Tech Talk for Wednesday February 6th 2008

 

Pre-opening Comments for Wednesday February 6th

9:10 AM EDT: U.S. equity index futures are moving higher this morning buoyed by better than expected economic news, better than expected earnings news and takeover news. Fourth quarter U.S. productivity rose 1.8% versus consensus of 0.9%. Disney, Biogen, JDS Uniphase and Time Warner reported higher than consensus quarterly earnings. BHP Billiton bid to acquire Rio Tinto in a share exchange deal valued at $147 Billion U.S. If completed, the acquisition will be the second largest in corporate history.

 

Natural gas prices are higher in overnight trading. ‘Tis the season from the middle of February to the end of April for natural gas prices in the U.S. to move higher. Canadian natural gas prices usually track U.S. natural gas prices closely. Canadian investors have an interesting alternative starting today for an investment in natural gas. Claymore Investments has launched an Exchange Traded Fund based on the price of the NGX Canadian Natural Gas Index. The Index is based on AECO “C” physical contracts which expire at the end of the month preceding the delivery month. Symbol is GAS. Units trade on the Toronto Exchange. 

 

U.S. natural gas has an improving technical profile. Intermediate trend is up. Natural gas recently bounced from its 50 day moving average. Resistance is at $9.04 per MBtu. Short term momentum data (Stochastics) are recovering from oversold levels.

Chart courtesy of StockCharts.com                          www.stockcharts.com

Technical Action Yesterday

 

Technical action was quiet yesterday despite the substantial decline in U.S equity indices. One S&P 500 stock broke resistance and one stock broke support.

 

S&P 500 stocks breaking resistance

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Whirlpool                     WHR               Down               Neutral

 

S&P 500 stocks breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Wrigley                        WWY              Down               Down

 

Technical action by TSX stocks also was quiet. No TSX stocks broke resistance. Two stocks broke support.

 

TSX stocks breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Crystallex                     KRY                Down               Down

Loblaw                         L                      Down               Down

 

Pre-opening Comments for Tuesday February 5th

 

9:10 AM EST: U.S. equity markets are lower in pre-opening trade. Weakness was accentuated when the January ISM Services Index was released at 8:55 AM EST. Consensus was 52.3 versus 53.0 in December implying continuing growth but at a slower pace. Actual was 41.9 implying no growth and a significant decline is services. Dow Industrial futures are down over 130 points in pre-opening trade.

 

The U.S. Dollar is higher in overnight trading. Commodities priced in U.S. Dollars (e.g. gold, silver, crude oil) moved lower.

 

Husky Energy reported blow out fourth quarter earnings. Consensus was $0.91 versus $0.64 per share. Actual was $1.26 per share. Husky has an improving technical profile. The stock recently bounced from support near $38.50 and currently is testing its 50 and 200 day moving averages. Short term momentum indicators are recovering from oversold levels.

Chart courtesy of StockCharts.com                      www.stockcharts.com

 

Tech Talk’s Comments on the FP Trading Desk site yesterday

(Available at http://www.financialpost.com/trading_desk/index.html)

 

 

11:30 AM EST: FP Trading Desk headline reads, “Gold earnings preview: big day is February 21st as Barrick, Newmont, Goldcorp and Kinross report”. Following is a link to the report:

http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/02/05/gold-earnings-preview-big-day-is-feb-21-as-barrick-newmont-goldcorp-and-kinross-all-report.aspx

 

Fourth quarter earnings by gold companies will be “nothing to write home about”. Consensus earnings estimates show Barrick at $0.53 U.S. per share versus $0.48 last year, Newmont at $0.40 versus $0.47, Goldcorp at $0.19 versus $0.19 and Kinross at $0.10 versus $0.12. The industry was hit with higher chemical and labour costs during the quarter. In addition, Canadian producers were hit by a higher Canadian Dollar. The price of gold in Canadian Dollars improved only slightly in the fourth quarter on a year-over-year basis from $700 to $750 per once. And now the good news! The price of gold on a year-over-year basis improves significantly in the first quarter of 2008. Gold in the first quarter of 2007 averaged $650 U.S. and $770 Cdn. Look for gold companies to offer positive guidance when they release lackluster fourth quarter results.

