Technical action by S&P 500 stocks was bearish yesterday. Four S&P 500 stocks broke resistance and thirteen stocks broke support. Notable on the list of stocks breaking support were financial service stocks.

S&P 500 stocks breaking resistance

Stock                           Symbol             Previous           New

                                                            Trend               Trend

Broadcom                    BMC               Neutral             Down

Dupont                         DD                   Neutral             Up

Pepsi Bottling               PBG                 Up                   Up

Xerox                           XRX                Up                   Up

S&P 500 stocks breaking support

Stock                           Symbol             Previous           New

                                                            Trend               Trend

Ambac Financial           ABK                Neutral             Down

Amerisource Bergen     ABC                Neutral             Down

Aon                              AOC                Up                   Down

BMC Software             BMC               Neutral             Down

Carnival                        CCL                Up                   Neutral

First Horizon                FHN                Down               Down

Genzyme                      GENZ              Neutral             Down

Huntington Banc           HBAN             Up                   Down

Lehman                        LEH                 Up                   Neutral

Lowes                          LOW               Up                   Down

Moody’s                      MCO               Neutral             Down

Tyco                            TYC                Up                   Neutral

Vulcan Materials           VMC               Up                   Down

Technical action by TSX stocks was quiet. Two TSX stocks broke resistance and one stock broke support.

TSX stocks breaking resistance

Stock                           Symbol             Previous           New

                                                            Trend               Trend

Astral Media                ACM.A           Up                   Up

Thompson Creek          TCM                Neutral             Up

TSX stocks breaking support

Stock                           Symbol             Previous           New

                                                            Trend               Trend

ProEx Energy               PXE                 Up                   Neutral

Inter-day Comments for Tuesday July 10^th

U.S. equity markets are expected to open lower this morning after Home Depot and Sears Holdings announced second quarter earnings warnings. Home Depot noted that a slow down in the U.S. housing industries related to a decline in sub-prime mortgage lending is having an impact. Sears Holdings noted that a decline in home appliance sales is having an impact. Technically, Home Depot has resistance at or just above $41.00. Sears Holdings likely will test key support just below $165 at the opening.

Update: Home Depot closed virtually unchanged and Sears Holdings fell sharply. Weakness in Sears spilled into other retail merchandiser stocks on concerns that U.S. consumers are tightening their purse strings. 

Chart courtesy of StockCharts.com                                

Chart courtesy of StockCharts.com                         

The Bank of Canada announced an increase in the overnight rate from 4.25% to 4.50% and hinted that the rate could rise higher. The Bank of Canada is looking for a slowdown related to the strong Canadian Dollar and predicted that the Canadian Dollar likely will remain in a range between 93 and 95 cents U.S. The Canadian Dollar weakened slightly on the news.

Chart courtesy of StockCharts.com                           

CNBC mentioned this morning that call option volume in Barrick, Newmont, Anglogold and Stillwater has expanded significantly during the past few days. The commentator suggested that institutional buying has entered the market. In addition, Goldman Sachs noted this morning that institutional buying of stocks in the sector has appeared recently.

Fed Chairman Ben Bernanke speaks about inflation at a presentation at 1:00 PM today. Traders will watch for hints of a change in interest rate policy.

Update: U.S. equity markets fell sharply during Bernanke’s speech. However, his comments were not the reason for weakness. Two events occurred during his speech that triggered selling:

• Standard and Poor’s downgraded ratings on a series of mortgage backed securities that included sub-prime mortgages. Many of these securities have not “marked to market” the sub-prime mortgage portion of their portfolios. The danger is that Standard and Poor’s actions will trigger revaluations. Size of the revaluations could be substantial for some of these securities.
• The S&P 500 Index broke an important technical parameter. It fell below its 50 day moving average.

Chart courtesy of StockCharts.com                        

Interesting Charts

The Euro broke resistance at 136.79 to reach an all time high. Next technical target is 141.

Strength can be attributed mainly to weakness in the U.S. Dollar. The Dollar broke support at 81.25. Next technical target is 79.3

Chart courtesy of StockCharts.com                       www.stockcharts.com

Chart courtesy of StockCharts.com                       www.stockcharts.com

Weakness in the U.S. Dollar triggered strength in the price of gold. Gold continues to bounce from its 200 day moving average.

Chart courtesy of StockCharts.com                     

Brooke Thackray’s Column
 

By: Brooke Thackray

AlphaMountain Investments

www.alphamountain.com

Golden Times Ahead – Gold and Gold Stocks Set to Rise

The price of gold is affected by different factors: inflation, the relative price of the U.S. dollar, geopolitical conflict, and consumption demand. There is one seasonal trend that tends to affect the price of gold on a regular basis. On average gold bullion has outperformed the broad stock market from July 12^th to October 9^th. The reason is simple, supply and demand. A lot of investors tend to think of large amounts of gold being used for electronics and industrial purposes. In reality most of the gold consumed (approximately 67%) each year is made into jewelry by gold fabricators.

