Don Vialoux: Increase in Volatility Between Now and October Seasonally Common

Friday, August 10th, 2012

by Don Vialoux, EquityClock.com

Upcoming US Events for Today:

1. Import/Export Prices for July will be released at 8:30am.
2. The Treasury Budget for July will be released at 2:00pm. The market expects -$71.0B versus -$129.4B previous.

Upcoming International Events for Today:

1. German CPI for July will be released at 2:00am EST. The market expects a year-over-year increase of 1.7%, consistent with the previous report.
2. Canadian Net Change in Employment for July will be released at 8:30am EST. The market expects an increase of 8,000 versus an increase of 7,300 previous. The unemployment rate is expected to remain unchanged at 7.2%.

Recap of Yesterday’s Economic Events:

The Markets
Equity markets ended flat on Thursday despite better than expected reports in the US pertaining to employment and international trade. Volume was once again deadly, amounting to the lowest four-day volume in 5 years. In an article posted by Zerohedge.com, the website notes that “the last 4 days have been the lowest volume for a non-Xmas holiday week since 2007 in futures and NYSE volumes are just remarkably bad compared to even normal cyclical seasonal dips.” Looking at the 4-day simple moving average of the S&P 500 ETF (SPY) volume, the last time the average was this low outside of a Christmas holiday week was October 2007, the last market high prior to the significant decline in the months and years to follow in 2008/2009. Volume confirms conviction, of which very little exists. Conviction to equities remains low as debate grows over the sustainability of the present rally that appears based solely on hope of further monetary stimulus from one of the major central banks around the world.

The divergence between price and volume can also be picked up on the NYSE Cumulative Advance-Decline Volume line, which is derived from the volume of advancing stocks less the volume of declining stocks. The NYSE recently managed to break firmly above the high of early July, yet the NYSE Cumulative Advance-Decline Volume Line has yet to accomplish the same. The pattern of this breadth indicator and price typically match each other, showing similar highs and lows, therefore this divergence just adds to the concern that conviction to equities is lacking, often a precursor to market declines should buyers fail to accumulate.

Sentiment on Thursday, according to the put-call ratio, ended bullish at 0.86. The apparent declining wedge pattern that can be derived from the ratio over the past three months is reaching a peak, which could imply a significant jump higher should the tendencies of this pattern be fulfilled. A significant move higher in the put-call ratio would likely be accompanied by an increase in volatility, a pattern that is seasonally common between now and October.

S&P 500 Index

Chart Courtesy of StockCharts.com

TSE Composite

Chart Courtesy of StockCharts.com

Horizons Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $12.37 (down 0.24%)
• Closing NAV/Unit: $12.39 (up 0.18%)

Performance*

* performance calculated on Closing NAV/Unit as provided by custodian

Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.

Copyright © Don Vialoux, EquityClock.com

Tags: Canadian, Canadian Market, Central Banks, Christmas Holiday, Conviction, CPI, Dips, Divergence, Don Vialoux, Economic Events, ETF, ETFs, Export Prices, Import Export, International Trade, Moving Average, Nyse, Stimulus, Trade Volume, Treasury Budget, Unemployment Rate, Volatility, Xmas Holiday
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Don Vialoux: 9 Rewarding Seasonal Equity Trades

Friday, August 10th, 2012

by Don Vialoux, Tech Talk

(Based on reports published by www.globeandmail.com. Reports were forwarded to Globe and Mail each weekend and published early in the following week).

June 11:Accumulate the Leisure & Entertainment sector

ETF:PEJ at$20.73. Current price: $21.57

Comment: Continue to hold. Technical profile remains positive. Units continue to trade above their 20, 50 and 200 day moving averages. Short term momentum indicators continue to trend higher.

June 22: Accumulate the Fertilizer sector

ETF: SOIL at $12.20. Current price: $13.94

Comment: Continue to hold. Technical profile remains positive. Units continue to trade above their 20, 50 and 200 day moving averages. Units hit a new high yesterday. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.

July 2: Accumulate the Software sector

ETF: IGV at $62.18. Current price: $62.32

Comment: Continue to hold. Technical profile remains positive. Units remain above their 20, 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index turned positive at the beginning of July.

July 6^: Accumulate gold bullion

Gold price: $1,578.90. Current price: $1620.20

Comment: Continue to hold. Technical profile continues to improve. Gold recently broke above a triangle pattern and moved above their 20 and 50 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index is neutral.

July 13: Accumulate Canadian gold equities

ETF: XGD at $18.01. Current price: $18.45

Comment: Continue to hold. Technical profile continues to improve. The TSX Gold Index recently moved above its 20 day moving average. Short term momentum indicators are trending higher. Strength relative to the TSX Composite Index has been positive since mid-July.

