Tech Talk for Wednesday July 9th 2008

 

A glimmer of hope in a new sector: Health Care. Technicals are turning positive. The sector’s period of seasonal strength is approaching.

 

Seasonal influences are about to turn negative for the U.S. Dollar. Short term technicals are not there yet, but likely will appear shortly. Gold and gold stocks will benefit. Both became short term overbought late last week. Purchases on weakness between now and the end of July are preferred.

 

 

Pre-opening Comments for Wednesday July 9th

 

9:15 AM EDT: U.S. equity indices are slightly higher before the opening. Dow Jones Industrial Average futures are up 39 points. U.S. equity markets are responding partially to slightly better than consensus second quarter earnings released after the close yesterday. Alcoa reported $0.66 per share versus $0.81 per share last year. Consensus (whisper number) just prior to release of results was $0.64 per share.

 

The U.S. Dollar is under pressure this morning following comments by the European Central Bank that inflation pressures in Europe continue to rise. Weakness in the U.S. Dollar has triggered strength in commodities priced in U.S. Dollars. Crude oil added $1.78 U.S. per barrel in overnight trade. Silver is higher.

 

Intuit is expected to open lower this morning. The company announced plans to lay off 7% of its staff. Goldman Sachs added the stock to its “Conviction Sell” list. On the charts, Intuit currently has a negative technical profile. Intermediate trend is down. The stock trades below its 50 and 200 day moving averages. Short term momentum indicators (RSI, MACD) have rolled over and are trending down.

Chart courtesy of StockCharts.com                       www.stockcharts.com

 

Cisco is moving lower after Cisco’s CEO, John Chambers noted that a significant recovery is unlikely until 2009. On the charts, Cisco currently has a negative technical profile. Intermediate trend is neutral. The stock trades below its 50 and 200 day moving averages. Cisco is testing support set in February at $21.77. A break of support on early weakness this morning could cause the stock to resume an intermediate downtrend. 

Chart courtesy of StockCharts.com                         www.stockcharts.com

 

Technical Action Yesterday

 

Technical action by S&P 500 stocks remains bearish despite recovery by the Index yesterday. Six S&P 500 stocks broke resistance and eleven stocks broke support yesterday. Health care stocks were notable on the list of stocks breaking resistance and energy stocks were notable on the list of stocks breaking support.

 

S&P 500 stocks breaking resistance

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Abbott Labs                 ABT                 Up                   Up

Family Dollar                FDO                Neutral             Up

Forest Labs                  FRX                 Down               Neutral

Genzyme                      GENZ              Down               Neutral

Marsh & McLennan     MMC              Up                   Up

Schering Plough            SGP                 Down               Up

 

S&P 500 stocks breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Allergen                        AGN                Down               Down

Chevron                       CHV                Up                   Down

Disney                          DIS                  Up                   Neutral

El Paso                         EP                    Up                   Neutral

EMC                            EMC                Neutral             Down

Kimco Realty               KIM                Up                   Neutral

Novellus                       NVLS              Down               Down

Schlumberger               SLB                 Up                   Neutral

Smith International        SII                   Up                   Neutral

XTO Energy                 XTO                Up                   Neutral

Williams                       WMB              Neutral             Down

 

Technical action by TSX Composite stocks also remains bearish. No TSX stocks broke resistance and six more stocks broke support yesterday. Energy stocks were notable on the list of stocks breaking support.

 

TSX Composite Index stocks breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Duvernay                      DDV                Up                   Neutral

European Goldfields     EGU                Down               Down

Niko Resources            NKO               Neutral             Down

OPTI Canada               OPC                Up                   Neutral

TSX Group                  X                     Up                   Neutral

UTS Energy                 UTS                 Up                   Down

 

Pre-opening Comments for Tuesday July 8th

(Charts have been updated to yesterday’s close)

 

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.

 

Update comment: A wild day for FNM and FRE! Comments by Treasury secretary, Hank Paulson and Bernanke at the FDIC conference assuring that FNM and FRE will remain an important component of the U.S. mortgage industry were the trigger for the strong U.S. stock market rally yesterday afternoon.

 

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

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

 

 

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, “Thain faces fire sale dilemma at Merrill” Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/07/08/thain-faces-fire-sale-dilemma-at-merrill.aspx

 

Merrill Lynch currently has a negative technical profile. The stock has formed a classic “waterfall” pattern with no significant technical signs of bottoming. It currently is testing its five year low at $28.93. Recent declines have come on increasing volume, not a good sign.

Chart courtesy of StockCharts.com                           www.stockcharts.com

‘Tis the season for earnings warnings! This morning, Indymac, a California based lender laid off half its staff after warning of higher than expected losses. One analyst reduced his target on the stock to zero. The stock has formed a “waterfall” pattern on the charts.

Chart courtesy of StockCharts.com                      www.stockcharts.com

 

Office Depot also announced negative guidance this morning. Second quarter revenues will miss guidance by about 10%. The stock fell over 30% on the news. On the charts, Office Depot also has formed a “waterfall” pattern with no significant signs of a bottom. The stock broke support at $10.60 to reach an 8 year low.

Chart courtesy of StockCharts.com                      www.stockcharts.com

 

Interesting Charts

 

Dennis Gartman noted in his daily report yesterday that the U.S. Dollar remains in a long term downtrend.

 

Chart courtesy of StockCharts.com                                    www.stockcharts.com

 

The U.S. Dollar has a history of trending lower from the end of July to the end of December.

US Dollar Index

USDX saisonal

Chart courtesy of Seasonalcharts.com      www.seasonalcharts.com

 

Not surprising, gold and gold stocks tend to move higher from the end of July to the end of September.

 

The U.S. health care sector showed early signs of recovery yesterday. Several stocks in the sector broke key resistance levels and established intermediate uptrends including Abbott Labs, Allergen, Forest Labs and Schering Plough. Health care SPDRs are forming a potential base building pattern. Short term momentum indicators are trying to recover from oversold levels. Strength relative to the S&P 500 Index has turned positive during the past two months. The period of seasonal strength for the sector is from the end of August to the end of December.

Chart courtesy of StockCharts.com                          www.stockcharts.com

 

Ditto for the Biotech sector, a sub-sector of the Health Care sector! Biotech HOLDRS broke a key resistance level yesterday on higher than average volume. The Biotech sector has a period of seasonal strength from the end of July to the end of December.

Chart courtesy of StockCharts.com                          www.stockcharts.com

 

Iain Fraser’s Column

 

The price of crude oil has finally got into trouble. The question is, of course, is it going to be big trouble? The facts are that in the past eighteen months the price of crude has gone from the US$50 to US$60 level – up to a little more than $145 per barrel; this move up is about 85 dollars. The historical guideline for a correction in almost anything is one-third to one-half of the up-move; by applying this rule to crude oil the price of crude would come down to between $103 and $117. Bear in mind that this is only a guideline and based on the broad sphere of technical analysis – which has been very useful. Between 2000 and 2004, there were two tops at approximately 40 dollars. In 2004 there was an upside breakout which was repeatedly reported in these letters. The expectation at that time was for crude to move up about 50% and it did that, and more. Another upside breakout took place in the second half of 2007 when crude went through about 80 dollars. The technical expectation at that time was for crude to do, what was then thought the impossible, and go up to 130 dollars per barrel. For the past seven years crude oil has been a very good friend of technical analysis. In the present decline, which we will report on regularly, we will see if this friendship prevails.

Chart courtesy of StockCharts.com                   www.stockcharts.com

Chart courtesy of StockCharts.com                     www.stockcharts.com

 

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.