10 AM EDT: FP Trading Desk headline reads, “Raymond James raises price target on Encana to $75”.
Encana has a mixed technical profile. Intermediate trend is up. The stock has been a stellar performer since the beginning of January, up over 33%. The stock trades above its 50 and 200 day moving averages. However, the stock has struggled during the past month. The stock recently tested its all time high at $68.65, but failed. MACD and RSI have rolled over from short term overbought levels. In addition, its period of seasonal strength from January to May has just ended. Downside risk is to the stock’s 200 day moving average at $57.36. Following is a link to its chart:
http://stockcharts.com/h-sc/ui?s=ECA.TO&p=D&yr=1&mn=0&dy=0&id=p69136446093
Technical Action Yesterday
Technical action clearly was bearish yesterday. One S&P 500 stocks broke resistance and forty four stocks broke support. Health care, financial service and utility stocks were prominent on the list of stocks breaking support.
S&P 500 stocks breaking resistance
Stock Symbol Previous New
Trend Trend
Morgan Stanley MS Up Up
S&P 500 stocks breaking support
Stock Symbol Previous New
Trend Trend
AES AES Up Neutral
Ameren AEE Up Neutral
Applied Materials AMAT Neutral Down
Black & Decker BDK Up Neutral
Bristol Myers BMY Up Neutral
Citizen Comm. CZN Up Down
Colgate Palmolive CL Up Down
Commerce Bancorp CBH Up Neutral
Consolidated Edison ED Up Neutral
Darden Restaurants DRI Up Neutral
Disney DIS Up Neutral
DH Horton DHI Up Neutral
Dominion Resources D Up Neutral
Donnelly RRD Up Down
Duke Energy DUK Up Neutral
Eastman Chemical EMN Up Down
Eli Lilly LLY Up Down
Estee Lauder EL Neutral Down
Fortune Brands FO Up Down
Gilead GILD Up Down
H&R Block HRB Up Neutral
InterActive IACI Down Down
Interpublic IPG Down Down
Intergys Energy TEG Up Down
Kimberly Clark KMB Up Neutral
KLA Tencor KLAC Up Down
Merck MRK Up Neutral
Mylan Labs MYL Down Down
Nicor GAS Up Down
Northern Trust NTRS Up Neutral
PPL Corp PPL Up Neutral
Principal Financial PFG Up Down
Progress Energy PGN Neutral Down
Pulte Homes PHM Up Down
Qualcomm QCOM Neutral Down
Ryder R Up Neutral
Sealed Air SEE Up Neutral
Sears Holdings SHLD Up Down
Sempra SRE Up Neutral
Sigma Aldrich SIAL Up Neutral
Southern Companies SO Up Down
Wells Fargo WFC Up Neutral
Wrigley WWY Up Down
Wyndham WYN Up Neutral
Technical action by TSX stocks also was bearish. No TSX stocks broke resistance and nine stocks broke support.
TSX stocks breaking support
Stock Symbol Previous New
Trend Trend
Addax Petroleum AXC Up Down
Agrium AGU Neutral Down
Commerce Bank CM Up Down
Connacher Petroleum CLL Up Down
Dynatec DY Up Neutral
Enbridge ENB Down Down
Frontier FRG Up Down
IGM Financial IGM Up Neutral
Sherritt S Up Down
Inter-day Comments for Thursday June 7th
Financial Post headline reads, “Drilling jobs scene bleak: 3,500 fewer rig hands: Higher dollar and trust crash could mean long layoffs”. The bloom is off the rose in the Canadian oil service sector. Fewer rigs are active and rig rates are coming down. Not surprising, Canadian oil service stocks are having a difficult time on the charts. Most peaked a month ago, their MACD and RSI have rolled over from short term overbought levels and their strength relative to the TSX Composite Index has turned negative. In addition, the period of seasonal strength in the sector from November to May has come to an end. Precision Drilling, the best known company in the sector is a good example.
Update: The stock has declined 13% from its high on May 10th.
Chart courtesy of StockCharts.com www.stockcharts.com
Interesting Charts
North American equity markets were spooked by rising U.S. interest rates yesterday. The yield on 10 year treasuries spiked 13 basis points to a nine month high of 5.10%. Interest rate concerns were compounded in late trading when Pimco’s Bill Gross, manager of the largest bond portfolio in the U.S. changed his intermediate stance on U.S. bond prices from bullish to bearish.
