Pre-opening Comments for Friday February 3rd 2012
U.S. equity index futures are higher in pre-opening trade. The S&P 500 Index added 13 points in pre-opening trade.
Index futures moved higher following release of the January employment report. Consensus for January Non-farm payrolls was a slip to 170,000 versus a revised 203,000 in December. Actual was an increase of 243,000. Consensus for Private Non-farm payrolls was a drop to 145,000 versus 212,000 in December. Actual was an increase to 257,000. Consensus for the January unemployment rate was unchanged at 8.5%. Actual was a 0.2% decline to 8.3%. Consensus for January Hourly Earnings was an increase of 0.2%. Actual was a gain of 0.2%. Much of the improvement is attributed to warmer than average weather.
The Canadian January employment report was less than expected. Consensus was a gain of 24,000. Actual was an increase of 2,300. Consensus was no change in the unemployment rate at 7.5%. Actual was an increase of 0.1% to 7.6%. The Canadian Dollar moved lower on the news.
Fourth quarter earnings reports continue to pour in. Companies reporting overnight included Beam, Tyson, Este Lauder, Clorox and AON.
International Paper is expected to open lower after RBC Capital downgraded the stock from Outperform to Sector Perform. Target was reduced from $35 to $34.
Merck is expected to open lower after Davenport downgraded the stock from Buy to Neutral. Target is $40.
Research in Motion slipped $0.28 to $16.93 after Jefferies downgraded the stock from Hold to Under Perform. Target was reduced from $17 to $15.
Aetna eased $0.04 to $44.75 after Goldman Sachs downgraded the stock from Conviction Buy to Buy. Target is $54.
Canadian Pacific improved $0.34 to $72.25 U.S. after JP Morgan raised its rating from Neutral to Overweight.
Aetna, Inc. (NYSE:AET) – $44.75 slipped 0.1% after Goldman Sachs downgraded the stock from Conviction Buy to Buy. The stock has a positive technical profile. Intermediate trend is up. The stock touched a four year high earlier this week. The stock trades above its 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index has been positive since mid-October. Seasonal influences currently are positive. Preferred strategy is to accumulate at current or lower prices.
Aetna Inc. (NYSE:AET) Seasonal Chart
International Paper Co. (NYSE:IP) – $31.60 is expected to open lower after RBC Capital downgraded the stock from Outperform to Sector Perform. The stock has a positive technical profile. Intermediate trend is up. The stock touched a five year high last week. The stock trades above its 50 and 200 day moving averages. Strength relative to the S&P 500 Index has been positive since the beginning of October. However, short term momentum indicators are trending down from oversold levels and seasonal influences are negative until early March. Preferred strategy is to accumulate on weakness closer to the stock’s 50 day moving average at $29.47.
International Paper Company (NYSE:IP) Seasonal Chart
Canadian Pacific Railway (NYSE:CP;TSE:CP) – $72.25 added 0.5% after the stock was upgraded by JP Morgan from Neutral to Overweight. The stock has a positive technical profile. Intermediate trend is up. The stock touched a four year high last week. The stock trades above its 50 and 200 day moving averages. Strength relative to the S&P 500 Index and TSX Composite Index has been positive since mid-September. Short term momentum indicators are overbought, but continue to trend higher. Seasonal influences are positive from the end of January to early May. Preferred strategy is to accumulate the stock at current or lower prices.
Canadian Pacific Railway Limited (USA) (NYSE:CP) Seasonal Chart
Mark Leibovit’s Daily Gold Comment
Information on Mark’s services is available at
GOLD – ACTION ALERT – BUY
With the exception of copper (again), metals were in sync to the upside yesterday as silver, gold, platinum and palladium all posted new recovery peaks. When we’re in a ‘markup’ stage, you’re either on the train or you’re left at the station. Elsewhere, crude oil was weak, but natural gas experienced another upward spike triggered by news. Gold into the mid 1800s and silver at 37, possibly 42 remain my next upside objectives.
Updates on Sectors and Equities with Positive Seasonality
Since its close on October 5th, the Industrial ETF is up more than 26%. Seasonal influences remain positive until early May. Strength relative to the S&P 500 Index remains positive. However, units clearly are short term overbought and showing signs of rolling over. They reached a short term peak a week ago at $36.92. Traders can choose either taking profits or withstanding a short term correction for a further upside move into May.
