural gas) and “sit in the weeds” with cash positions until the next important intermediate low is identified.
Sectors that are top candidates for purchase after the next intermediate bottom is identified are economically sensitive sectors including materials, consumer discretionary, industrials and technology.
FP Trading Desk Headlines
FP Trading Desk headline reads, “UBS lowers estimates for Canadian GDP Growth”. Following is a link to the report:
http://business.financialpost.com/2010/09/03/ubs-lowers-estimates-for-canadian-gdp-growth/
FP Trading Desk headline reads, “Vale downgraded. Could see lower results”. Following is a link to the report:
http://business.financialpost.com/2010/09/03/vale-downgraded-could-see-lower-results-in-second-half/
Special Free Services available through www.equityclock.com for a limited time only
Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices. Free services are available for this summer only. Enjoy while available!
To login, simply go to http://www.equityclock.com/charts/ and enter the
following details:
Username: equityclock.com
Password: equityclock.com
Also, please take advantage of Google ads and other ads available in the data base.
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 $11.06 September 3rd 2010
· Open 11.10
· Close 11.06 (Unchanged)
· High 11.10
· Low 11.05
· Bid 11.05 x0
· Ask 11.06 x0
· Volume 24,105
· 52-week High 11.37 06/03
· 52-week Low 9.44 02/05
· Net Asset Value per unit: $11.05 (Up $0.01)
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Discussions from the Tech Talk Forum:
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September 7th, 2010 at 8:09 am
Hi Don. I understand that this is the season for health care/biotech. What are your thoughts on this sector, specifically TEVA? Thanks.
September 7th, 2010 at 8:40 am
Hello Don,
Is it too late to purchase one of the larger gold miners ? Thanks.
September 7th, 2010 at 9:13 am
There was a very unusual trading pattern involving Viterra on Thursday last. Here’s what happened at 1430ET, September 2,using StockCharts 5 minute chart:
O-8.62
H-8.62
L-8.00
C-8.51
V-941,000
Value of trades at 8.62=$8,111,420
Value of trades at 8.51=$8,007,910
Value of trades at 8.00=$7,528,000
I held 1,000 shares with a stop at $8.11 and was stopped out at $8.00 at 1431:10ET. I lost either $880, $620 or $510, depending on which number is chosen (I bought at $8.80). Scotia iTrade advised me that one possible scenario is a “busted” trade but is looking into the matter and will get back to me. If anyone is interested, I will post the answer when I hear back.
But this shows the dangers in stop losses, yet most writers advise strongly that stops should be in place.
September 7th, 2010 at 9:15 am
DON,
IBB comes to an end Sept 13 according to Thack – same for this year? Also – SGG has a had a great run – when is the exit date?
Thanks Greg
September 7th, 2010 at 9:17 am
Hello Don,the seasonality for US Tech sector is from Oct 9th toJan 27th, I only buy on the TSX. would the ETF XIT be the correct Canadian ETF to use. Thanks.
September 7th, 2010 at 9:19 am
Hi Freddyboy, strange things happen, I have never used stops, and I would be interested in what happened. Thanks
September 7th, 2010 at 9:46 am
Here is the answer I just received from ITrade. It certainly sounds legit but I feel violated and I feel vulnerable with all the other stops I have in place.
“At 14:30:10 on 9/2 there was a block cross trade of 698,000 shares by CIBC World Markets at price of $8.62. This did not affect the market price directly.
At 14:31:09 on 9/2 Canaccord Capital began substantial selling (about 140,000 shares) that drove the price down from $8.61 to $8.00.
At 14:31:13 on 9/2 the price began to rise again, rebounding to about $8.50 by 14:33:42.
Short answer is: people buy & sell in the markets, sometime in large enough amounts to temporarily affect the price of a stock. Nothing out of the ordinary here.”
Question for Don: Do you recommend stops? Most of the writers I have read seem to feel that stops should be placed. I have done that, using a price just below support initially, and moving the stops up when I sense danger. I have been stopped out lots of times but never as agregiously as this.
September 7th, 2010 at 9:50 am
Hi Jay…you can use XIT but it only contains five stocks and is very heavily weighted with RIM.
September 7th, 2010 at 10:13 am
Freddebuoy
I don’t know if the TSX allows large companies to pay for the ability to see what the asks and bids are like the Nasdaq does. The Nasdaq allows these companies to see the ask and bids for a couple second before they’re put out for others to see. This can usually move the price on stocks that will sometimes take out all the stops (where they buy) and then the price moves back up and they get out with a nice profit.
September 7th, 2010 at 10:26 am
Jan
Last year I used XIT and I had a 9% return, it has low volume and if RIM does poorly it will too. Don usually suggests one of the ETF’s in the US. I don’t trade in USD so I may use XIT again this year depending on my feelings for RIM.
September 7th, 2010 at 10:43 am
Jan
Just remembered that BMO has the ZQQ that tracks the Nasdaq, may be worth a look.
