Tech Talk for Friday March 8th 2013

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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:

http://www.vrtrader.com/files/BloombergwithPimmFoxMarch72013.mp3

 

Interesting Charts

The energy sector finally woke up yesterday after significantly underperforming the market during the past four weeks.

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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.

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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.

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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.

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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.

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Technical score for the Semiconductor ETF remains unchanged at 2.0. However, the period of seasonal strength on average closes today. Take profits.

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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.

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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.

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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.

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Technical score by Gasoline remains unchanged at 1.0. Seasonal influences are positive until the end of April.

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Technical score for the TSX Financial Services ETF remains unchanged at 3.0. Seasonal influences are positive until mid-April.

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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

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FINANCIAL Relative to the S&P 500
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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.

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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.

**************

Hello all,

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.

Cheers!

Éric Wheatley, MBA, CIM

Associate Portfolio Manager, J.C. Hood Investment Counsel Inc.

eric@jchood.com

514.604.2829; 1.855.348.2829

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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

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16 Responses to “Tech Talk for Friday March 8th 2013”

  1. Wayne Says:

    Eric,
    Enjoyed your “rant”.
    Here’s a quote form “Margin Call” that more or less sums it all up.

    “Its just money; its made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It’s not wrong. And it’s certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987 — Jesus, didn’t that fuck up me up good — 92, 97, 2000 and whatever we want to call this [2008].

    It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong.

    And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same.”

    But, the game changer here has been the Fed, who were more than happy to bail out the losers, at the expense of the taxpayers. You point this out, of course. All happily obliged, except for Lehman Bros, who were shut out left at the side of the road.

    Taleb, who is a professor of Risk Engineering, just published an interesting article “Beware the Errors of Big Data”. Worth a read.

    BTW, I refer to “volatility” as “vomatility”. How much risk can you stomach without throwing up!

    Best!

  2. Roy Says:

    Thanks for your response CJ
    Freddiebuoy – I was not asking for the DOW exchange, but DOW.N stock (Dow chemicals). Thanks anyways for taking the time to respond as well.

  3. Brian Says:

    Anyone following ppl.to? I’m no expert but is there a flag here? It gapped up from 29.50 to 31.50. Can I expect to see the upside to another $2 of 33.50?

  4. Paul-R Says:

    Brian,

    ppl.t,recent earnings was blow away growth,so called experts calling for $32 to $35.

    Nice dividend and considered safe stock.Recent rise in price may have small pull back here.
    I’m holding for long here with a stop 3% lower for safety.

  5. Brian Says:

    Paul, like you said the so called experts.
    Definitely like the dividend but looking on opinions for the upside from a technical perspective.

  6. Lee Says:

    +1,000,000 to Nicholas Nassim Taleb and everything he writes. I recently finished reading his latest book ‘Antifragility’. He was a trader back in the day and did quite well. Alot of his writings relate well to the trading game. The book was a game changer for me. I cannot recommend it enough.

    Happy Friday all!

  7. still_learning Says:

    Brian,
    re#3, I have been looking at PPL. My system gave me a buy signal on Mar. 4th, but it got away from me. The 2 bars around the gap form a ‘shooting star’ candlestick pattern, a signal for a reveral. I’m watching for a pullback.
    regards, Bernie

  8. Wayne Says:

    Lee,
    Have you read “Fooled by Randomness”? Taleb is a bit quirky – but he puts his money on the line. As they all say “Money talks – bullshit walks”.. I recall reading his “musings” when he worked for UBS several decades ago. He consults for the IMF now – a long way from the trading floor. His reputation soared after he made several million during the 2007 crash.

