Tech Talk for Thursday May 8th 2008

 

Pre-opening Comments for Thursday May 8th

 

9:10 AM EDT: U.S. equity index futures are slightly higher in pre-opening trade. Dow Jones Industrial Average futures are up 12 points. Equity markets are responding to better than expected April retail sales.

 

April retail sales were boosted by better than average weather conditions across the U.S. as well as consumer anticipation of $600 cheques per adult to be forwarde by the Federal government.  The cheques began to arrive earlier this week. April estimates were exceeded by 13 of 19 retail merchandisers who reported sales this morning. Companies reporting higher than consensus April sales include Wal-Mart, Kohl’s, JC Penney and Costco.

 

Retail merchandiser stocks and ETFs are responding to anticipation of stronger sales during the second quarter. Retail HOLDRS, an ETF consisting of a basket of retail merchandising stocks recently broke above a base building pattern and continues to trend higher.

Chart courtesy of StockCharts.com                          www.stockcharts.com

 

Currencies are virtually unchanged this morning following news that the European Central Bank and the Bank of England are maintaining their overnight lending rate at current levels.

 

 

 

 

Technical Action Yesterday

 

Technical action by S&P 500 stocks was quietly bullish yesterday. Two S&P 500 stocks broke resistance and none broke support.

 

S&P 500 stocks breaking resistance

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Hewlett Packard           HPQ                Up                   Up

Pitney Bowes               PBI                  Down               Up

 

Technical action by TSX Composite stocks also was bullish. Five TSX stocks broke resistance. None broke support.

 

TSX Composite stocks breaking resistance

 

Stock                           Symbol            Previous          New

                                                            Trend              Trend

Addax Petroleum          AXC                Up                   Up

Calfrac                         CFW               Up                   Up

CCL Industries             CCL.B             Down               Up

Enbridge                       ENB                Up                   Up

Oilexco                        OIL                  Up                   Up

 

Pre-opening Comments for Wednesday May 7th

 

9:15 AM EDT: U.S. equity index futures are mixed this morning. Dow Jones Industrial Average futures are down 3 points. Earlier, they were down over 30 points, but recovered after a better than consensus first quarter productivity report. Consensus was a gain of 1.5%. Actual was 2.2%.

 

First quarter earnings continue to surprise on the upside. Disney reported fiscal second quarter earnings of $0.58 versus $0.43 per share last year. Consensus was $0.51 per share. Cisco reported fiscal third quarter operating earnings of $0.38 versus $0.34 per share. Consensus was $0.34 per share. BCE reported first quarter operating earnings of $0.57 versus $0.52 per share last year. Consensus was $0.56 per share. Cisco and Disney are moving higher in overnight trading. Both have an improving technical profile. Both recently broke above base building patterns and established intermediate uptrends.

Chart courtesy of StockCharts.com                          www.stockcharts.com

Chart courtesy of StockCharts.com                       www.stockcharts.com

 

 

The Nikkei Average is showing early signs of recovery. Last night the Average briefly broke above resistance at 14,105.

Chart courtesy of StockCharts.com                          www.stockcharts.com

 

U.S. bond yields are higher this morning and are testing a key resistance level for 10 year treasuries at 3.96%.

Chart courtesy of StockCharts.com                         www.stockcharts.com

 

U.S. 30 year treasuries briefly broke below a key support level and its 200 day moving average this morning.

Chart courtesy of StockCharts.com            www.stockcharts.com

 

Higher long term bond yields have prompted a strong gain in the U.S. Dollar this morning. The U.S. Dollar remains in an intermediate uptrend. In turn, commodity prices (gold, silver, copper) priced in U.S. Dollars are under pressure again.

Chart courtesy of StockCharts.com                         www.stockcharts.com

 

Tech Talk comments on the FP Trading Desk site

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

 

12:00 PM EDT: FP Trading Desk headline reads, “Canadians sitting on $45 billion cash: report” Following is a link to the report: http://www.financialpost.com/story.html?id=498683

 

Canadian and U.S. equity investors continue to hold large cash reserves. Recently, cash reserves in Canada rose to a record high at $45 billion. U.S. equity investors are in a similar situation. Cash reserves held by U.S. investors reached a record $3.61 Billion in April. When part of these reserves returns to equity markets, upside potential for equity prices is significant.

 

Evidence has surfaced that at least some of the cash reserves in the U.S. are returning to equity markets. During the past month, cash reserves in the U.S. fell $100 billion, a major reason for strength in U.S. equity markets in April. Will this trend continue into spring? Probably! The U.S. equity market continues to climb the proverbial “wall of worry”. Investors are concerned about:

  • Higher energy costs
  • Falling house prices
  • Employment uncertainties
  • Negative political and media rhetoric related to the U.S. presidential election.

However, consumer sentiment likely will recover when cheques for $600 per adult are received and spent. Investor sentiment into early summer also likely will recover.

 

Energy stocks on both sides of the border are under short term technical pressure following news that U.S. crude oil inventories rose faster than expected last week. Canadian and U.S. energy stocks have a history of reaching a seasonal peak in the month of May.

 

Update: Crude oil prices subsequently reached another all time high. However, U.S. energy stocks failed to respond. Energy SPDRs closed at their low for the day.

 

Chart courtesy of StockCharts.com                        www.stockcharts.com

 

No Surprise Here!

 

History is repeating itself! Russell Investments Canada noted in a recent report that most of Canada’s mutual funds invested in the Canadian market once again underperformed the TSX Composite Index. Only 20% of active managers outperformed their benchmark. Moreover, Canadian equity funds recorded their worst quarterly performance since 1999. The median large cap fund invested in Canadian equities produced a return of -3.9% in the quarter compared to a return by the TSX Composite Index of -2.8%.

 

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.