Tech Talk for Tuesday July 8th 2008

Pre-opening Comments for Tuesday July 8th

 

9:15 AM EDT: U.S. equity index futures are lower this morning. Dow Jones Industrial Average futures are down 45 points before the opening. Futures are being helped by continuing weakness in energy prices, but dampened by continuing Wall Street talk on Fannie Mae and Freddie Mac. Crude oil is down another $2.79 U.S. per barrel this morning. Lehman Brothers noted yesterday that a change in accounting rules proposed by Congress could require Fannie Mae to raise an additional $46 billion and Freddie Mac could be required to raise an additional $29 billion. Both stocks were under substantial pressure yesterday.

 

Chart courtesy of StockCharts.com                       www.stockcharts.com

Chart courtesy of StockCharts.com                         www.stockcharts.com

 

 

Federal Reserve Chairman Ben Bernanke offered assurances this morning that credit concerns will be addressed as needed in the coming months. Traders are hoping that Bernanke will give additional assurances when he speaks at the FDIC conference today.

 

WestJet and Southwest Airlines are higher in pre-opening trade on news that they have developed an alliance to improve inter-carrier serve. Both stocks also are expected to benefit this morning from lower energy prices. On the charts, Southwest Airlines already has a positive technical profile. The stock has an intermediate uptrend and trades above its 50 and 200 day moving average. Strength relative to the S&P 500 Index has been positive since January.

Chart courtesy of StockCharts.com                       www.stockcharts.com

Research in Motion is slightly higher in overnight trading following favourable comments by Lehman. The stock is trying to bounce from its 200 day moving average.

Chart courtesy of StockCharts.com                             www.stockcharts.com

 

Technical Action Yesterday

 

Technical action by S&P 500 stocks remains bearish. No S&P 500 stocks broke resistance yesterday. Another 25 stocks broke support. Energy stocks were notable on the list of stocks breaking support.

 

S&P 500 stocks breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Ace                              ACE                Neutral             Down

Amerisource Bergen     ABC                Down               Down

Apache                        APA                Up                   Down

Best Buy                      BBY                Down               Down

Direct TV                     DTV                Up                   Neutral

Devon                          DVN                Up                   Down

Donnelley                     RRD                Neutral             Down

Equifax                         EFX                 Up                   Neutral

Fannie Mae                  FNM               Down               Down

Federated Invest           FII                   Down               Down

Hess                             HES                 Up                   Down

Hudson City Bancorp   HCBK             Neutral             Down

Leucadia                      LUK                Up                   Neutral

Marathon                     MRO               Up                   Down

Micron                         MU                  Neutral             Down

Noble Drilling               NE                   Up                   Neutral

Office Depot                ODP                Neutral             Down

Omnicom                     OMC               Up                   Neutral

Prologis                        PLD                 Neutral             Down

Robert Half                  RHI                  Down               Down

Southwestern Energy    SWN               Up                   Neutral

Starbucks                     SBUX              Up                   Down

Tiffany                          TIF                  Up                   Neutral

TransOcean                  RIG                  Up                   Down

UST                             UST                 Up                   Neutral

 

Technical action by TSX Composite stocks also remains bearish. No TSX Composite stocks broke resistance and seven stocks broke support.

 

 

 

 

 

TSX Composite stocks breaking resistance

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Brookfield Properties    BPO                Up                   Neutral

Equinox                        EQN                Down               Down

George Weston            WN                 Up                   Neutral

Mercator Minerals        MI                   Up                   Down

Petrobank                    PBG                 Up                   Down

Shawcor                       SCL.A             Up                   Down

Sherritt                         S                      Neutral             Down

 

 

Pre-opening Comments for Monday July 7th

(Charts have been updated to yesterday’s close)

 

9:15 AM EDT: U.S. equity index futures are mixed this morning. Dow Jones Industrial Average futures are up 2 points. Futures are being helped by lower crude oil prices and hampered by  reports predicting more credit write offs related to sub-prime lending. Crude oil is down $2.25 to $143.03 per barrel.

 

Consolidation in the base metal sectors continues. This morning, Inmet offered to purchase Petaquilla for $2.00 per share cash. The stock closed on Friday at $0.96. Inmet is expected to open lower on the news. Inmet is struggling on the charts. It currently is testing support at $58.26.

Chart courtresy of StockCharts.com                          www.stockcharts.com

 

More short term pain for long term gain! General Motors is trading higher this morning on a Wall Street Journal article that the company will lay off more white collar workers and is considering the possibility of reducing its number of models.

Chart courtesy of StockCharts.com                      www.stockcharts.com

 

Negative investment sentiment continues to weigh on U.S. equity markets. Bullish Advisors fell to 31.9% last week and is close to its low set in March. History shows that a depressed Bullish Advisor Percent near this level usually is followed by a significant intermediate recovery.

 

Entertainment stocks are expected to open lower this morning. Lehman downgraded the sector and lowered its recommendation on Disney to under-weight. 

