Don Vialoux, a speaker at the World Outlook Conference has produced this monday report packed with so much analysis, far more than appears here this morning. We strongly recommend you go directly there and scan his full site HERE.

The Bottom Line

‘Tis the season to adjust equity portfolios! Sectors reaching the end of their period of seasonal strength include gold, natural gas, agriculture, Canadian Financial Services and Information Technology. All have been profitable. Other sectors either have entered or are approaching their period of seasonal strength including small caps, silver, platinum, mines and metals, basic materials and energy (later this month). The following comment offers additional insight:

Be sure to hear Don Vialoux at the

Tis the Season to take profits

January frequently is a pivotal month for investors using seasonal investment strategies. Many sectors are reaching the end of their period of seasonal strength and other sectors are entering their period of seasonal strength.

Our June 20th column recommended the Agriculture sector for a seasonal trade from near the end of July to the end of December. The column noted that, “Preferred strategy is to defer purchases until technical parameters show signs of bottoming”.

Short term momentum indicators gave a buy signal on July 14th on the two most actively traded Agriculture Exchange Traded Funds, the Claymore Global Agriculture Exchange Traded Fund (COW/TSE) and Market Vectors Agribusiness ETF (MOO/NYSE). Since then, the Claymore ETF has gained 42.3% and the Market Vectors ETF has improved 42.6%. Short term technical parameters for both exchange-traded funds are rolling over from overbought levels. Now is the time to take seasonal profits.

Our October 10th column note that, “The preferred strategy is to own exchange-traded funds (ETFs) in the information technology sector for a seasonal trade until mid-January”. Technology SPDRs (XLK/NYSE) are the most actively traded exchange-traded fund in the sector. Historically, the sector has reached a seasonal peak just before or just after the Las Vegas Consumer Electronics show. This year, the show concluded on January 10th. Since October 10th, Technology SPDRs have gained 9.6%. Short term momentum indicators for the ETF recently rolled over from overbought levels. Now is the time to takes seasonal profits.

Our October 17th column noted that, “Preferred strategy is to purchase an equity interest in the semi-conductor sector on weakness for a seasonal trade lasting until mid-January”. The most actively traded exchange-traded fund in the sector is Semi-conductor HOLDRs (SMH/NYSE). This sector also has a history of reaching a seasonal peak just before or after the Las Vegas Consumer Electronic Show. Since October 17th Semi-conductor HOLDRs have gained 11.3%. Short term momentum indicators for the ETF recently rolled over from overbought levels. Now is the time to take seasonal profits.

The November 7th column noted that, “The seasonal trade in the Canadian Financial Services sector from the end of October to the end of December looks okay, but not great”. The most actively traded financial services exchange-traded fund in Canada is iShares Canadian S&P/TSX Capped Financial Fund (XFN/TSE). Since November 7th iShares units have added 2.5% (plus a dividend). Short term momentum indicators recently rolled over from overbought levels. Now is the time to take seasonal profits.

Several sectors recently have entered into their period of seasonal strength include small caps, mines and metals and platinum. Preferred strategy is to add to exchange-traded funds and equities in these sectors on weakness when technical parameters offer a second entry point.

Several sectors are on the radar screen for possible seasonal trade into spring. They include Canadian and U.S. energy, oil services and materials. Technical parameters for entry into these trades have yet to appear.

Thoughts on Seasonality in the U.S. Financial Services Sector

According to a recent seasonality study on the U.S. Financial Services sector completed by Brooke Thackray, the best time to own the U.S. Financial Services sector is from January 19th to April 13th. Average return per period from 1990 to 2008 was 4.1% versus a gain of 1.3% for the S&P 500 Index. The annual recurring reasons for the trade include the reporting of encouraging fourth quarter earnings and favourable outlooks offered in annual reports and annual meetings about first quarter and 2010 results.

The seasonal trade is not recommended this year:

• Favourable annual recurring events are less likely to happen this year. The sector clearly is under attack by Washington. Threats of higher taxation have placed a pall over the sector at a critical time. Major U.S. banks do not have an incentive to announce good news or offer positive guidance when they announce fourth quarter results or when they release annual reports. The negative response to JP Morgan’s fourth quarter report released on Friday despite better than consensus earnings was an early warning sign for the sector.
• Technical parameters for the sector are turning negative. Unlike most sector SPDRs in recent months, Financial SPDRs was unable to move to a new high. Short term momentum indicators are rolling over from an overbought level. Strength relative to the S&P 500 Index continues to deteriorate.

Thoughts on the Seasonality in the Energy Sector

According to Thackray’s 2010 Investor’s Guide, seasonal influence on the U.S. Energy sector is from February 25th to May 9th. Brooke also has completed other studies in the sector and has found that seasonality in the Canadian energy sector, U.S. Oil Services sector and the U.S. Oil Exploration and Production sub-sector are slightly different. Their period of seasonal strength is from January 30th to May 9th. In addition, returns offered by the Canadian energy sector, U.S. Oil Services sector and the U.S. Oil and Exploration and Production sub-sector are significantly higher than the U.S. energy sector. Probable reason: the over all sector contains a heavy weight in large companies (e.g. Exxon Mobil, Chevron) that are involved in the refining industry. More information on energy seasonality studies will be released as the period of seasonal strength approaches. Technically and fundamentally, the seasonal trade is lining up nicely this year, but it’s not there yet.

Thoughts on the Seasonality of the U.S. Retail Sector

Thackray’s 2010 Investor’s Guide notes that the U.S. Retail Sector has a period of seasonal strength from January 21st to April 12th. The trade has been profitable in 16 of the past 20 periods for an average return per period of 8.5%. Annual recurring reasons for the period include growing sales during the traditional spring buying seasonal and (more recently) the spending of gift cards received during Christmas.

The seasonal trade is not recommended this year:

§ Retail sales have been hampered by weather conditions this winter. December 2009 retail sales declined mainly due to weather, the first decline during the Christmas buying season in several decades. Long term weather forecasts are predicting more of the same until spring.

§ Technical parameters for the sector are deteriorating. Retail HOLDRs, the most actively traded ETF in the sector peaked early in December and will form a double top pattern on a break below support at $91.57. Last week units fell below their 50 day moving average. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index has been negative since November.

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.
Impossible! That’s what institutional investors say about “Timing the Market”. Mr. Vialoux will explain that, indeed, it can be done with the appropriate analysis. He also will explain why timing the market will be important during the next decade. Buy and Hold strategies are not working anymore; Investors are looking for alternatives. Mr. Vialoux will demonstrate four techniques that can be used to time intermediate stock market swings lasting 5-15 months. The preferred investment vehicles for investing in intermediate stock market swings are Exchange Traded Funds.
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.