Since its close on October 5th, the Homebuilders ETF has gained over 48%. Strength relative to the S&P 500 Index remains positive. However, short term momentum indicators have rolled over from overbought levels. Units closed yesterday slightly below levels reached a week ago. Seasonal influences peak this week. It’s time to take seasonal profits.
Silver has gained 23.8% since recording its seasonal buy point on December 30th. “Sweet spot” is from the beginning of January to the end of February, but the entire period of seasonal strength continues until the middle of April. Short term momentum indicators are overbought, but have yet to show signs of rolling over. Strength relative to the S&P 500 Index remains positive. A short term correction to its 50 day moving average at $30.93 is possible.
Platinum has gained 26.8% since recording its seasonal buy signal on December 30th. Seasonal influences are strongest from the beginning of January to the end of February, but seasonal strength continues into May. Strength relative to the S&P 500 Index remains positive. Short term momentum indicators are overbought, but have yet to show signs of peaking. A short term correction to its 50 day moving average at $1,501.61 is possible.
West Fraser Timber has gained 32.3% since entering its period of seasonal strength on October 5th. Other Canadian lumber stocks also have performed well. Strength relative to the S&P 500 remains positive. Strength in lumber prices in the past week is a bonus. However, two words of caution! Short term momentum indicators for Canadian lumber stocks recently rolled over from overbought levels and lumber prices have a history of peaking in the first week in February. On the other hand, Canadian lumber stocks have a history of seasonal strength lasting until the end of April. Seasonal investors can choose between taking profits or withstanding a short term correction for additional upside potential into April.
Lumber Futures (LB) Seasonal Chart
Tech Talk’s Weekly Commodity Column
(Published yesterday at www.globeandmail.com )
Following is a link:
Following is full text:
Industrial Commodity Prices in the month of February
Investing in the month of February frequently is hazardous for your financial health. Thackray’s 2012 Investor’s Guide notes that February is the second weakest month for performance by U.S. equity indices. The weakest month is September. On average, the S&P 500 Index has lost 0.2% in February during the past 60 years.
The interesting exception in February is performance of industrial commodities. During the past 10 periods, the month of February has been their strongest month in the year. Following is a summary:
The main reason for their strength is increasing seasonal demand during the spring as demand from key sectors such as construction and autos ramps up.
What about this year? Recent economic data suggests that history should repeat. Better than expected Purchasing Managers indices released before the opening on Wednesday by the Eurozone and China as well as slow, but steady economic growth in North America suggest that demand for industrial commodities once again will accelerate this spring.
A word of caution! Silver, platinum, gold, copper and aluminum gained more than 10% in the month of January. Technically, they currently are overbought. Preferred strategy is to accumulate industrial commodities following a brief correction in early February.
A direct investment in most industrial commodities is available either through the futures market or through Exchange Traded Products. Symbols for actively traded industrial commodity Exchange Traded Products are as follows: Silver (SLV $32.80), Platinum (PPLT $159.87), Gold (GLD $169.50), Copper (JJC $49.20), Crude Oil (USO $37.45), Aluminum (JJU $28.59) and Nickel (JJN $30.59)
Don Vialoux is the author of free daily reports on equity markets, sectors,
commodities and Exchange Traded Funds. . Daily reports are
available at http://www.timingthemarket.ca/. He is also a research analyst for
Horizons Investment Management Inc. All of the views expressed herein are his
personal views although they may be reflected in positions or transactions
in the various client portfolios managed by Horizons Investment Management.
Eric Wheatley’s Weekly Listed Options Column
Good morning everyone,
My good friend and liege, Mr. John C. Hood, sent me a link* which, if you’ve been paying even slightly attention to my ramblings, covers some self-evident subject matter. In it, Barron’s states that options should have been used over the past five years by investors, as covered calls (and therefore secured put writes) would have outperformed holding shares naked in these perpetually flatlined markets.