Chart courtesy of StockCharts.com               www.stockcharts.com

 

Merck is expected to open lower this morning. UBS downgraded the stock due to concerns about Gardisil. On the charts, Merck has a negative technical profile. Intermediate trend is down. The stock likely will test support at $34.49 at the opening.

Chart courtesy of StockCharts.com                             www.stockcharts.com

 

CIBC strategist, Jeff Rubin has reduced his targets for the TSX Composite Index. His target for the end of 2008 fall from 15,200 to 14,300 and his 2009 target drops from 16,200 to 15,250. He also reduced the equity portion of his model portfolio by 4%. According to Jeff, the Canadian economy is slowing faster than expected.

 

Tech Talk comments on the FP Trading Desk site

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

 

FP Trading Desk headline reads, “Uncertainty on new entrants in wireless sphere buying opportunity for Rogers”. Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/07/04/uncertainty-on-new-entrants-in-wireless-sphere-provides-buying-opportunity-for-rogers.aspx

 

Investors are looking for an investment alternative in the telecommunication sector for their BCE holdings now that the deal for BCE is virtually completed. Rogers Communications is an interesting alternative. Rogers has a mixed technical profile. Intermediate trend is neutral and the stock trades below its 50 and 200 day moving averages. However, the stock began to show positive strength relative to the TSX Composite Index in March. Also, short term momentum indicators (RSI, MACD and Stochastics) are oversold and trying to recover.

Chart courtesy of StockCharts.com                          www.stockcharts.com

 

Tech Talk Observations

 

Fundamental analysts continue to revise earnings estimates downward. Consensus estimates for S&P 500 companies in the second quarter on a year over year basis have declined during the past week from -10.2% to -11.5%. Consensus estimates for the fourth quarter remain at +59%. Look for significant downward adjustments for third and fourth quarter estimates when second quarter reports are released.

 

Tech Talk recently examined the history of the Up/Down ratio during the past three years. The Up/Down ratio measures the ratio of stocks in an uptrend versus a downtrend in a broadly based index (e.g. stocks in the S&P 500 Index and the TSX Composite Index). A ratio at 2.00 implies that twice the number of stocks are in an uptrend exists relative to the number of stocks in a downtrend.  The Up/Down ratio for S&P 500 stocks and TSX Composite stocks are published each Monday, but they can be calculated each day by examining the list of stocks that break support/resistance and change trend. For example, the Up/Down ratio for TSX Composite stocks fell yesterday from (74/86=) 0.86 to (69/90=) 0.79 based on data provided earlier in this report. The Up/Down ratio for S&P 500 stocks fell yesterday from 0.56 to 0.48.

 

The Up/Down ratio is useful for determining intermediate buy and sell signals. The Up/Down ratio is low when it reaches 0.50 and is high when it reaches 2.00. A recovery of the Up/Down ratio from say below 0.50 provides a buy signal and a decline of the Up/Down ratio from say 2.00 provides a sell signal. Buy and Sell signals are valid only when combined with the Bullish Percent Indicator and MACD.

 

The Up/Down ratio for S&P 500 Index and TSX Composite Index stocks has recorded four buy signals and four sell signals during the past three years. Following is data showing dates and levels when the Up/Down ratio began to recover from oversold levels (i.e. recorded a buy signal).

 

                                                            Up/Down Ratios At Bottoms

                                    S&P 500                                 TSX Composite

October 2005              0.50                                         0.63

June 2006                    0.49                                         0.27

August 2007                 0.26                                         0.15

January 2008                0.11                                         0.21

 

The Up/Down ratio for S&P 500 stocks already has fallen to an intermediate oversold level where a buy signal is approaching. However, its trend remains down and has yet to show intermediate technical signs of bottoming. The Up/Down ratio for TSX Composite stocks is not as oversold as the S&P 500 ratio. It also continues to trend lower and has yet to show intermediate technical signs of bottoming.

 

Interesting Charts

 

U.S. energy stocks were notable on the list of stocks breaking support yesterday. The S&P 500 Energy Index broke support and completed a double top pattern. Oil service HOLDRS broke a key support level.

Chart courtesy of StockCharts.com                   www.stockcharts.com

 

Chart courtesy of StockCharts.com                         www.stockcharts.com

 

CSTA News

 

Tech Talk is giving a presentation in Vancouver on Friday July 18th. Topic is “Timing the Market using ETF”. Claymore and TD Waterhouse Discount Brokerage are sponsoring the event.

 

Time: 6:00 PM to 8:00 PM

Location: Richmond City Hall

                6911 No. 3 Road

                Meeting Room M.2.004

Cost: Free for members

         $20 for non-members

         Free for members who attend the first time

 

Everyone is welcome!

 

Tech Talk Site Conversion

 

Tech Talk is converting to a new server over the next two months where a higher quality service will be offered. Click on  http://www.timingthemarket.ca/techtalk/  for a sneak preview.

 

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.