Chart courtesy of StockCharts.com www.stockcharts.com
Interest sensitive equities (e.g. utilities, financial services, home builders, REITs) and bonds came under significant pressure. For example, the Philadelphia Index fell 3.5%, broke support and broke below its 50 and 200 day moving averages.
Chart courtesy of StockCharts.com www.stockcharts.com
iShares on 20 year treasuries (Symbol: TLT) gapped through key support levels on significantly higher than average volume completing a massive double top pattern.
Chart courtesy of StockCharts.com www.stockcharts.com
Interest rate uncertainty spiked volatility in U.S. equity markets.
Chart courtesy of StockCharts.com www.stockcharts.com
Bearish sentiment soared on both sides of the border. Volume in double inverse index ETFs rose to record levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
ETF News
WisdomTree has launched a dividend weighted ETF on the Wisdom Tree International Real Estate Fund on the AMEX. The ETF tracks an index of approximately 224 dividend paying companies in 19 developed market countries across Europe, Asia and the Far East that are operating or developing real estate. Symbol is DRW.
PowerShares shortly plans to launch five ETFs based on indices composed of equities from three continents and more than 20 countries. Proposed funds are:
PowerShares Global Water Portfolio
PowerShares Global Clean Energy Portfolio
PowerShares Dynamic Developed International Opportunity Portfolio
PowerShares Dynamic Asia Pacific Portfolio
PowerShares Dynamic Europe Portfolio
Claymore Investments shortly plans to launch an ETF on the S&P/TSX Global Mining Index.
An email to John Heinzl at the Globe and Mail:
A Comment on your June 6th column entitled, “Trying to time a correction would be a mistake”
Thanks, John for your interesting and controversial column. The column shows a chart entitled, “Time in the market, not market timing”. The column quotes from a study completed by Birinyi Associates stating that $1 invested in January 1966 in the S&P 500 Index would be worth $16 for buy-and-hold investors, while investors missing the five best days of the year would see the value of their investment in the S&P 500 Index decline to $0.11.
This recent study by Birinyi is not new. Birinyi and other mutual fund providers seem to dust off this and comparable reports at least once a year in order to encourage investors to follow the buy-and-hold strategy. The message in the study is “Don’t even think of timing the market”.
The study clearly has flaws.
- The study has an obvious bias. A balanced study would also have included results if an investor missed the five worst days of the year.
- The study fails to consider the possibility that investing in the S&P 500 during an identified period each year can greatly enhance the frequency of owning the market during its best five days and can greatly reduce the frequency of owning the market during its worst five days. That’s what seasonal and technical analysis is all about. Let’s take a simple example from a recently published book written by Brooke Thackray entitled, “Thackray’s 2007 Investor’s Calendar”. The book shows that investors, who purchased the S&P 500 Index on October 27th and sold the Index on May 6th from 1950 to 2006, saw their $10,000 investment increase in value to $804,455. If data for the October 2006/May 2007 period is included, value increased $92,423 to $896,878. In contrast, a $10,000 investment in the S&P 500 Index during the May 6th to October 27th periods from 1950 to 2006 resulted in a loss of $1,066.
- Technical analysis can enhance returns noted in Thackray’s study. The S&P 500 Index rarely bottoms on October 27th and rarely tops on May 7th. Short term momentum indicators (e.g. Moving Average Convergence Divergence, Relative Strength Index, Stochastics) can be used to identify optimal entry and exit points either just before or just after October 27th and May 7th. Enclosed is an article dated June 1st 2007 that identifies the seasonality for 40 equity markets, sectors and commodities. A full report on Seasonality is available at http://dvtechtalk.com/specialreports/specialreport5.htm
Tech Talk update: John responded by thanking us for our comments. He noted that he had received more responses than usual on this column.
Weekly Bullish Percent Index Updates for U.S. Sectors
Changes during the past week were significant. Ten of the eleven sectors recorded declines. Only energy recorded a small increase. Weakest sectors were utilities and transportation. Nine of the eleven sectors have fallen below their 15 day moving average. All charts remain at an intermediate overbought level. Most indices appear to have just started their downward trend.