  9. Neil AB Says:

    Brian
    It is always very hard to give much info from a “technical perspective” on stocks that breakout the way PPL did.
    It has closed above its resistance from the double top of Nov/11 and May/12. So that area should act as support now and limit the downside accordingly.
    Very generally speaking, stocks tend, after a blow out and the immediate enthusiasm dissipates a little and after folks start taking some profits, to eventually revert back to the area of the 20 ma.
    In that regard, the last few days of trading may be instructive. There was a gap up March 5-6. Gaps get filled approximately 75% of the time. The candlestick of March 6 (an inverted hammer) is bearish – buyers tried to drive the price higher, but, at the end of the day, could not do so. Todays candle is a “doji” which suggests indecision on the part of the market as to which way the stock may go.
    Based on the above, my best guess (and that is all it is) is that, short term, there is some downward consolidation toward the 20ma and the area of support from the previous double tops. Intermediate term, I would think that because this is has been a nicely trending stock in fairly strong area, there is no reason to think that the previous uptrend would not continue after the consolidation. So, I would expect some short term volitility followed by a continuation of the uptrend. But, then, who knows with this stuff.

  10. Kam Says:

    Hi guys ,
    I read this article about ATP few days ago. Great article . When we were discussing if Atlantic power can sustain its Divi last month that thing came to light now that soon as they sold Florida operation it just can’t because those projects pay for lot into pool. I can’t write exact no. But please read this article and all comments if u have time. Will tell u about house of cards this utility is. Management not telling truth and cutting divi 65% all of a sudden and now I think some lawsuit against them is coming . Good thatI sold it 12+ now at 5.56.

    http://m.seekingalpha.com/article/1243561#comments_header

  11. mick/nv Says:

    Kam

    Tdw suggested some time ago the dividend was not safe. However, in a recent report they were surprised it was cut so much. Hope no one on this blog owned this stock, may be quite some time , if at all, that the price will get back to what it once was. It has lost over 50% of it’s value in just a couple of months.

  12. Hniel Says:

    Ok mick/nv and Kam(my bmw friend), it is a little embarrassing to say, I still own 200 shares of atp. I only admit this for 2 reasons, I’d feel like I would be hiding something if I didn’t disclose, and luckily I only own 200 shares. Guess I fell asleep not watching the stock and a lesson for myself to be more vigilant in looking and following stocks I own. Also this way I don’t feel bad if I brag about a great result in another stock..haha, although I doubt I would go there. I see on the news there is litigation initiated with ph. numbers to call. While this is rather a small amount I own, any advice would be appreciated. Not sure if it’s worth bothering about. Again, luckily it was a small part of portfolio but I do need to be more aware of what is happening if I am managing my own money. One excuse..I was too busy.. Have a great evening all. Hniel/Kingston

  13. tony Says:

    Man what a three day trip to Jay…

    physically and psychologically bushed.(Wonder how teachers do it to live through it 200 days a year.

    but my sons had a blast at the indoor water park, and the oldest went for one of the rare times skiing, and the folks followed its been a while since I skied at jay but what a blast I had.

  14. Muntazir Says:

    Reit followers
    Dennis Mitchell is on BNN marketcall tonight on Mon.
    Also David Burrows on Tues
    Will have to watch online.

    Kam & Michael
    Thanks for the follow up.

  15. Hniel Says:

    Re: post 13 tony, a customer just left yesterday for the same experience mentioning the new water water park and of course as we know the excellent skiing. Hope they have as good a time. Hniel/Kingston

  16. tony Says:

    Hniel

    the weather was just gorgeous, we stayed at hotel Jay its been open for over a year, whe asked for a kitchen and we had a full size kitchen/ living room. 2 bathrooms and from the escape routes we had one of the biggest room for the main hall.

    btw, I looked at ATP, and I will quote Mr Cramer, you need to look at your stocks 1hr per week, this will give you an insight on whats happening with the company should they get recommendations recall CP was downgraded by rbc at 60 its now up 120$ since that downgrade

    you had a one month warning as it went below the 18MA and after 15days it went below the 50MA.

    this should be a warning to all of us if something is below where we want it to be its time to sell and not wait or buy more.

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