9:20 AM EDT: Research in Motion (RIMM) is a focus this morning. Its stock has moved sharply higher following news of higher sales and earnings and a three for one stock split. Technically, RIMM has a positive technical profile. The stock is in a short, intermediate and long term uptrend. It trades above its 50 and 200 day moving average. Previous all time high at $177.42 U.S. was broken in overnight trading. Next upside technical target is $197.50. Following is a link to its U.S. chart:
http://stockcharts.com/h-sc/ui?s=RIMM&p=D&yr=1&mn=0&dy=0&id=p69136446093
Gold continues to show short term signs of bottoming. It bounced nicely from its 200 day moving average at $643.14 U.S. on Wednesday and is up another $2.20 U.S. this morning. Overnight weakness in the U.S. Dollar is the main reason for strength in gold. Following is a link to the chart on gold and the U.S. Dollar:
http://stockcharts.com/h-sc/ui?s=$gold&p=D&yr=1&mn=0&dy=0&id=p69136446093
http://stockcharts.com/h-sc/ui?s=$usd&p=D&yr=1&mn=0&dy=0&id=p69136446093
Crude oil has broken above the $70 U.S. per barrel in pre-opening trade to reach a 10 month high. That’s good news for energy stocks (and possibly the gold stocks) and bad news for the rest of the market. Following is a link to the chart on crude oil:
http://stockcharts.com/h-sc/ui?s=$wtic&p=D&yr=1&mn=0&dy=0&id=p69136446093
Technical Action Yesterday
Technical action by S&P 500 stocks was quiet yesterday. Three S&P 500 stocks broke resistance and two stocks broke support.
S&P 500 stocks breaking resistance
Stock Symbol Previous New
Trend Trend
Constellation Brands STZ Down Up
Dell DELL Up Up
VeriSign VRSN Up Up
S&P 500 stocks breaking support
Stock Symbol Previous New
Trend Trend
LSI Corp LSI Down Down
News Corp A NWS.A Down Down
Technical action by TSX stocks was slightly bullish yesterday. Three TSX stocks broke resistance and one stock broke support. Gold stocks were notable on the list of stocks breaking resistance.
TSX stocks breaking resistance
Stock Symbol Previous New
Trend Trend
Canadian Tire A CTC.A Up Up
Eldorado Gold ELD Down Up
Meridian Gold MNG Down Neutral
TSX stocks breaking support
Stock Symbol Previous New
Trend Trend
Aastra Tech AAH Up Down
Inter-day comments for Thursday June 28th
9:10 AM EDT: The focus this morning is on the Canadian gold sector. Yamana Gold and Northern Orion have agreed to merge. The combined company plans to make an unsolicited bid for Meridian Gold. Technically, Northern Orion has a positive technical profile, Yamana has a negative technical profile and Meridian has a mixed technical profile. The importance of the deal is that it confirms continuing consolidation in the gold sector.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
U.S. equity indices have moved slightly lower prior to the opening. Core PCE Deflator, an inflation indicator closely watched by the Federal Reserve was 2.4% in May. Consensus was 2.2%. The Fed’s target is 2.0%. The higher-than-expected inflation report comes just before the Federal Reserve announces its interest rate report at 2:15 PM EDT today. Bond yields have moved slightly higher. Futures on the S&P 500 Index are off 2.40 points.
1:35 PM EDT: FP Trading Desk headline reads,” First Quantum potential target. Discount to peers narrowed”. Following is a link to the report: http://communities.canada.com/nationalpost/blogs/tradingdesk/archive/2007/06/28/first-quantum-potential-target-discount-to-peers-narrowed.aspx
First Quantum has a positive technical profile with minor qualifications. Intermediate trend is up. The stock traded above its 50 and 200 day moving average. The stock recently bounced again from its 50 day moving average. Strength relative to the TSX Composite has been positive since January. On balance volume data shows that the stock is being accumulated. The qualification is short term momentum indicators (MACD, RSI). They currently are overbought and moving lower. Purchases on weakness closer to its 50 day moving average at $86.96 are preferred.