 

All four gold stocks have formed similar technical patterns: They peaked early in January with the price of gold, weakened into mid January, unsuccessfully tested their early January highs near the end of January and now are testing the bottom of their recent trading range. Short term momentum indictors (MACD, Stochastics, RSI) have rolled over from overbought levels and are trending down. Gold stocks likely will struggle on the charts between now and the release of fourth quarter results.

Chart courtesy of StockCharts.com                      www.stockcharts.com

 

Thackray’s Monthly Letter – Know your buys and sells a month in advance

 

Brooke Thackray’s latest letter has just been released. The focus in this report is on the energy sector. According to Brooke the U.S. energy sector (Symbol: XOI) has a period of seasonal strength from February 25th to May 9th. The trade has been profitable in 22 of the past 24 periods. Average return per period was 8.6% (plus dividends ex transaction costs). The trade outperformed the S&P 500 Index during the period by 6.1%.

 

Brooke’s report is free. To subscribe send an email to subscribe@alphamountain.com with SUBSCRIBE in the subject line. Also state your first and last name, city and country.

 

 

 

ETF News

 

Claymore Investments launches an Exchange Traded Fund on Alberta Natural Gas today. Features are as follows:

 

Symbol: GAS

Exchange: Toronto Exchange

Initial unit price: $20.00

MER: 0.80%

Underlying index: NGX Canadian Natural Gas Index (www.ngx.com )

Underlying contract: The Index is based on the AECO “C” physical forward contracts which expire at the end of the month preceding the delivery month.

More information: available at www.claymoreinvestments.ca

 

Timing of the issue is excellent. Natural gas prices in the U.S. are known to have a period of seasonal strength from the middle of February to the end of April. Seasonality in AECO natural gas likely has a similar period of seasonal strength (to be completed shortly).

  

 

 

 

 

 

 

 

 

 

 

 

 

Chart courtesy of SeasonalCharts.com

 

A word of caution! Natural gas prices on both sides of the border are highly volatile. Daily price fluctuations frequently move in a 5% range. Units are attractive for traders and investors who are willing to accept the volatility.

 

Claymore also launches a Canadian Financial Services Exchange Traded Fund today. Units formerly traded as a closed end trust, but have been converted to an ETF. Symbol is CEW. The ETF tracks a basket of six Canadian bank stocks and four Canadian life insurance companies. Unlike the TSX Capped Financial Services Index, the Claymore product is based on an equal weight in each of the ten holdings.

 

Iain Fraser’s Column

 

The stock market here and in New York had good moves last week; so far, this week is a dud.

 

One of the more unusual situations at this time is that in terms of total returns, common stocks have a 9 percentage point advantage over fixed income securities. Anytime this spread is 7%, it is very favorable for stocks; at 9% it is overwhelmingly favorable for stocks. In Canada, Bank of Montreal ($56.60) is yielding 5.5%; with the favorable tax treatment this is equal to almost 8% of normal income. Also, Royal Bank of Canada ($49.90) is yielding a touch over 4%. In both cases one seldom sees yields this high; also we are in a period of extremely low yields on fixed income securities; the Bank of Montreal stock yield is currently higher than the government of Canada long term bond yields. On top of all this, Bank of Montréal and Royal Bank are currently excessively undervalued

Chart courtesy of StockCharts.com                     www.stockcharts.com

Chart courtesy of StockCharts.com                        www.stockcharts.com

 

Editor’s Note: Iain’s services are available at www.fraser-ratings.com. Iain can be contacted at fraserratings@yahoo.ca

 

Disclosure: Mr. Vialoux does not own securities mentioned in this report.

Disclaimer: Comments and opinions offered in this report 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.