Technical Action Yesterday
Technical action by S&P 500 stocks was quiet yesterday. One S&P 500 stock broke resistance and one stock broke support.
S&P 500 stocks breaking resistance
Stock Symbol Previous New
Trend Trend
Aflac AFL Up Up
S&P 500 stocks breaking support
Stock Symbol Previous New
Trend Trend
Nucor NUE Up Neutral
Technical action by TSX stocks was quietly bearish yesterday. No TSX stocks broke resistance and two stocks broke support.
TSX stocks breaking support
Stock Symbol Previous New
Trend Trend
Aber Resources ABZ Up Neutral
Cyries Energy CYS Neutral Down
Inter-day Comments for Monday June 11th
FP Trading Desk headline reads, “FNX Mining’s run up leaves little room to gain”. Following is a link to the report: http://communities.canada.com/nationalpost/blogs/tradingdesk/archive/2007/06/11/fnx-mining-s-run-up-leaves-little-room-to-gain-analyst.aspx
FNX has a positive technical profile with qualifications. The stock has an intermediate uptrend and trades above its 50 day and 200 day moving average. The 50 day moving average currently at $29.32 has proven to be a key indicator of the stock’s trend during the past year. On balance volume data shows that the stock is being strongly accumulated. On the other hand, the stock’s period of seasonal strength from the end of September to the end of April has ended. In addition, short term momentum data (MACD, RSI, Stochastics) are overbought and showing early signs of rolling over. Indeed, a MACD sell signal was recorded on Friday.
Chart courtesy of StockCharts.com www.stockcharts.com
Tech Talk’s Weekly Financial Post Column
(Published yesterday in the National Post)
Preparing for a seasonal entry point in the gold sector
Gold, gold equities and related Exchange Traded Funds have shown early technical signs of bottoming during the past two weeks. Where do they go from here?
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
Cash flow and 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 this year will resume a strong upward trend.
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 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 $640.17 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 indicated at $698.00 U.S. A break above $698.00 implies an intermediate technical target of $765.00 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 during the period of seasonal strength in August and September.
Update: Tech Talk completed a seasonality study on the AMEX Gold Bug Index (Symbol: HUI) over the weekend. Results were similar to studies on other gold equity indices. The period of seasonal strength is from the end of July to the end of September. The trade was profitable in eight of the past 10 periods. Average gain per period was 11.6%.
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.
June 12,2007
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