Chart courtesy of StockCharts.com www.stockcharts.com
Tech Talk’s Weekly ETF Report
(Originally published yesterday at www.stockhouse.com)
ETF 101: Leveraged ETFs
Leveraged Exchange Traded Funds have taken U.S. and Canadian equity markets by storm during the past year. What is available and how do they work?
ProShares launched its first leveraged ETF in July 2006. Initially, its Exchange Traded Funds offered double returns, inverse returns and double inverse returns for broadly based U.S. equity indices. Subsequently, leveraged ETFs were launched on a wide variety of sector indices as well as growth and value indices. Currently, twenty three double return ETFs, six inverse return ETFs and twenty three double inverse ETFs trade on U.S. equity markets.
Leveraged ETFs came to Canadian markets six months later. Horizon BetaPro launched its first bull and bear leveraged Canadian ETFs in January 2007 on the S&P/TSX 60 Index. Subsequently, Horizon BetaPro launched leveraged bull and bear ETFs on the S&P/TSX Financial Services Index, S&P/TSX Energy Index and S&P/TSX Gold Index. Total number of Canadian leveraged ETFs rose to eight last week when leveraged gold share ETFs were launched. All leveraged ETFs offer leverage on a two for one basis based on daily trades.
Interest in these products has grown exponentially since their launch. The most actively traded leveraged ETF in the U.S. is the Ultra Short QQQ (Symbol: QID). Daily volume reached a record high at 33.6 million units last Thursday when U.S. equity markets moved lower. QID already is one of the most actively traded ETFs in the U.S. 
Chart courtesy of StockCharts.com www.stockcharts.com
Other actively traded leveraged ETFs in the U.S. include Ultra QQQ (Symbol: QLD), Ultra Short S&P 500 (Symbol: SDS), Ultra Short Dow 30 (Symbol: DXD) and Ultra Short Russell 2000 (Symbol: TWM). In Canada the most actively traded leveraged ETF is the Horizon BetaPro Ultra Short TSX 60 (Symbol: HXD). Record daily volume was set in early June when volume exceeded 1.2 million units.
One of ProShares’ ETFs has been given an appropriate symbol. Symbol for inverse returns on the Dow Jones 30 Index is DOG.
Leveraged ETFs are constructed by combining short term money market instruments with derivative contracts in the underlying index.
Leveraged ETFs are not for everybody. By definition, leverage is a two-edged sword: It works well when a trader correctly predicts the short and intermediate trend for an equity index. On the other hand, traders, who incorrectly call the trend, will lose invested capital (particularly if they are invested in leveraged products). In addition, costs are higher for leveraged ETFs. Management Expense Ratio (MER) is 0.95% for ProShares ETFs and 1.15% for Horizon BetaPro ETFs.
Leveraged ETFs also can be used as a form of portfolio insurance. Investors holding a portfolio of stocks or ETFs that track “the market” or a sector may want to protect profits during a period of uncertainty. However, taking profits could have significant tax implications. Protection can be purchased without selling the stocks or ETFs by purchasing inverse leveraged ETF that partially or wholly cover the profitable position.
Volume in the more actively traded leveraged ETFs is a good technical indicator of investor sentiment. A spike in volume indicates that investor sentiment is turning bullish or (as recently indicated) bearish.
Not all leveraged ETFs in the U.S. have been launched successfully. High profile leveraged ETFs such as QID have grabbed most of the attention. Trading activity in most of the sector and Russell products has been thin to date. Most have average daily volume of less than 10,000 units. Caution is advised.
The Bottom Line
Interesting investment products! They are best used when an investor has a strong conviction on an expected market or sector trend.
Tech Talk’s Weekly Financial Post Column
The column to be released on Tuesday July 3rd reviews and updates recommendations offered in columns released in the second quarter. The column is available by paid subscription through www.nationalpost.com.
Weekly Bullish Percent Index for U.S. Sectors
Weakness in most sectors was significant during the past week. Only one sector has a Bullish Percent Index that gained and is above its 15 day moving average, the Technology sector. One sector was unchanged, the Telecom sector. The remaining nine sectors recorded significant declines and were trading below their 15 day moving average. All nine sectors are intermediate overbought and trending lower. Notably weaker was the Financial sector.
All charts courtesy of StockCharts.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.
June,29,2007
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