If we take it one step further and look at what countries are consuming gold, the top country may come as a surprise- India.

Consumer Demand By Country 2006 in tones (t)

Source: World Gold Council

Calculations do not include industrial or dental demand

India consumes more than double the amount of gold compared with the USA, as gold is treated as a store of value and factors very heavily into gift giving.  The Indian festive season starts in autumn as the monsoon season finishes and the harvest season begins. Jewelers stock their shelves with gold jewelry as Indians make their purchases, particularly for Diwali, the Festival of Lights. The initial purchase of gold in the market starts in July and August, as jewelry fabricators need to buy the gold in order to make jewelry. As the festive season approaches, demand from the fabricators drops affecting the price of gold. The chart below illustrates the typical rise in price that starts in July and lasts until the beginning of October.

Gold has been under performing over the last few months, just before its seasonally strong period. This is good news for seasonal investors. This typically increases the probability of gold’s outperformance during its seasonally strong period. In the chart below gold has recently bounced off the 200 day moving average and is now flirting with the 50 day moving average. It is also at the top of its channel trend. The MACD is at a cross-over point. Although there is a chance that gold will turn back down to the bottom channel line or the 200 day moving average, successful breakouts tend to occur at the start of seasonally strong periods. The short-term target for gold during its period of seasonal strength is the high reached in April of  $691 USD.

The two major U.S. ETFs that invest directly in gold bullion are: GLD, by State Street, and IAU, by Barclays. Both of these ETFs trade at 1/10^th the price of gold in U.S. dollars. The Canadian gold bullion ETF is IGT, by Barclays, which trades at 1/10^th the price of gold in Canadian dollars.

Gold stocks are closely related to the commodity. Sometimes the price of gold gets ahead of stocks and vica versa. There are varying reasons why gold or gold stocks lag each other (beyond the scope of this article), but in general stocks benefit from a rise in the price of the metal. Below is a chart of the XAU Index (Philadelphia exchange Gold and Silver). It is the traditional proxy for the gold stock market as it has historical data going back to 1983. Often the Gold Bug Index (HUI) is preferred because it does not include hedged positions. The XAU is used in the chart below because it demonstrates the long-term resistance for gold stocks (150). We are currently just under this level (146). If gold stocks manage to push through the long-term resistance, then it is open air above. A strong seasonal period can help push stocks through resistance.

XAU Index 1983 to 2007 July 9

In the Canadian market (using the XGD ETF) the short-term target for gold stocks is $79. The ETF has recently bounced off support at $65. If gold stocks are able to advance on momentum during their seasonal strength, there is a possibility that they could reach $90.

Gold stocks have typically done well from the end of July to the end of September (July 27^th to September 25^th)- see page 85 of Thackray’s 2007 Investor’s Calendar. There is a note of caution: the time period following, September 26^th to the end of October, gold stocks have performed poorly. From 1984 to 2006 the XAU has had an average gain of –4.7% and has been negative 70% of the time. Make sure you look for a suitable exit point at this time.

Iain Fraser’s Column

The past few weeks has really belonged to the mining stocks. If a company had copper or zinc or nickel it just went almost straight up. It is hard to believe that even the biggest mining company in the world, BHP Billiton, since May 1^st 07, has moved up from $48.80 to as high as $67. Usually it is the acquired stocks that have these big moves, not the acquirer. The two natural resource sectors; mines and energy, account for about 40% of the TSE composite. Of the two, the mines in the past two years have done much better than the energy stocks. Most would of thought it would have been the other way around. Three years ago one could hardly imagine that the price of copper would go to about $4 per pound (we understand the cost of producing it is $0.70c per pound); and that the price of nickel would get as high as $25 per pound. When the outsiders took over our nickel companies, the price per pound was closer to $7. The mining stock we picked in Feb ’03 that was substantially undervalued was Inmet at $6.20, in the past two years Inmet has gone from about $17 to $95. Inmet and many other metal stocks are the reason that individual stocks, in our view, still are better than ETF’s.

Chart courtesy of StockCharts.com                       

The energy stocks in the past two years have not done nearly as well as the mines. On the chart you can see that on the XEG, the oils have traded in a range between 70 and 94 for almost the past 2 years. The odds favor an upside breakout. But there is no certainty. For both the oils and the mines easily, the overriding factor is the price of oil and the price of the metals. The metal surge is most likely due to China; nobody knows if the next $10 move in the price of crude is going to be up or down. Most of us are betting on the upside.

Chart courtesy of StockCharts.com                            

For us the bottom line is still to find good quality stocks that are substantially undervalued.

Editor’s Note: Iain’s services are available at www.fraser-ratings.com. Iain can be contacted at fraserratings@yahoo.ca

Disclosure: Mr. Vialoux does not own securities mentioned in this report.

july 11,2007