Tech Talk for Tuesday March 18th 2008

 

Pre-opening Comments for Tuesday March 18th

 

9:05 AM EDT: U.S. equity index futures are higher before the opening in anticipation of good news from the Federal Reserve at 2:15 PM EDT. Dow Jones Industrial Average futures are up 140 points. Traders are anticipating a 1.00% drop in the Fed Fund rate to 2.00%.

 

Encouraging news from Goldman Sachs and Lehman Brothers also helped U.S. equity index futures. Both reported higher than consensus first quarter earnings this morning. Consensus for Goldman Sachs was $2.58 versus $6.67 per share last year. Actual was $3.23. Consensus for Lehman Brothers was $0.72 versus $1.96 per share last year. Actual was $0.81 per share. Both stocks have recovered strongly this morning following significant weakness yesterday.

 

Economic news released this morning was mixed. February Producer Prices rose 0.2%, in line with consensus. Core PPI rose 0.5%, higher than consensus at 0.2%. February housing starts eased to 1.06 million units, but slightly exceeded consensus. February housing permits were slightly lower than consensus at 978,000 units.

 

 

Technical Action Yesterday

 

Technical action by S&P 500 stocks was bearish yesterday. Two S&P 500 stocks broke resistance and thirty four stocks broke support. Financial service stock dominated the list of stocks breaking support.

 

S&P 500 stocks breaking resistance

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Ashland                        ASH                Down               Up

Johnson & Johnson       JNJ                  Down               Up

 

S&P 500 stock breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

AES                             AES                 Down               Down

Allstate                         ALL                 Down               Down

Altria                            MO                  Neutral             Down

Anheuser Busch            BUD                Down               Down

Bank of New York       BK                   Neutral             Down

Ben Franklin                 BEN                Down               Down

Carnival Corp.              CCL                Down               Down

Circuit City                   CC                   Down               Down

Clorox                          CLX                Down               Down

Countrywide                 CFC                Down               Down

Fidelity                         FIS                  Down               Neutral

Fifth Third                    FITB                Down               Down

Fortune Brands             FO                   Down               Down

General Growth            GGP                Down               Down

Genzyme                      GENZ              Up                   Down

Harley Davidson           HOG                Down               Down

Huntington Bancshare   HBAN             Down               Down

Intercontinental             ICE                  Down               Down

ITT Industries               ITT                  Down               Down

Jacob Engineer             JEC                  Neutral             Down

Kroger                         KR                   Neutral             Down

Juniper                         JNPR               Down               Down

Masco                          MAS                Down               Down

Moody’s                      MCO               Neutral             Down

Motorola                      MOT               Down               Down

National City                NCC                Down               Down

Office Depot                ODP                Down               Down

Prudential                     PRU                 Down               Down

State Street                  STT                 Up                   Down

Total System                TSS                 Up                   Neutral

Travelers                      TRV                 Up                   Neutral

Valero                          VLO                Neutral             Down

Verizon                        VZ                   Down               Down

Wyeth                          WYE               Up                   Neutral

Wyndham                     WYN               Down               Down

 

Technical action by TSX stocks also was bearish. One TSX stock broke resistance and eight stocks broke support. Financial service stocks dominated the stock breaking support.

 

TSX stocks breaking resistance

 

Stock                           Symbol            Previous          New     News

                                                            Trend              Trend

Cardiome                     COM               Up                   Up       Good news on its defibulator

 

TSX stocks breaking support

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Ace Aviation                ACE.B             Neutral             Down

Bank of Nova Scotia    BNS                Neutral             Down

High Pine O&G            HPX                Up                   Neutral

Kingsway Financial       KFS                 Down               Down

National Bank              NA                  Down               Down

Royal Bank                  RY                   Down               Down

Toronto Dominion        TD                   Down               Down

Western Gold Fields     WGI                Up                   Neutral

 

Pre-opening comments for Monday March 17th

 

8:55 AM EDT: The Fed has taken significant action to avoid the imminent collapse of Bear Stearns. Through JP Morgan, the Fed will fund up to $30 billion of Bear Stearns less liquid assets and will support JP Morgan’s purchase of Bear for $2 per share (Bear Stearns closed at $30 per share on Friday after trading as high as $56 during the day). In addition, the Fed has reduced its discount rate by 0.25% to 3.25%. Traders are now talking about the possibility of the Fed reducing its Fed Fund rate on Tuesday by 1.00% to 2.00%. Equity markets around the world have virtually collapsed following the news due to concerns that other major U.S. brokers and banks may be in trouble. The Nikkei plunged by almost 4%. Dow Jones Industrial Average futures were off more than 270 points last night before recovering to down 230 points this morning. S&P 500 futures were off more than 40 points last night before recovering this morning to down 33 points. Look for the S&P 500 Index and the Dow Jones Industrial Average to open below their January 23rd lows. The NASDAQ Composite Index was down over 44 points last night before recovering this morning to down 42 points. The U.S. Dollar has dropped to another multi-year low. Gold is up $14 U.S. per ounce to another all time high. The Frankfurt DAX Index broke below its January 22nd lows to reach an 18 month low. The Paris CAC Index broke below its January 22nd low to reach a 30 month low.

