Technical Action Yesterday
Technical action by S&P 500 stocks was quietly bullish yesterday despite the strong gain by equity indices. Three S&P 500 stocks broke resistance (Hospira, Johnson & Johnson and PPL Corp.) and one stock broke support (Family Dollar Stores). The Up/Down ratio remained unchanged at (121/335=) 0.36.
Technical action by TSX Composite stocks also was quietly bullish. Three TSX stocks broke resistance (Empire, UTS Energy and Uranium One) and one stock broke support (Provident Energy Trust). The Up/Down ratio improved from 0.69 to (76/104=) 0.73.
Interesting report out of China on gold demand
Gold demand in China, the world’s second-largest consumer, gained in the first half as government measures to cool the property market and falling equities spurred investment demand, the Shanghai Gold Exchange said.
The total volume of gold traded on the exchange jumped 59 percent in the first six months from a year earlier to the equivalent of 3,174.5 metric tons, said Song Yuqin, vice general manager at the exchange. Silver turnover soared more than fivefold, Song told a conference in Beijing today.
Gold surged to a record last month as investors sought to protect their wealth against the market turmoil caused by the European sovereign debt crisis, including declining currencies. Song’s remarks add to signs that investors worldwide are boosting holdings of the commodity.
“Gold- and silver-trading volume expanded sharply in the first half of this year because a declining stock market, the government’s efforts to cool the property market and the general volatility in the global financial market have all fueled the investors’ enthusiasm,” Song said.
Tech Talk comments: The period of seasonal strength for gold and gold equities is approaching. Gold equities usually lead gold with a seasonal entry point near the end of July (on average)
Accordingly, gold and gold equity ETFs are on the radar screen for a seasonal trade. However, technicals for gold equity ETFs are not set up yet for the seasonal trade. MACD and RSI continue to trend lower from overbought levels. Only Stochastics are short term oversold. In addition, gold equity ETFs are not outperforming gold yet. Please be patient!
The rally by U.S. equity markets yesterday was encouraging and predictable. Markets are recovering from short term oversold levels. Upside potential for the Dow an S&P 500 Index is to their 50 day moving averages, a level that is not far from current levels. Their 50 day moving average has proven to be a reliable resistance level in recent weeks.
Nice breakout by Johnson & Johnson yesterday! Among other things, JNJ is a major medical device manufacturer. Medical device stocks and ETFs have performed well in a difficult equity market during the past month. Short term momentum indicators for the sector are starting to recover from oversold levels.
The Agriculture sector appears to be entering into its period of seasonal strength earlier than usual this year. Historically, its period of seasonal strength is from August to December with a sweet spot from October to December.
The sector is gaining strength from higher grain prices.
Selected equities in the sector are showing early technical signs of bottoming (most notably fertilizer stocks such as Agrium and Mosaid). Stocks in the sector already are showing good strength relative to the market.
Ditto for the U.S. Agriculture ETFs!
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Don Vialoux has 37 years of experience in the Investment Industry. He is a past president of the Canadian Society of Technical Analysts (www.csta.org) and a former technical analyst at RBC Investments. Now he is the author of a daily letter on equity markets available free on the internet. The reports can be accessed daily right here at www.dvtechtalk.com.
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Comments in Tech Talk reports are the opinion of Mr. Vialoux. They are based on technical, fundamental and/or seasonal data that is believed to be accurate. The comments are free. Mr. Vialoux receives no remuneration from any source for these services. Comments should not be considered as advice to buy or to sell a security. Investors, who respond to comments in Tech Talk, are financially responsible for their own transactions.