Pre-opening Comments for Wednesday May 2nd
U.S. equity index futures are lower this morning. S&P 500 futures are down 7 points in pre-opening trade.
Index futures moved lower following release of the April ADP Private Jobs report. Consensus was a decline to 175,000 from 201,000 in March. Actual was 119,000. The ADP report is thought to be a precursor to the April Employment report to be released on Friday.
First quarter earnings reports continue to pour in. Companies that reported overnight included CVS Caremark, Comcast, Barrick Gold, Time Warner, Chesapeake Energy, Devon Energy, Master Card, Marathon Oil and RR Donnelley.
Pepsico added $0.01 to $66.50 after increasing its dividend by 4.0%.
Gap slipped $0.48 despite an upgrade by CLSA from Outperform to Buy. Target was raised from $31 to $36.
Avon Products slipped $0.16 to $19.71 after Caris downgraded the stock from Above Average to Average. Target price was lowered from $28 to $20.
CRT Capital initiated coverage on the U.S. defense sector with sell recommendations on Lockheed Martin, Northrop Grumman and General Dynamics.
Coverage on ConocoPhillips was resumed by JP Morgan with an Overweight rating. Merrill Lynch downgraded the stock to Under Perform. The stock fell $1.10 to $55.41 in pre-opening trade.
Barrick Gold Corp. (NYSE:ABX;TSE:ABX) – US$40.20 fell 0.6% despite an increase in its dividend by 33%. The company also reported slightly lower than consensus first quarter earnings and offered negative second quarter guidance. The stock has a negative technical profile. Intermediate trend is down. The stock trades below its 20, 50 and 200 day moving averages. Short term momentum indicators are oversold, but recovering. Strength relative to the S&P 500 Index and TSX Composite Index has been negative since December. Seasonal influences turn negative at the beginning of May. Preferred strategy is to use short term strength to liquidate positions.
Barrick Gold Corp. (TSE:ABX) Seasonal Chart
Gap, Inc. (NYSE:GPS) – $28.05 slipped 1.7% despite an upgrade by CLSA from Outperform to Buy. Target was raised from $31 to $36. The stock has a positive technical profile. Intermediate trend is up. The stock trades above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index has been positive since mid-January. Seasonal influences are positive until the end of May. Preferred strategy is to accumulate at current or lower prices.
The Gap Inc. (NYSE:GPS) Seasonal Chart
General Dynamics Corp. (NYSE:GD) – $ 67.98 is expected to open lower after CRT Capital initiated coverage on the stock with a sell recommendation. The stock has a negative technical profile. Intermediate trend is down. Resistance is at $73.99. The stock trades below its 20 and 50 day moving averages. Short term momentum indicators are oversold, but have yet to show signs of bottoming. Strength relative to the S&P 500 Index has been negative since mid-January. Better opportunities exist elsewhere.
Responses to U.S. first quarter reports continue to follow a pattern: Unless first quarter earnings reports were a “blow out”, traders are selling on news. Stocks that saw their share prices move sharply higher following release of results yesterday included Thomson Reuters, Archer Daniel Midland and Sears Holdings. Stocks that saw their share prices move lower included Pfizer, ADP, Avon Products and Becton Dickenson.
‘Tis the season for the Nikkei Average to move lower!
Crude oil broke short term resistance at $105.07 to reach a five week high. It also moved above its 50 day moving average at $105.29. ‘Tis the season for crude oil to move higher!
Crude Oil Futures (CL) Seasonal Chart
Energy stocks on both sides of the border continue to respond to higher crude oil and natural gas prices.
The Dow Jones Industrial Average briefly touched a four year high yesterday, but was unable to follow through.
Tech Talk’s Weekly ETF Column
(Published yesterday at www.globeandmail.com)
Headline reads, “The past provides clues on what investors should do now”. Following is a link to the report:
Following is full text:
The period of seasonal strength for North American equity markets has generated unusual returns this year. According to Thackray’s 2012 Investor’s Guide, the optimal period to own the S&P 500 Index, the TSX Composite Index and their related sectors and equities is from October 28th to May 5th. Data showing performance for the past 61 periods for the S&P 500 Index shows that the average return per period was 7.7 per cent per period plus dividends. The trade was profitable 85 per cent of the time. Data showing performance for the TSX Composite Index for the past 34 periods shows an average return per period of 8.0 per cent plus dividends. The trade was profitable 79 per cent of the time. Usually both indices have moved higher in unison during their period of seasonal strength.
The current period is different. Return by the S&P 500 Index to date from the close on October 27th 2011 is 9.2% plus dividends while the return to date for the TSX Composite Index is a loss of 1.8%. During the current period, most of the gains by the S&P 500 Index have come from one stock, Apple. Performance by the TSX Composite Index has been dampened by weakness in the energy, base metals and precious metals sectors.
Seasonality works when a series of annual recurring events have an impact on equity prices. For example, the annual recurring events that tend to impact equity markets during this time of year include news from annual meetings, the release of first quarter results and guidance for the remainder of the year. Earnings from first quarter reports released to date by most large cap U.S. and Canadian companies have exceeded consensus, but guidance frequently has been lowered. Many U.S. and Canadian stocks have come under selling pressures following release of first quarter results unless blow out results were announced.
What happens to equity markets from May 6th to October 27th? Performance by North American equity indices tends to be random. The period lacks the annual recurring events that have a significant influence on equity prices.
North American equity markets tend to move higher in the first week in May as the annual meeting and first quarter earnings report season reaches a climax. However, negative guidance included in the current season could dampen prospects this week.
Thackray’s 2012 Investor’s Guide notes, “Overall, investors at the beginning of the month of May should consider using the three R’s: Reduce equities, Reduce beta and Reallocate into seasonally strong sectors”.
Following is the average performance of broadly based equity indices during the past 10 May’s with symbols for their related actively traded Exchange Traded Funds:
Other 10 year average performance data with symbols for their actively traded Exchange Traded Fund was as follows:
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.
Editor’s Note: Brooke Thackray is scheduled to appear on Market Call Tonight on BNN Television at 6:00 PM EDT tomorrow (May 3rd).
FP Trading Desk Headline
FP Trading Desk headline reads, “Summer good for equities in election years”. Following is a link to the report:
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:
10 Year U.S. Treasury Notes Futures (TY) Seasonal Chart
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 May 1st 2012