Mondays are building a reputation! Monday has been the day during the past few months when rumored or actual takeovers are announced. Today, it’s a rumor that BHP Billiton is thinking about a $40 billion U.S. takeover of Alcoa. Alcoa is higher in overnight trading.
Strength in Alcoa, a Dow Industrial stock also has boosted Dow Industrial futures before the opening. The rumors also will impact Alcan at the opening. Alcoa recently made a hostile bid to acquire Alcan.
Alcoa has a positive technical profile. It tested its all time high on Friday and will break to an all time high at the opening. Following is a link to its chart:
http://stockcharts.com/h-sc/ui?s=AA&p=D&yr=1&mn=0&dy=0&id=p69136446093
‘Tis the season for earnings warnings! Historically, earnings warnings are released near the end of a quarter when a company realizes that it will not reach guidance. Molex gave negative guidance before the opening. The stock is trading lower in pre-opening trade.
Gilead Sciences, a major U.S. biotech company announced after the close on Friday that it has received FDA approval for a once-a- day treatment for pulmonary arterial hypertension. The stock has moved higher in overnight trading. The favourable response to Gilead’s news also could add interest to other biotech stocks. The biotech sector has a period of seasonal strength from July to December. It’s seasonal “sweet spot” is from the end of July to the end of October. More information on the biotech sector is available in today’s Financial Post.
Gilead has a positive technical profile. The stock will test its all time high at $84.45 at the opening. Following is a link to its chart:
http://stockcharts.com/h-sc/ui?s=gild&p=D&yr=1&mn=0&dy=0&id=p69136446093
Look for Canadian gold stocks to open higher. Gold is up about $3.00 U.S. per ounce. In addition, the Canadian Dollar is down about 0.30 cents U.S.. Canadian gold stocks have a period of seasonal strength from July to September. Early technical signs show that stocks in the sector currently are trying to form base building patterns. Following is a link to the TSX Gold Index:
http://stockcharts.com/h-sc/ui?s=$sptgd&p=D&yr=1&mn=0&dy=0&id=p69136446093
Outlook this week
Economic news is relatively sparse this week.
Economic report ReportRelease Date Consensus Previous
Housing starts May June 19 1.48 M 1.53 M
8:30 AM
Building permits May June 19 1.45 M 1.46 M
8:30 AM
Leading indicators May June 20 0.0% (0.5) %
10:00 AM
Philadelphia Fed June June 21 5.2 4.2
12:00 Noon
Earnings reports also are sparse this week
Company Qtr. Consensus Report Report
Last Year Time
Thursday June 21st
H&R Block 4 $1.88 $1.79 BMO
BMO: Before market opens
Source: www.marketwatch.com
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) was virtually unchanged last week. It improved from 2.01 to (279/138=) 2.02. Twenty five S&P 500 stocks broke resistance (including 15 stocks on Friday) and 15 stocks broke support.
Bullish Percent Index for S&P 500 stocks recovered last week, but remains below its 15 day moving average. It remains overbought and in an intermediate downtrend.
Chart courtesy of StockCharts.com www.stockcharts.com
TSX stocks also remains in the Break Down/Continued Distribution phase. The up/down ratio for TSX stocks fell for the fourth consecutive week. Last week the ratio slipped from 1.57 to (102/67=) 1.52. Data does not include changes in content for the TSX Composite Index that occurred after the close on Friday. Data will be adjusted next week.
Bullish Percent Index for TSX stocks improved slightly last week, but remains below its 15 day moving average and maintains an intermediate downtrend.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the S&P 500 Index improved last week. The Index bounced from its 50 day moving average and gained 1.67%. It currently is testing its all time high at 1,540.56. RSI and Stochastics recovered and are approaching short term overbought levels. MACD continues to trend lower from a short term overbought level. Short term downside risk is to its 50 day moving average at 1,498.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 50 day moving average recovered slightly last week. However, it remains overbought and continues to trend lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of S&P 500 stocks trading above their 200 day moving average also recovered slightly last week. It remains overbought and continues to trend lower.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the Dow Jones Industrial Average also improved last week. The Average gained 1.60% last week and is testing its all time high at 13,692.00. RSI and Stochastics recovered, but already are approaching short term overbought levels. MACD continues to trend lower from a short term overbought level. Short term downside risk is to its 50 day moving average at 13,221.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for Dow Jones Industrial Average stocks remains stuck at 96.67%. The Index remains overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the NASDAQ Composite Index improved last week. The Index bounced from its 50 day moving average and gained 2.07% last week. It managed to close at a six year high. RSI and Stochastics recovered, but already are approaching short term overbought levels. MACD continues to trend lower from a short term overbought level. Short term downside risk is to its 50 day moving average at 2,550.