September 7th, 2010 at 10:54 am
Freddy I had the same experience but where my stop wasn’t triggered when the price dropped but when it bounced back the reason here is that the big boys have priority.
and here are 2 opinions I have heard about stop losses 1st never ever have a stop above a round number so your stop should have been placed below 8$ reason the big boys eat us for dessert by picking off financial newbies. 2 always have virtual trailing stop where the stop is set in your mind and follows action price and don’t modify your strategy.
September 7th, 2010 at 11:14 am
Anyone able to state support and resistance for GAS.TO? Thanks
September 7th, 2010 at 11:54 am
I’m confused by seasonality as it applies to energy. Don’s Education section lists the Canadian energy seasonal period as running from the end of November to the end of May. Thackeray’s time line lists the primary energy period of strength from July 24 to October 3, but the Oil E&P seasonality runs from Jan. 30 to April 13. And Natgas has its own seasonality.
So my question is, what’s the difference between “energy” and “oil E&P?” Is this supposedly the time to be investing in crude through ETFs or stocks? Can anyone shed light on this for me? Thanks for your input!
September 7th, 2010 at 11:58 am
Hi Michael. The period of seasonal strength in Biotech is from June 23rd to September 13th. Technicals clicked in slightly later than usual this year (first week in July) and has been a profitable trade to date. The pending takeover of Genzyme has been an extra kicker this year. Look for technical signs that the period of seasonal strength is over. Short term momentum indictors currently are overbought, but have yet to show signs of peaking. Health Care has a period of seasonal strength from August 15th to October 18th. Technicals failed to show an entry point for this seasonal trade this year. Teva currently has an attractive technical profile. Nice breakout above resistance last last week. Short term momentum indicators are recovering from oversold levels.
September 7th, 2010 at 12:03 pm
Hi Heinz S. Big cap gold stocks were the first to move. Currently, small are mid cap gold stocks are moving. If gold spikes to an all time high, tertiary gold stocks will move the most. All will move higher given current economic and seasonal influences. Remember: gold and gold equities are seasonal trades and should not be confused with long term investing.
September 7th, 2010 at 12:08 pm
Hi Jan. A word of caution on XIT. It is concentrated in three stocks. Performance of XIT depends on your outlook for those three stocks (most notably RIM). Best to check with the BlackRock site for content and weights in the ETF. Preferred strategy is to own an ETF with a basket of equities that is well diversified. The classic choice is Technology SPDRs (XLK)
September 7th, 2010 at 12:13 pm
Hi Annette. Good choice. Tracks the NASDAQ Index that is heavily weighted in the high tech sector and is hedged against currency risk. Trading in ZQQ is relatively thin, but is improving. In addition BMO is determined to build the product by maintaining relatively tight bid/ask spreads.
September 7th, 2010 at 12:23 pm
Hi Thanks Don and every body else for help. Jan.
September 7th, 2010 at 12:43 pm
Hello Jan Mohammed: Are you staying with the seasonal trade for Nat gas or have you sold? Thanks.
September 7th, 2010 at 1:00 pm
Hello
I am confused in regard to crude oil. http://www.equityclock.com/charts/crude-oil-futures-cl-seasonal-chart/
Can anyone comment on this chart for me?
Thank you.
September 7th, 2010 at 4:00 pm
Hi Kay,usually I day trade HNU and HND, if I see a positive increase, I may hold HNU, but because of its content I am a bit wary of both those ETF,S. I am now day trading HOU and HOD and finding it easier as far as direction goes, today I traded both HOU and HOD, switching three times, really playing with the CME quotes.
September 7th, 2010 at 4:16 pm
Ana
According to Thrackrays 2010 book the oil trade is from July 24 to Oct 3. The trade has more to do with the switch from gasoline to heating oil and hurricane season in the Gulf of Mexico. Based on the $XOI (oil index) it has outperformed the S&P 2.7%, 60% of the time. The winter/spring strategy Feb 25 to May 9 has a better return. $XOI has a 5.6% 24 out of 26 times. Hope this helps.
September 7th, 2010 at 4:30 pm
Hello Don,What is the seasonality on uranium?I own UUU since last year and finally it went up to the price I payed.At the end of the year they will pay distribution $1,-/Share ,but one of the economist said on the BNN ,that when they pay the distribiution the stock will go down $1,-.I don’t know what to do,to sell it or hold it?
I really appreciate your help.
Regards
Halina
September 7th, 2010 at 6:04 pm
Annette – Thank you for this information.
Jay – Can you please elaborate on the CME quotes and how you use them per trade of HOU and HOD?
September 7th, 2010 at 6:30 pm
Hi Don,
Is it time to sell Suncor? Equityclock predicts Sept 14th but I’m wondering if we’ve hit our peak.
September 7th, 2010 at 6:51 pm
Go to cme groups.com and click on ng henryhub electronic quotes, theres a 10 minute delay, but thats not a worry, pull up the oct chart, it will show you the trend very well. hnu and hnd , hod and hou work well this way.Good luck. Try on paper first. Must have a fast trading platform.