All charts courtesy of StockCharts.com
ETF 101: Preparing for a seasonal entry point into the gold sector
Following is Tech Talk’s weekly ETF column originally published yesterday at www.stockhouse.com
Gold and gold equity Exchange Traded Funds have shown early signs of bottoming during the past week. Where do they go from here?
Three gold and two gold equity ETFs currently trade in North American equity markets. The three gold ETFs trade at approximately 1/10th of the price of gold. streetTRACKS Gold Trust shares (Symbol: GLD) is the most actively traded gold ETF. The other U.S. listed gold ETF is iShares on Comex Gold Trust (Symbol: IAU). Comex Gold Trust units also trade on the Toronto Exchange in Canadian Dollars under the symbol IGT. The gold equity ETFs are Market Vectors Gold Miners units (Symbol: GDX) and iShares on the S&P/TSX Gold Index (Symbol: XGD). Market Vectors’ units trade on the AMEX in U.S. Dollars. iShares gold equity units trades on the Toronto Exchange in Canadian Dollars. Both track a basket of big cap global gold stocks. Following is a summary:
ETF Symbol MER(%) Optionable Ave. daily volume
Past three months
streetTRACKS Gold Trust GLD 0.40 No 5,015,000
iShares Comex Gold Trust IAU 0.40 No 117,000
iShares Comex (Canadian) IGT 0.40 No 5,000
Market Vectors Gold Miners GDX 0.55 Yes 726,000
iShares S&P/TSX Gold XGD 0.55 Yes 250,000
Seasonal Influences
The period of seasonal strength for gold and gold stocks is from the end of July to the end of September. The seasonal trade for gold has been profitable in eight of the past 10 periods. Average gain per period was 4.6%. The seasonal trade for the Philadelphia Gold and Silver Index also has been profitable in eight of the past 10 periods. Average gain per period was 11.1%. The seasonal trade for the TSX Gold Index also has been profitable in eight of the past 10 periods. Average gain per period was 12.4%. An important reason for gains during the July to September period is additional demand for gold by gold fabricators each summer. Additional gold is purchased to make gold jewelry for the Christmas season and the Indian wedding season late in the year. India has the largest gold market in the world. Economic growth in India is spurring demand. First quarter demand on a year-over-year basis rose 50%. Following is a chart showing optimal seasonal entry and exit points for the TSX Gold Index during the past six years:
Chart courtesy of StockCharts.com www.stockcharts.com
Fundamental Influences
Earnings prospects for gold producers are driven by the price of gold. Gold prices spiked in the second quarter last year and peaked at $730 U.S. per ounce in mid May. Average price in the second quarter was approximately $650 U.S. per ounce followed by an average price near $600 U.S. per ounce in the third quarter and fourth quarters and $650 U.S. per ounce in the first quarter and partial second quarter of 2007. Year-over-year cash flow and earnings in the second quarter are expected to be relatively flat for major global producers and down for Canadian producers (due to recent strength in the Canadian Dollar). Year-over-year cash flow and earnings in the third and fourth quarter will resume a strong uptrend.
Exploration and development activity by gold producers also will have a positive impact on the sector in the months to come. Producers have expanded drilling activity to zones in existing mines where lower ore grades previously were found. Current gold prices have boosted the economic feasibility of producing from these zones. Many gold producers likely will announce significant increases in reserves when second and third quarter results are released.
Technical influences
Gold and gold stocks are showing early technical signs of bottoming. Gold recently returned to near its 200 day moving average. Since 2001, purchases of gold and gold stocks, when gold is at or just below its 200 day moving average, has proven to be a profitable trading strategy. Its current 200 day moving average is at $640 U.S. per ounce. Short term momentum data (i.e. Moving Average Convergence Divergence, Relative Strength Index, Stochastics) is oversold and recently has shown signs of recovery. Resistance is at $698 U.S. per ounce. Typically at this time of year, gold and gold stocks form base building patterns into July followed by establishment of upward trends into August and September.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
The Bottom Line
An interesting seasonal trade in the gold sector appears to be lining up again this year. Watch for technical entry points in gold and gold equity Exchange Traded Funds as the period of seasonal strength approaches.
Disclosure: Mr. Vialoux does not own securities mentioned in this report.
June08,2007
Did you like this article?
Submitted By 
's