Bullish Percent Index for NASDAQ Composite stocks deteriorated slightly last week. It remains below its 15 day moving average and continues in an intermediate downtrend.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the TSX Composite Index also improved last week. The Index bounced from its 50 day moving average and gained 2.46% thanks mainly to strength in energy and gold stocks. Resistance exists at its all time high at 14,174 set on May 23rd. RSI and Stochastics recovered, but already are approaching a short term overbought level. MACD continues to trend lower from a short term overbought level. Strength relative to the S&P 500 Index remains positive. Short term downside risk is to its 50 day moving average at 13,810.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX Composite stocks trading above their 50 day moving recovered last week, but remains in a downtrend and overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Percent of TSX stocks trading above their 200 day moving average rose last week, but remains intermediate overbought.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for the Australia All Ordinaries Index also improved last week. The Index bounced from its 50 day moving average and gained 0.94%. Resistance exists at its all time high at 6435.7. RSI and MACD continue to trend lower from a short term overbought level. Stochastics already are oversold. Performance relative to the S&P 500 Index has deteriorated slightly during the past two weeks.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for international indices also improved last week. European equity indices were strongest. The Nikkei Index rose 1.08%, the London FT Index gained 3.49% and the French CAC Index jumped 3.77%. The London FT Index managed to reach a multiple year high. The French CAC Index is testing a multiple year high.
All charts courtesy of StockCharts.com
The Canadian Dollar finally started to show short term technical indicators of peaking. RSI and MACD rolled over from a short term overbought level.
Chart courtesy of StockCharts.com www.stockcharts.com
Despite strength in U.S. equity indices, their performance in Canadian Dollars remains unimpressive. Since February 7th the Dow Industrials is off 3.3%, the S&P 500 is down 5.0% and the NASDAQ Composite Index has declined 5.2%.
Charts courtesy of StockCharts.com
The U.S. Dollar found short term resistance at its intermediate downtrend. MACD is short term overbought, but continues to trend higher.
Charts courtesy of StockCharts.com www.stockcharts.com
The Euro is trying to bounce from just below 133. MACD is oversold, but continues to trend lower.
The Japanese Yen continues to tumble lower.
Chart courtesy of StockCharts.com www.stockcharts.com
The CRB Index broke resistance at 319.11 on Friday and completed a possible reverse head and shoulders pattern. It also moved above its 50 and 200 day moving average. Higher crude oil and gold prices triggered the action.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold is trying to bottom just above its 200 day moving average at $647.27 U.S.. Stochastics are oversold and MACD is trying to recover from a short term oversold level.
Chart courtesy of StockCharts.com www.stockcharts.com
Copper was surprisingly strong last week. It continues to bounce from its 200 day moving average. Most of the gain was recorded on Friday when the U.S. Dollar weakened. MACD is neutral.
Chart courtesy of StockCharts.com www.stockcharts.com
Crude oil broke above resistance at $67.42 U.S. and resumed an intermediate uptrend. Intermediate technical target is $74.70 U.S.. MACD is trending higher.
Chart courtesy of StockCharts.com www.stockcharts.com
Technicals for unleaded gasoline continue to deteriorate. ‘Tis the season!
Chart courtesy of StockCharts.com www.stockcharts.com
The spike in U.S. interest rates continued last week. The yield on 10 year treasuries broke resistance at 5.25%. MACD shows that yield is short term overbought, but has yet to roll over.
Chart courtesy of StockCharts.com www.stockcharts.com
Other factors
Euphoria by the U.S. investment industry media spiked on Friday when the S&P 500 Index and Dow Jones Industrial Average approached all time highs.
Take over fever remains a theme on both sides of the border.
Seasonal influences for minimal for most sectors at this time of year. Performance is random: some years higher and some years lower.
Today is “Witch’s Hang Over” day, the day after Quadruple Witching. Historically, Witch’s Hang Over day has generated small losses. The S&P 500 Index has declined in 13 of the past 17 periods. Average loss per period was 5.5 points.
The Fed becomes a focus late this week. Traders will start to guess near the end of the week about news from the next FOMC meeting next week.
Important inflection points occurred simultaneously in several markets on Friday following a tamer than expected inflation report:
- U.S. treasury yields fell
- The U.S. Dollar weakened
- Commodity prices (gold, copper, silver, crude oil) rose.
Traders will be watching for continuations.
Most equity indices, sectors and commodities continue to show over intermediate overbought technicals implying greater downside risk than upside potential.
The next major focus after the Fed decision next week is on second quarter results. Second quarter earnings and cash flow by Canadian companies could surprise on the downside due to recent strength in the Canadian Dollar.
The Bottom Line
Upside potential remains limited. Downside risk appears significant. ‘Tis the season to preserve capital!
Interesting Chart
Technicals on the Canadian gold sector continue to improve. MACD has recovered and re-established an uptrend. The sector is in the early stages of building a base for the period of seasonal strength.
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Indices for Canadian Sectors
Bullish Percent Index
Sector May 25 June 1 June 8 June 15
Energy 67.2 67.2 67.2 68.0
Gold 44.8 50.0 44.8 42.9
Materials 62.7 62.7 61.0 64.4
Financials 72.0 72.0 64.0 64.0
TSX 60 80.0 80.0 75.0 75.0
Adrienne Toghraie’s Interview on BNN Television
The interview taped on Friday can be accessed through http://www.bnn.ca/servlet/HTMLTemplate/!robVideo/robtv0726.20070615.00052000-00052484-clip1/h/220asf///
The interview is near the 35minute level.
Tech Talk’s Weekly Financial Post Column
The column features comments on the U.S. Biotech sector. New information has been included to an article on the same topic released last Thursday. The column is available by paid subscription at www.nationalpost.com
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.
June18,2007
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