The economic focus in Canada this week is on the Bank of Canada’s announcement on the overnight rate on Tuesday. The economic focus in the U.S. is on June retail sales.
Economic report Report Release Date Consensus Previous
Wholesale inventories May July 10 0.3% 0.3%
10:00 AM
Bank of Canada rate July 10 4.50% 4.25%
9:00 AM
U.S. trade deficit May July 12 $60.8 B 58.5 B
8:30 AM
Cdn. trade surplus May July 12
8:30 AM
Retail sales June July 13 0.3% 1.4%
8:30 AM
Retail sales ex autos June July 13 0.2% 1.3%
8:30 AM
Business inventories May July 13 0.3% 0.4%
10:00 AM
Consumer sentiment July July 13 82.5 85.3
10:00 AM
Second quarter earnings reports start to appear late this week.
Company Qtr. Consensus Previous
Monday, July 9th
Alcoa 2 $0.84 $0.90
Tuesday, July 10th
General Electric 2 0.52 0.47
Wednesday July 11th
Yum Brands 2 0.36 0.34
Thursday July 12th
Atco 2 0.63 Cdn 0.63 Cdn.
Nexen 2 0.58 Cdn. 0.69 Cdn.
Friday July 13th
Shaw Communications 3 0.27 Cdn. 0.25 Cdn.
Trends
S&P 500 stocks remain in the Break Down/Further Distribution phase. The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the up/down ratio) improved slightly last week, but remains in a downtrend started ten weeks ago. The ratio rose from 1.55 to (264/159=) 1.66 last week. Thirty S&P 500 stocks broke resistance (including Goodyear, American Standard, Sun Microsystems, Perkinelmer, Newmont, Altria and Chicago Merc on Friday) and two stocks broke support (including Genzyme on Friday).
Bullish Percent Index for S&P 500 stocks improved slightly last week, but remains below its 15 day moving average, continues in an intermediate downtrend and
remains overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
TSX stocks also remain in the Break Down/Continued Distribution phase. The TSX up/down ratio improved slightly last week, but remains in an intermediate downtrend. The ratio rose from 1.15 to (96/74=) 1.30. Seventeen TSX stocks broke resistance last week (including FNX Mining, Ivanhoe Mines, Miramar Mining, Silver Wheaton, Saputo, ATS Automation and Transalta on Friday). Five TSX stocks broke support (including Calfrac Well Services on Friday).
Bullish Percent Index for TSX stocks recovered slightly last week, but remains below its 15 day moving average, continues in an intermediate downtrend and remains overbought.
Technicals for the S&P 500 Index improved slightly last week. The Index gained 1.80%. Resistance set early in June at 1540.56 remains. MACD continues to trend lower. Stochastics are overbought in the short term. Downside technical targets are to the top of a previous trading range at 1,460 or to its 200 day moving average at 1,434.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 50 day moving average rose from 46% to 59% and returned to an intermediate overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 200 day moving average rose from 71% to 75%. It remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the Dow Jones Industrial Average also improved slightly last week. The Average gained 1.51%. It remains in a tight five week trading range between 13,260 and 13,692. MACD continues to decline from a short term overbought level. Stochastics are short term overbought. Intermediate downside risk is to the top of a previous trading range at 12,800 or to its 200 day moving average at 12,594.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for Dow Jones Industrial stocks was unchanged last week. The Index continues to trend downward from an intermediate overbought level and remains below its 15 day moving average.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the NASDAQ Composite Index improved slightly last week. The Index gained 2.43%. MACD, RSI and Stochastics are short term overbought, but continue to trend higher.
Bullish Percent Index for NASDAQ Composite stocks improved slightly last week, but continues to trend lower and remains below its 15 day moving average. Why the discrepancy between the Bullish Percent Index and the NASDAQ Composite Index? The answer is performance of the top 13 weighted stocks out of the over 3000 stocks in the Index (e.g. Apple, Google). Their gains accounted 77% of the advance by the Index since the beginning of 2007.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the TSX Composite Index also improved slightly last week. The Index gained 1.53%. Intermediate resistance set on May 23rd exists at its all time high at 14,216.21. MACD continues to trend lower from a short term overbought level. Stochastics are overbought in the short term, but continues to move higher. Strength relative to the S&P 500 Index, that began trending upward last October, continues.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX Composite stocks trading above their 50 day moving average returned to an intermediate overbought level when it rose from 39% to 53%. Intermediate trend remains down.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX stocks trading above their 200 day moving average rose from 61% to 65% last week. It remains intermediate overbought and trending lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the Australia All Ordinaries Index improved slightly last week. The Index gained 1.15%. The Index remains in a five week trading range between its all time high at 6,436 and support at 6,200. MACD continues to trend lower from a short term overbought level. Stochastics are approaching a short term overbought level, but continue to trend higher. Strength relative to the S&P 500 Index remains neutral.
Chart courtesy of StockCharts.com www.stockcharts.com
Major international indices also recorded gains last week, but advances were less significant than gains recorded by major North American equity indices. The Nikkei Index was virtually unchanged, the London FT Index added 1.24%, the Paris CAC Index improved 0.79% and the Frankfurt DAX Index advanced 0.51%. All except the DAX Index are testing intermediate resistance levels
All charts courtesy of StockCharts.com
The Canadian Dollar continues to surprise on the upside. It closed at a 30 year high on Friday. Strength can be attributed at least partially to anticipation of a 0.25% increase in the Bank of Canada’s overnight rate to 4.50% tomorrow. The move to raise the overnight rate could be the first in a series of 0.25% increases prior to the end of the year.