 

The focus this morning is on Lehman Brothers. Rumors of a major write off when the company reports first quarter earnings later this week caused the stock to fall almost 40% last night. The stock has recovered since then, but remains 25% below its close on Friday. Other major U.S. broker stocks also are under pressure.  Goldman Sachs and Merrill Lynch are off more than 15%.

 

Updates: Several key equity indices broke below their January 22nd lows including the S&P 500 Index, the DAX Index and the CAC Index.

All charts courtesy of StockCharts.com          www.stockcharts.com

The Dow Industrials and Dow Transports remained above their January 22nd lows.

 

The U.S. Dollar virtually collapsed in early trading, but recovered later in the day.

Chart courtesy of StockCharts.com                        www.stockcharts.com

 

The VIX Index spiked to above 35% in early trading, but moved lower later in the day.

Chart courtesy of StockCharts.com                  www.stockcharts.com

 

Lehman, Goldman and Merrill were hit hard in early trading, but recovered most of their losses by the end of the day. Lehman and Goldman will be watched closely today. Both are scheduled to release fiscal first quarter earnings before the opening today.

 

Chart courtesy of StockCharts.com                      www.stockcharts.com

 

Chart courtesy of StockCharts.com                     www.stockcharts.com

 

Tech Talk’s Comments on the FP Trading Desk site

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

 

FP Trading Desk headline reads, “U.S. Financials may fall another 50%: Whitney” Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/03/17/u-s-financials-may-fall-another-50-whitney.aspx

 

Financial SPDRs, an Exchange Traded Fund (XLF: $23.13) consisting of a basket of U.S. financial services stocks that are part of the S&P 500 Index currently have a negative technical profile. Short, intermediate and long tern trend is down. Units trade well below their 50 and 200 day moving averages. Strength relative to the S&P 500 Index has been negative since last January 2007. Short term momentum indicators are oversold, but have yet to show technical signs of bottoming. Units are testing long term support set in 2002 and 2003 between $18 and $20.

Chart courtesy of StockCharts.com                                      www.stockcharts.com

 

FP Trading Desk headline reads, “Hot stocks: Canadian banks fall as U.S. financial situation worsens”. Following is a link to the report: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/03/17/hot-stocks-canadian-banks-fall-as-us-financials-situation-worsens.aspx

 

iShares on the TSX Financial Services Index (XFN: $43.04) also have a negative technical profile. Short, intermediate and long term trend is down. Units trade well below their 50 and 200 day moving average. Strength relative to the TSX Composite Index has been negative since November 2006. Short term momentum indicators are oversold, but have yet to show technical signs of bottoming. Long term support is indicated between $34.00 and $37.50.

Chart courtesy of StockCharts.com                             www.stockcharts.com

 

 

ETF News

 

U.S. ETFs were remarkably active in February despite weakness in U.S. markets. Ten new ETFs were added to the market in February while 11 inactive funds were liquidated. Total number of U.S. ETFs trading on U.S. exchanges was 633. Value of ETF assets at the end of February was $557 billion.

 

ETFs in the Energy and Materials sectors recorded strong asset gains during the month thanks mainly to positive investment performance.

 

Trading volume remains high: more than twice the level a year ago. Average daily volume in February was $74 billion.

 

Top three U.S. ETFs in terms of dollar volume were SPDR S&P 500 (SPY), NASDAQ 100 Index Tracking Stock (QQQQ) and iShares Russell 2000 Index Fund (IWM). SPY remains the most liquid stock in the world.

 

Top three U.S. in terms of assets were SPDR S&P 500 (SPY), iShares MSCI EAFE Fund (EFA) and iShares MSCI Emerging Markets (EEM).

 

Aggregate short interest in U.S. ETFs was approximately 19% of total assets.

 

Interesting Comment

 

Last night on Fast Money, Dennis Gartman noted that commodity prices fell sharply yesterday despite weakness in the U.S. Dollar. Accordingly, he took profits on gold positions recommended in his letter. Short term momentum indicators for Material stocks and ETFs on both sides of the border are showing signs of rolling over. Shor term traders may want to take at partially profits in the sector. The period of seasonal strength to the end of April is rapidly approaching.

 

Chart courtesy of StockCharts.com                       www.stockcharts.com

 

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.

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