July 20: Accumulate the Canadian energy sector

ETF: XEG at $15.12. Current price: $16.16

Comment: Continue to hold. Technical profile continues to improve. The TSX Energy Index recently broke above a reverse head and shoulders pattern. The Energy Index remains above its 20 and 50 day moving averages and just moved above its 200 day moving average. Short term momentum indicators are trending higher. Strength relative to the TSX Composite has been positive since the last week in June.

July 27: Sell the U.S. Transportation sector

Dow Jones Transportation Average at 5,126.65. Current price:5,048.23

ETF:IYT at $91.56. Current price: $90.17

Comment: Continue to avoid (hold short). The Dow Jones Transportation Average fell below its 20, 50 and 200 day moving averages during the past few days. Strength relative to the S&P 500 Index remains negative.

August 6: Sell the Airline sector

ETF: FAA at $28.66. Current price: $28.43

Comment: Continue to avoid (hold short). A break below $27.94 completes a double top pattern. Units trade below their 20 and 50 day moving average and moved below its 200 day moving average during the past few days. Strength relative to the S&P 500 Index has been negative since early July.

Eric Wheatley’s Column

Preamble: Every time I mention the fact that I’ve written options and investment guides or write something particularly controversial (not liking hockey is a salient example) I get a bunch of emails, which means SOMEONE is reading these ramblings. When I DO get messages, folks seem to think they’re bothering me so, to be clear: I work from home, have the business channel on all day, read financial stuff, work on spreadsheets for the Boss and myself and otherwise crave human interaction. We’re a long-term investing company, so contrary to your average broker, we don’t really need to spend all our time calling clients asking them to sell their BMO to buy BNS. If anyone is curious about options or investing and has questions, I promise to respond with joyful alacrity.

…yeah, there was no way this preamble was going to be anything less than full-on pathetic.

*****************

Good morning,

We’re continuing with our options basics lessons which started a few weeks ago. We’ve already looked at the factors which affect options prices and how buying in-the-money calls is an efficient, low-cost alternative to buying shares outright. This week, let’s look at what really happens when options expire.

(Please note that I’ll be skipping over the few weekly options that are listed on the CBOE and sticking with regular, plain-vanilla options in this commentary).

All normal stock options expire on the Saturday following the third Friday of the expiry month (or on the Friday if it falls on a holiday on which the markets are closed). To illustrate, this month, the third Friday is the 17^th, so all trading in August options will cease at the close of the markets on that day and contract holders will be able to order their brokerages to strike the options or to let them expire until the following day at noon.

The preceding statement is one of the frequent justifications for not using options. “They’re too complicated” or “they require me to always look at them! I don’t have the time”. False. Even the most indolent loafer can use options because there is a safety switch built into the system. If you hold an option at expiry and you completely forget, the clearing corporation will automatically strike your option if it’s in-the-money (in Canada, it has to be in-the-money by at least five cents). This means that, for a call option, you will receive 100 shares per contract in your account three business days later. For put options, you have to deliver 100 shares (your brokerage will handle things if the shares aren’t in your account, but you should check with it to determine its procedures).

Fine and dandy. You can lounge by the pool in full-on lethargy mode knowing that the system works. Except…

So, you own a call option. It has a strike price of $50. You’re swimming with your dog in the pool having a grand time and your spouse enjoys making his/her horribly addictive margaritas for you and you’ve completely ignored the call’s expiration. At the close, the stock is at $50.25. “Great!” you tell yourself. “The call’ll be struck with or without my intervention and I’ll make a quarter. I’ll have another please honey. Go easy on salting the rim though. Please. Love you”.

…slight problem, though: you’ll be getting the shares in three business days. When you finally get them, who knows where the stock will be at? The smart thing (which is done by professional options traders in this situation) would be to short-sell the shares which will be delivered to you. This locks in the current price, which means that when you eventually get your shares a few days hence, you’ll be able to deliver the shares, close the short sale and pocket the amount the shares were in-the-money when you shorted them. Of course, all this adds up in terms of transaction costs. The easy way out? Before diving into the pool, sell your options prior to expiry.

Now, what happens if your call expires out-of-the-money, but news comes out at 4:05 p.m. on expiry Friday? Really, really good news. News which will almost certainly lead to a big open the following Monday. As mentioned before, the options’ official expiration is at noon on the SATURDAY following the third Friday. This means that you can call up your brokerage and put in an order to have them strike your call, which you can do even if they’re out-of-the-money. You’ll get the shares in three business days and be able to sell them at a nice profit.

The point to remember is that whether or not your option is in-the-money or out-of-the-money by a small amount at expiration is of little relevance. Unless you lock-in the current price, you can’t be assured of making money. This also means that there are NEVER any straight lines in options trading, even on those hockey stick graphs that bug me so much.

In this week’s French-language blog: explaining lending rates with references to agricultural tractors and a colourful red-eyed cousin.

Cheers!