(*Having never done this and not knowing if the hyperlink will work after Don’s copy/pasting, here is the link in full: http://online.barrons.com/article/SB50001424052748704895604577179021942415512.html?mod=djembwr_h#printMode)
Notwithstanding the fact that I predicted this ten years ago (and have recently been sent the complete collection of my early-aughts commentaries with the prediction intact. Doubters can order their copy; along with anecdotes of my first wife’s murderous tendencies. All in all, she was a good sport) and that I still believe we have a few more years of this long-term directionless consolidation in the equity markets, the fact is that writing options will most often outperform the straight holding of shares. The further fact is that this isn’t a good argument in favour of writing options either.
In my first commentary here in October, I went over the fundamental thing that makes options and all non-linear derivatives different and, therefore, counterintuitive to people who are used to straight lines in their instruments: options are non-linear; their returns are asymmetrical. Those who say that “writing options would’ve worked” in most situations ignore the extremely salient fact that when they don’t work, you lose as much as you gained all of those times it did work. I’m not faulting Barron’s – the piece did seem to be more of an introduction and they did specify that options writing underperforms in surging markets – but the very fact that one sees a convincing argument in the frequency of success of options writes is disconcerting. Let me make an all-encompassing prediction right now: unless the stock market (or your specific stock) is in a secular bull run, options writing WILL outperform holding stocks naked every time. And, as mentioned, it doesn’t matter in the slightest because during those secular bull runs, holding stocks naked will markedly outperform covered writes and you’d wind up with the same returns had you never heard of options.
Why write options you ask (if you’ve never tuned in to this unpleasantly snarky section of Don’s site)? Simply because, as I will repeat ad nauseam, the returns may be the same… but you would significantly reduce the volatility of your portfolio, thereby skewing the risk-return ratio in your favour. This isn’t glamorous, nor particularly intuitive, but proper investing techniques for your conservative long-term nest egg of a portfolio rarely is.
Once again, I’m not faulting Barron’s at all for the article; nothing in it is incorrect, it promotes the use of options and the writer is obviously well-mannered, impeccably dressed and otherwise must be a truly wonderful, engaging person (being an options guy. As far as I know we’ve never met so there is no intent on my part to flatter someone to whom I owe money or favours). I’m just pointing out that, if we were in a rational market and all participants were fully aware of how finance works, the article would be superfluous.
Happy Super Bowl! (Having never procreated, I can’t really come up with a salient metaphor for the sense of anticipation I feel in the days leading up to my Patriots playing in the Big Game. I’ve been a rabid fan of the team for 28 years – I can’t believe that’s the right number – and we’ve been 3-3 in that time. The only other occasion I’ve felt this way was during my first few weeks at the Algerian Ministry of Finance, taking a damnably slow cab home in order to avoid using the facilities at work. The digression starts now).
Éric Wheatley, MBA
Options Analyst, J.C. Hood Investment Counsel Inc.
Little known fact about John Charles Hood #15
John Charles Hood has travelled numerous times to Africa and doesn’t understand those last few lines. He’s almost camel-like in his ability to casually forego that which lesser humans cannot.
The World Outlook Financial Conference
Friday, February 10 and Saturday, February 11
Westin Bayshore Hotel, Vancouver, B.C.
Mr. Vialoux is presenting.
Here is the link:
Mr. Vialoux is presenting to the Vancouver chapter of CSTA on Thursday February 9th.
Topic is “Timing the market using a combination of technical, fundamental and seasonality analysis”.
Location is TD Waterhouse Investor Center Downtown
888 Dunsmuir Street
Time: 6:00 PM Vancouver time
Special Free Services available through www.equityclock.com
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.
To login, simply go to http://www.equityclock.com/charts/
Also, please take advantage of Google ads and other ads available in the data base
Following is an example of EquityClock.com’s seasonality charts:
Forest Products Industry Seasonal Chart
Home Building Industry Seasonal Chart
FP Trading Desk Headline
FP Trading Desk headline reads, “Why Wall Street’s Bearishness is Bullish”. Following is a link to the site:
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 and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc
Horizons Seasonal Rotation ETF HAC February 2nd 2012
Thackray’s 2012 Investor’s Guide
Thackray’s 2012 Investor’s Guide recently has been released. It can be ordered online from Amazon.ca or Amazon.com at http://www.amazon.ca/gp/product/0978220064/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&tag=timthemar-20&linkCode=as2&camp=15121&creative=330641&creativeASIN=0978220064
It can also be ordered online from Brooke’s website: www.alphamountain.com (book is in stock).
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