Pre-opening Comments for Friday March 8th 2013
U.S. equity index futures are higher this morning. S&P 500 futures are up 7 points in pre-opening trade.
Index futures moved higher following release of the U.S. employment report at 8:30 AM EST. Consesnsus for February Non-farm Payrolls was 165,000 versus 157,000 in January. Actual was an increase of 236,000. However, January was adjusted to 119,000 from 157,000. Consensus for February Private Non-farm Payrolls was 178,000 versus 166,000. Actual was 246,000 versus an adjusted 140,000 in January. Consensus for the February Unemployment Rate was 7.9% versus 7.9% in January. Actual was a decline to 7.7%. Consensus for February Hourly Earnings was a gain of 0.2% versus an increase in 0.2% in January. Actual was a gain of 0.2%.
Canada’s February Employment report was brighter than the U.S. employment report. Consensus for February employment was an increase of 8,000 versus a decline of 21,900 in January. Actual was an increase of 50,700.
Canada’s Housing Starts in February were better than expected. Consensus was 174,000 versus 160,600 in January. Actual was 188,719.
Hecla Mining added $0.10 to $4.18 after Global Hunter upgraded the stock from Neutral to Buy.
Tiffany fell $0.88 to $70.00 after Canaccord downgraded the stock from Hold to Sell.
Mark Leibovit on Bloomberg Radio
Following is a link to yesterday’s interview:
The energy sector finally woke up yesterday after significantly underperforming the market during the past four weeks.
The Money Center ETF broke to a new high yesterday prior to release of stress tests by the Federal Reserve on the top 18 U.S. financial institutions. All except Allied Financial past the test. Traders are expected several of the Money Center banks to respond by increasing their dividend shortly.
Updates on Sector Seasonal Trades
Seasonal trades optimally have a technical score of 3 based on (1) uptrend, (2) trading above its 20 day moving average and (3) outperforming the market (S&P 500 for U.S. holdings, TSX for Canadian holdings). Scores moving lower than 3 are warnings signs. A score of 0-0.5 is a sell signal. The following seasonal trades have a technical score of 1.0 or higher and are in their period of seasonal strength. Their retention is recommended.
Technical score for Industrial SPDRs changed from 3.0 to 2.5 when strength relative to the S&P 500 Index changed from positive to neutral. Seasonal influences are positive until early May.
Technical score for Consumer Discretionary SPDRs changed from 2.5 to 3.0 after units broke above resistance at $51.23. Seasonal influences are positive until mid-April.
Technical score on Retail SPDRs increased to 1.5 to 2.5 when units moved above their 20 day moving average. Seasonal influences are positive until mid-April.
Technical score for the Semiconductor ETF remains unchanged at 2.0. However, the period of seasonal strength on average closes today. Take profits.
Technical score for Palladium increased from 1.0 to 2.0 on a move above its 20 day moving average. Seasonal influences are positive until the end of April.
Technical score for the Oil & Gas Oil and Gas Exploration ETF increase from 1.0 to 2.5 on a move above its 20 day moving average, a break above resistance at $59.90 and an improvement by relative strength from negative to neutral. Seasonal influences are positive until mid-April.
Technical score by Energy SPDRs increased to 2.0 from 1.0 when units moved above their 20 day moving average. Seasonal influences are positive until the end of April.
Technical score by Gasoline remains unchanged at 1.0. Seasonal influences are positive until the end of April.
Technical score for the TSX Financial Services ETF remains unchanged at 3.0. Seasonal influences are positive until mid-April.
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. Notice that most of the seasonality charts have been updated recently.
To login, simply go to http://www.equityclock.com/charts/
Following is an example:
Financial Sector Seasonal Chart
An Update on the U.S. Small Cap sector/market
According to Thackray’s 2013 Investor’s Guide, the period of seasonal strength for the U.S. small cap sector is from December 19th to March 7th. This year the technical clicked in earlier than usual. Units moved above their 20 day moving average and began to outperform the S&P 500 Index in late November. Since then, units significantly outperformed the S&P 500 Index. However, units currently have returned to neutral relative to the S&P 500 Index and the period of seasonal strength has ended. Nice trade! Take seasonal profits.
