Pre-opening Comments for April 24th
U.S. equity index futures are higher this morning. S&P 500 futures are up 1 point in pre-opening trade. Index futures are responding to a slight decline in European sovereign debt rates.
Index futures slipped after the February Case/Shiller 20 City Home Price Index was released. The Index improved from a year-over-year loss of 3.8% to a year-over-year loss of 3.5%.
First quarter earnings reports continue to pour in. Companies that reported overnight included Netflix, Texas Instruments, Big Lots, United Technologies, Hershey, McGraw Hill, Air Products & Chemicals, Baker Hughes, US Steel, Illinois Tool Works, AT&T, Ryder Systems, Zions Bancorp, MMM and Teck Resources.
Canadian National Railway is expected to open higher after Canaccord upgraded the stock from Hold to Buy.
Charles Schwab is expected to open lower after Stifel Nicolaus downgraded the stock from Buy to Hold.
Canadian National Railway Co. (NYSE:CNI;TSE:CNR) – $79.39 Cdn. is expected to open higher after Canaccord upgraded the stock from Hold to Buy. The stock has a positive technical profile. Intermediate trend is up. Support is at $75.76 and resistance is at $80.64. The stock trades above its 20, 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to the TSX Composite Index has been positive since mid-February. Seasonal influences currently are neutral. Preferred strategy is to accumulate at current or lower prices.
Canadian National Railway Company (TSE:CNR) Seasonal Chart
United Technologies Corp. (NYSE:UTX) – $$81.00 added 1.6% after reporting higher than consensus first quarter earnings. The stock has a mixed technical profile. Intermediate trend is neutral. Support is at $78.35 and resistance is at $87.50. The stock trades above its 200 day moving average, but below its 20 and 50 day moving averages. Short term momentum indicators are neutral. Strength relative to the S&P 500 Index has been negative since mid-March. Seasonal influences currently are positive. Preferred strategy is to accumulate on weakness closer to support at $78.35.
United Technologies Corporation (NYSE:UTX) Seasonal Chart
Netflix, Inc. (NASDAQ:NFLX) – $87.72 fell 13.9% despite reporting higher than expected first quarter results. The stock has a negative technical profile. Intermediate trend is down. Resistance is at $123.48 and $133.43. Support at $98.52 was broken following the news. The stock trades below its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index has been negative since mid-February. Better opportunities exist elsewhere.
Selling pressure on equity markets around the world continues.
· The VIX Index responded by spiking higher. A break above 21.24 could reflect additional concerns.
· Broadly based U.S. equity indices are testing key intermediate support levels. A break below these levels will trigger significant technical selling. The S&P 500 Index is testing 1,357.38
The Dow Jones Industrial Average is testing 12,710.56.
The Russell 2000 Index is testing 783.56.
· Weakness in European equity market triggered weakness in North American equity markets.
Metals and mining sector ETFs were notably weaker
Tech Talk’s Weekly ETF Column
(As published yesterday at www.globeandmail.com)
Headline reads, “The myth of ‘Sell in May and go away”
Following is a link to the report:
Following is full text:
The Sell in May and Go Away Myth
The investment community once again is talking about “Sell in May and go away”. The expression assumes that North American equity markets frequently move lower from May to September. However, the expression is a myth. Frequency of gains for North American equity markets from the beginning of May to the end September is random to slightly positive. During the past 20 periods, the S&P 500 Index has gained in 12 periods and declined in eight periods. The TSX Composite has gained in 13 periods and declined in seven periods. The main reason for random performance is a lack of annual recurring events that influence equity markets during this period.
The “Sell in May and go away” myth has escalated in recent years because the largest losses in the year frequently occur during the May to September period. Notable was a loss during the 2008 period of 16.0 per cent by the S&P 500 Index and 15.3 per cent by the TSX Composite Index.
Frequency of stock market gains is higher during the October to April period. The S&P 500 Index has appreciated in 16 of the past 20 periods and the TSX Composite Index has gained in 15 of the past 20 periods. Frequency of gains is one measure of stock market performance. Net accumulation of gains is another measure.
History also shows that more than all of the accumulated gains by North American equity markets have occurred during the October to April period. Thackray’s 2012 Investor’s Guide noted that a $10,000 investment in the S&P 500 Index from October 28th to May 5th since 1950 increased in value to $1,067,851. In contrast, a $10,000 investment from May 6th to October 27th since 1950 declined in value to $6,862. A $10,000 investment in the TSX Composite Index from October 28th to May 5th since 1977 increased in value to $200,778. In contrast, a $10,000 investment in the TSX Composite Index from May 6th to October 27th since 1977 declined in value to $6,674. The expression, that explains the best period for accumulated gains in North American equity markets, is “Buy when it snows (near the end of October for most of North America) and sell when it goes (after the winter snow storms finally have passed)”.
Higher frequency of gains and better accumulated gains from October to April can be attributed to a series of positive annual recurring events. Many of these events are tax related including year-end transaction, contributions to tax sheltered accounts, etc. Important events impacting equity markets at this time of year include release of annual reports and the holding of annual meeting that frequently occur with the release of first quarter results. Chief executive officers often use this series of events to announce dividend increases, share buy backs and stock splits.
An exception exists during the April to September period. One important recurring event influences equity markets every four years, the U.S. Presidential election. During that year, North American equity markets have a history of moving lower after the end of April, building a base in June and July and moving higher into early September. By early September, equity markets usually are slightly higher than the end of April. In April, traders respond to a ramp up of political rhetoric between the two presidential candidates that raises questions about future economic policy. When equity markets are ready to predict the Presidential winner in July regardless of the candidate, equity markets recover, move higher into early September and record additional gains after the next President is elected. This year, political rhetoric between Obama and Romney already has started to ramp up. A word of caution! A tight race between now and September could preclude the traditional recovery in equity markets after the end of July.
North American equity markets entered into a corrective phase earlier than usual this Presidential election year. U.S. equity indices peaked on April 2nd and have trended lower since then. Moreover, U.S. data released last week suggests that a recent growth spurt in the U.S. economy has stalled. In addition, investors frequently are responding to first quarter reports released by selling on news. Downside risk between now and July is significant.
Preferred strategy is to protect the value of your portfolio between now and July either by taking profits, by selling call options against existing positions with an expiry in July or by purchasing non-leveraged inverse equity index ETFs covering part of the value of your portfolio. Top inverse ETF choices for investors with U.S. equity investments are Short S&P 500 ProShares (SH US$36.40), Short Dow 30 ProShares (DOG US$35.91). Top choices for equity investments in Canadian Dollars are BetaPro, S&P/TSX 60 Inverse ETF (HIX $11.04) and BetaPro S&P 500 Inverse ETF (HIU $ 6.98)
Ironically, the Greater Toronto Area experienced its first major snow storm of the winter season on Monday. The snow will not last long. Remember: “Buy when it snows, sell when it goes”!
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.
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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 April 23rd 2012