P.S. You’ll notice that, as of this week, I’ve added a Twitter address to my signature line (@jchood_eric). Yes, I’ve joined the silly-update revolution. It’ll be bilingual and, for now, I’m just having fun with the medium, but if you can tolerate a bit of French in your feed, help me spread the gospel of proper investing techniques! (You’ll be assured that my tendency to go on forever in my writing will be constrained).

Éric Wheatley, MBA, CIM

Associate Portfolio Manager, J.C. Hood Investment Counsel Inc.

eric@jchood.com

514.604.2829; 1.855.348.2829

Twitter: @jchood_eric

Blogue en français : gbsfinancier.blogspot.ca

*****************

Little known fact about John Charles Hood #38

John Charles Hood goes on forever too. In a completely different context, but still.

(Clarification: I was referring to his passion for big-game hunting and the subsequent verbosity if you ask him about it).

*****

Special Free Services available through www.equityclock.com

Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices.

To login, simply go to http://www.equityclock.com/charts/

Following is an example:

Agnico-Eagle Mines Ltd. (TSE:AEM) Seasonal Chart

FP Trading Desk Headline

FP Trading Desk headline reads, “Small cap golds on a run”. Following is a link to the report:

http://business.financialpost.com/2012/08/09/small-cap-golds-on-a-run/

Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca 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.

Don and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc

Horizons Seasonal Rotation ETF HAC August 9^th 2012

Copyright © Don Vialoux, Tech Talk

Tags: agricultural, Bullion Gold, Canadian, Canadian Energy, Canadian Market, Don Vialoux, energy sector, ETF, ETFs, fertilizer, Globe And Mail, Gold Bullion, Gold Equities, Gold Index, Gold Price, Momentum Indicators, Moving Averages, oil, Pej, Price 1, Software Sector, Technical Profile, Triangle Pattern, Tsx Composite Index, Xeg, Xgd
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The “What if” Games Begin

Friday, August 10th, 2012

by Peter Tchir, TF Market Advisors

What if Europe is actually really going to get aggressive?

What if housing has bottomed and is starting to improve?

What if the Q2 jobs data was affected by adjustments as much as Q1 and the economy wasn’t as bad as some feared?

What if Chinese stimulus works?

What if earnings rebound in Q4?

“What if” is a close relative of “Green Shoots”. The market doesn’t need actual data to support it, just needs to think it might be coming. There are a lot of shorts who are nervous about this week’s price action. We didn’t get the typical Monday pullback. Here it is Thursday and we continue to push up against the highs. That is making people question their beliefs, and wonder “what if”. And it isn’t just the bears. Many bulls are underweight and are wondering “what if” this is the real thing.

For myself, I still think 1,425 is a good target, but above 1,410 I start selling again. I think the “what if” analysis is what will push us to those targets.

Copyright © TF Market Advisors

Tags: Bears, Bulls, Earnings, Economy, Europe, Games, Jobs, Nbsp, Price Action, Pullback, Q1, Rebound, Stimulus, Target, Targets, Tf
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Sector Relative Strength: Defensives Topping

Friday, August 10th, 2012

by Bespoke Investment Group

The charts below show the relative strength of the ten S&P 500 sectors as well as the Dow Jones Transports and the Russell 2000 relative to the S&P 500 over the last year.  When the line is rising it indicates that the sector is outperforming the S&P 500, while a falling line indicates underperformance.  We have also shaded each sector in red or green to indicate whether the sector has outperformed (green) or underperformed (red) the S&P 500 over the last year.

As was the case the last time we looked at sector relative strength, over the last year six sectors have outperformed the S&P 500 while four have underperformed.  One shift that we have seen in the last two weeks, however, is that some of the defensive sectors have started to underperform.  Look at the charts below and you will see that Consumer Staples, Health Care, Telecom Services, and Utilities have all started to roll over to varying degrees.  For Consumer Staples and Utilities, both sectors are close to dipping into the red in terms of relative performance over the last year.  While defensives have seen slowing momentum, sectors picking up the slack include Energy, Industrials, and Technology.

Typically, when the market is in rally mode, you often see outperformance on the part of the Transports and Small Cap Stocks.  In the current leg higher, however, both indices have been lagging, and both are underperfoming the S&P 500 by a considerable margin over the last year.  In the case of the Russell 2000, the index has made a modest rebound over the last few days (post Knight Trading trade glitch), but it needs to string together another week or two of outperformance before we could confidently say that small caps are participating.

Copyright © Bespoke Investment Group

Tags: Amp, Consumer Staples, Dow Jones, Dow Jones Transports, Glitch, Industrials, Investment Group, Knight Trading, Last Time, Momentum, oil, Rally Mode, Rebound, Relative Performance, Relative Strength, Russell 2000, Sectors, Slack, Small Cap Stocks, Small Caps, Telecom Services
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