Eric Wheatley’ Column
Preamble: Spent a few days in Québec City with a bunch of friends last week so I missed writing here. Rented a cottage with a Jacuzzi. FYI, if you walk barefoot on concrete slabs and stay hours with wet hair in 0° weather, you may get a cold. Who knew? Anyhoo, I’m sick as a dog. It was well worth it, but please forgive the Hunter S. Thompson-like psychotic ramblings which follow.
This week, the commentary will only be tangentially about options. I just needed to rant. Please skip it if you aren’t into stories and soapboxing.
I was lucky to learn about trading from elder gentlemen and ladies who had had long careers on the financial industry’s blood-soaked killing floor. Most people are impressed by spectacular returns from a trader or portfolio manager. I’m impressed by longevity.
A further formative influence was that, as an options trader, I had the benefit of looking at the markets with a longer view than most and, especially, I was utterly unafraid of the market’s going big against me – if the market moved in either direction, I made money.
I discovered an author by the name of Nicholas Nassim Taleb and was enthralled by his writing. He was (and still is) openly dismissive of how the financial industry views itself and its approach to the concept of “risk”.
While society debates endlessly about how bankers can be reined in and what regulations should be imposed upon the evildoers, everyone overlooks the one fundamental problem which, unfortunately, will NEVER go away: the idea that one can “measure risk” is akin to the belief that one can treat cancer with leeches or magical homeopathic water.
Risk managers tend to be brilliant mathematical geniuses with all sorts of academic awards. They fervently believe that by looking at past data sets, they can plot a safe course for their institutions. The quants then send on their computations to other managers and the regulators and everyone believes that all is good and that they can do what they want within certain parameters. The problem with all of this is, of course, that “risk” is, by definition, impossible to model.
I’m reminded of one of my favourite quotes from Mr. Taleb’s book Fooled By Randomness:
“I have just completed a thorough statistical examination of the life of President Bush. For fifty-eight years, close to 21,000 observations, he did not die once. I can hence pronounce him as immortal, with a high degree of statistical significance”.
This is how the international financial system measures its risk. As long as an event has never happened before, it is assumed it will never happen in the future. Meanwhile, confident that the Risk Management department is happy, traders take on positions which, essentially, dare the financial gods to smite them.
Options traders are pretty much NEVER short gamma; that is, we are never net short options (unless something really bad happens). We are aware that risks lie around every corner and that when the one-in-a-hundred-years event eventually happens, we will benefit. If we ARE stuck with a short position – e.g. I have to sell some deep out-of-the-money puts to a buyer – I’ll be well aware that if the stock gaps down, I’ll be dead meat and will probably keep an eye out for a black swan event and hedge accordingly. Unfortunately, options traders aren’t risk managers, because financial institutions ARE inherently short gamma. They’ll position themselves in a way which makes money MOST of the time, but when something unforeseen happens, they crash and burn.
So, politicians and pundits warble their tired tunes about the need for greater supervision and regulation of the financial industry, laws and rules will be written, financial institutions will be compliant and nothing will change. This is simply because financial institutions make money like clockwork, and the times they lose big are interspersed by long periods of calm, boring profits which make everyone happy and forgetful of the last time traders blew themselves up in an entirely predictable manner.
Why the rant? Because until the powers-that-be understand that you cannot model risk as long as the fat-tail events are toxic to you, there will always be financial industry busts which will come at the expense of bank account holders, investors and taxpayers. Hopefully one day we’ll have qualitative risk management (experienced traders using charts, among other tools) on par with the quantitative.
Éric Wheatley, MBA, CIM
Associate Portfolio Manager, J.C. Hood Investment Counsel Inc.
Little known fact about John Charles Hood #63
John Charles Hood once had a black swan as a pet. The poor thing contracted a one-in-a-million disease and died.
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 March 7th 2013