Chart courtesy of StockCharts.com www.stockcharts.com
Strength in the Canadian Dollar almost offset gains by major U.S. equity indices. Since February 7th the Dow Jones Industrial Average has declined 5.1% in Canadian Dollars, the S&P 500 Index is down 6.7% and the NASDAQ Composite Index has given up 5.6%.
All charts courtesy of StockCharts.com
Weakness in the U.S. Dollar was notable again last week. Intermediate trend remains down. It touched support last week at 81.25. MACD has rolled over and is trending lower in the short term. A break below support implies downside risk to 79.30.
Charts courtesy of StockCharts.com www.stockcharts.com
The Euro is a mirror image of the U.S. Dollar. Resistance at 136.79 is to be tested.
Weakness in the U.S. Dollar is having a positive impact on commodities priced in U.S. Dollars. The CRB Index is testing key resistance at 322.56. A breakout above resistance completes an 11 month head and shoulders reversal pattern.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for gold remain mildly encouraging. Gold continues to bounce from its 200 day moving average thanks partially to weakness in the U.S. Dollar. Resistance is at $698.00 U.S. Intermediate trend remains up. MACD, RSI and Stochastics are trying to recover from a short term oversold level.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold equity indices recorded encouraging technical signs late last week. They continue to show strength relative to the price of gold. The period of seasonal strength in gold stocks has appeared earlier than usual this year. On Friday, the AMEX Gold Bug Index broke resistance at 344.07. Next technical target is $373.50.
Chart courtesy of StockCharts.com www.stockcharts.com
The Philadelphia Gold and Silver Index broke resistance at 142.61 on Friday. Of greater importance, it broke above a two year triangle pattern.
Chart courtesy of StockCharts.com www.stockcharts.com
Market Vector Gold Miner ETF broke resistance at $40.14 on Friday. Next technical target is $43.00
Chart courtesy of StockCharts.com www.stockcharts.com
The TSX Gold Index broke resistance at 280.74 on Friday. Next technical target is 302.
Chart courtesy of StockCharts.com www.stockcharts.com
Another encouraging technical sign for the sector! All breakouts on Friday occurred on higher than average volume.
Copper also is benefiting from weakness in the U.S. Dollar. Possible labour disruptions and declining inventories contributed to strength.
Chart courtesy of StockCharts.com www.stockcharts.com
Crude oil prices continue to trend higher partially because of weakness in the U.S. Dollar and partially because of political uncertainties (e.g. Nigeria, Iraq, Iran). MACD is overbought in the short term, but continues to trend higher.
Chart courtesy of StockCharts.com www.stockcharts.com
U.S. long term interest rates rose sharply on Friday following release of the June employment report. Long term rates are expected to trend between 5.00% and 5.30% until the Fed signals a change in interest rate policy. Despite strength in U.S. interest rates on Friday, the U.S. Dollar declined slightly.
Chart courtesy of StockCharts.com www.stockcharts.com
Other factors
Second quarter earnings report become a focus this week. Consensus by S&P 500 companies and TSX 60 companies is an average increase on a year-over-year basis of 6.6%. Consensus is based on guidance. Guidance frequently is expected earnings less $0.01 per share, implying that reported earnings likely will approach gains averaging 10%. In the U.S., domestic revenues and earnings in the second quarter likely will average little or no gain while international operations will show modest growth. In addition, companies with international operations will benefit from currency translation. Sectors in the S&P 500 Index that are most likely to show earning surprises due to currency translation and international operations are health care, energy and technology. All realize over 49%of their pretax earnings from operations outside of the U.S. In Canada, the greatest influence is strength in the Canadian Dollar. The 8.7% gain by the Canadian Dollar relative to the U.S. Dollar will have a significant negative impact on the revenues, cash flow and earnings of Canadian companies that sell their products for U.S. Dollars (e.g. natural resource companies) or consolidate U.S. operating earnings into Canadian Dollars (e.g. financial service companies).
Takeover fever has spread to Canada. The takeovers of BCE and, most recently, Aur Resources has sparked speculative interest in other Canadian companies (particularly in the Canadian mining sector).
Currency fluctuations continue to influence equity prices significantly. The U.S. Dollar is under technical pressure partially due to a trend toward higher central bank rates outside of the U.S.. That trend is expected to continue. Equities related to commodities priced in U.S. Dollars (particularly gold) are beneficiaries.
Technicals for most sectors in North America (other than gold and biotech) are overbought in the short term. Most major North American equity indices face overhead resistance just above current levels.
The Bottom Line
Upside potential appears limited in the short term as the second quarter earning season arrives. Downside risk remains significant. ‘Tis the season to preserve capital.
Bullish Percent Indices for Canadian Sectors
Strength in gold stocks spilled into the materials sector and the TSX 60 last week.
Bullish Percent Index
Sector June 15 June 22 June 29 July 6
Energy 70.8 70.8 70.8 70.8
Gold 40.0 40.0 36.7 40.0
Materials 64.5 64.5 51.6 56.5
Financials 71.4 64.3 64.3 64.3
TSX 60 75.0 75.0 66.7 70.0
Disclosure: Mr. Vialoux owns ETF units in an index that tracks the TSX Gold Index. He does not own interests in other securities mentioned in this report.
july 09,2007
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