Pre-opening Comments for Wednesday May 23rd
U.S. equity index futures are lower this morning. S&P 500 futures are down 10 points in pre-opening trade. Index futures are responding to concerns that a meeting tonight with European leaders today will not reach a solution on the Greek sovereign debt crisis. European equity indices are down an average of 2.0%.
Canadian March Retail Sales were slightly better than expected. Consensus was a gain of 0.3%. Actual was an increase of 0.4%. Warmer-than-usual weather in March contributed to the increase.
Canadian April Leading Economic Indicators were in line with expectations. Consensus was a gain of 0.3%. Actual was a gain of 0.3%.
Quarterly results released overnight were mixed. Reporting companies include Toll Brothers, Hormel, Zale, Dell, American Eagle Outfitters, CAE and Bank of Montreal. Bank of Montreal and CAE reported higher than consensus quarterly earnings.
Blackstone Group added $0.07 to $12.06 after Sterne Agee upgraded the stock from Neutral to Buy. Blackstone group announced purchase of the Motel 6 hotel chain.
Starbucks added $0.41 to $53.78 after Bank of America/Merrill upgraded the stock and increased its target price from $65 to $68.
Facebook added $0.49 to $31.49 after Needham initiated coverage with a Buy rating. Target is $40.
NASDAQ OMX is expected to open lower after Deutsche Bank downgraded the stock from Buy to Hold. Target was reduced from $29 to $25.
NASDAQ OMX Group Inc. (NASDAQ:NDAQ) – $22.32 is expected to open lower after Deutsche Bank downgraded the stock from Buy to Hold. Target was reduced from $29 to $25. 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 have yet to show signs of bottoming. Strength relative to the S&P 500 Index has been negative since mid-November. Better opportunities exist elsewhere.
Blackstone Group LP (NYSE:BX) – $12.06 added 0.6% after Sterne Agee upgraded the stock from Neutral to Buy. Also, Blackstone announced purchase of the Motel 6 hotel chain. 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. Strength relative to the S&P 500 Index has been negative since the end of January. Better opportunities exist elsewhere.
CAE, Inc. (TSX: CAE) – $10.31 Cdn. is expected to open higher after releasing better than expected fiscal fourth quarter earnings. The stock has a mixed, but improving technical profile. Intermediate trend is down. Support is at $9.85 and resistance is at $10.81. However, the stock moved above its 20, 50 and 200 day moving averages on Friday, short term momentum indicators are oversold and bottoming and strength relative to the TSX Composite has been positive since mid-March. Seasonal influences currently are positive. Preferred strategy is to accumulate the stock at current or lower prices.
CAE, Inc. (TSE:CAE) Seasonal Chart
Interesting technical action yesterday! Broadly based U.S. equity indices were up about 0.5% for most of the day. Selected U.S. equity indices and their ETFs responded favourably (e.g. RSP, the equally weighted S&P 500 ETF).
However, at 3:00 PM EDT, former Greek Prime Minister Luca Papendemos said preparations for Greece’s exit from the Eurozone are being considered. The comment potentially was a scare tactic prior to the Europe’s leaders meeting in Brussels later today. Equity indices quickly moved lower on the news and briefly were down approximately 0.5%. Notably weaker on the news on higher-than-average volume was the Greek ETF.
The U.S. Dollar Index and its related ETF moved higher on the news and the Euro moved lower.
Near the close, the Euro recovered slightly and the U.S. Dollar weakened slightly. Equity indices recovered to near break-even levels.
After the close, Dell reported lower than expected second quarter earnings and revenues and lowered guidance. The stock fell 11% to $13.38 after the close and broke intermediate support levels.
Tech Talk’s Weekly ETF Column
(Published yesterday at www.globeandmail.com )
Headline reads, “Canadian banks: Don’t rush to buy them”. Following is a link to the report:
Following is full text:
A word of caution on Canada’s bank stocks and related Exchange Traded Funds! The period of below average seasonal strength for the Canadian Bank sector arrived earlier than usual this year. Equityclock.com shows that the better of two periods of seasonal strength each year for Canada’s financial service stocks is between the last week in February and the last week in May. Average return during the past nine periods was 8.5 per cent plus a dividend. A period of under-performance appears from the last week in May to the last week in August and has generated an average return of 0% plus a dividend.
This year, the period of seasonal strength from the last week in February to the last week in May noted in our February 27th column started well, but ended badly. From February 24th to March 27th the Index gained 6.6 per cent. However, several events dampened the outlook for the sector thereafter including concerns about deteriorating economic and financial conditions in Europe, a slowdown in economic growth in the U.S. and China, declining industrial commodity prices and warnings by the Bank of Canada and Canada’s Finance Minister about excessive use of credit by Canadian consumers.
On the charts, the sector developed a negative technical profile after the end of March. The TSX Financial Services Index peaked on March 27th at 190.51, broke a key support at 181.02 at the beginning of May and established an intermediate downtrend. The Index currently is down 10.8 per cent from its March 27th peak. The Index also moved below its 20 and 50 day moving averages and broke below its 200 day moving average last week. Short term momentum indicators are deeply oversold, but have yet to show signs of bottoming. Strength relative to the TSX Composite Index turned negative in mid-April.
Earnings prospects are mildly encouraging. Canada’s top six banks are scheduled to release fiscal second quarter earnings for the period ended April 30th starting this Wednesday. Consensus estimates show an average gain on a year-over-year basis of 8.0 per cent. Fiscal second quarter consensus estimates and expected report dates are as follow:
* Source: Zacks Investment Research
Prospects for fiscal third quarter results also are mildly encouraging. Consensus estimates show an average earnings gain on a year-over-year basis of 8.1 per cent.
Preferred strategy is to wait to add to positions until the sector passes through its current period of seasonal under-performance and until technical signs of an intermediate bottom are achieved.
Canadian investors have a wide variety of Exchange Traded Funds that trade mainly on their bank content.
Best known and most actively traded ETF in the sector is iShares S&P/TSX Capped Financial Services Index Fund (XFN $21.34). Weight of the banks in the Index is 74.4 per cent. The fund holds 25 securities. Largest holdings in the fund in order of significance are Royal Bank, Toronto Dominion, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce. Management expense ratio is 0.58 per cent.
iShares also offers the Equity Weight Banc and Lifeco ETF (CEW $6.53) The ETF holds Canada’s top six banks and top four insurance companies. Positions are rebalanced semi-annually. The banks represent 60 per cent of the weight in the fund. Management expense ratio is 0.61 per cent.
BMO Capital offers the BMO S&P/TSX Equal Weight Banks Index ETF (ZEB $16.43). The Index is equally weighted in Canada top six banks: Royal Bank, Toronto Dominion, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank. Management expense ratio is 0.55 percent.
Horizons offers two leveraged products based on the daily performance of the S&P/TSX Capped Financial Services Index. The Horizons S&P/TSX Capped Financial Bull + ETF (HFU $10.29) is designed to realize twice the daily upside return on the Index. The Horizons S&P/TSX Capped Financial Bear + ETF (HFD $7.67) is designed to realize twice the daily downside return on the Index. Management expense ratio is 1.15 percent.
Don Vialoux is author of free daily reports on equities, sectors, commodities and Exchange Traded Funds. Reports are available at www.timingthemarket.ca. Don Vialoux also is an analyst at Horizons Investment Management offering research on Horizons Seasonal Rotation Exchange Traded Fund (HAC). Opinions in this report are of the author are not the opinion of Horizons Investment Management.
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/
Technology Sector 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 22nd 2012