Pre-opening Comments for Thursday November 5th

U.S. equity index futures are slightly higher this morning. S&P 500 futures are up 4 points in pre-opening trade.

Response by futures to the preliminary third quarter Productivity report was slightly positive. Consensus was an increase of 6.5% versus 6.6% in the second quarter. Actual was an increase of 9.5%, a record since data was recorded.

Research in Motion added 2% after announcing plans to re-purchase stock valued at $1.2 billion.

Cisco gained 3% after reporting higher than consensus fiscal first quarter earnings and after offering positive second quarter guidance.

Eldorado Gold is slightly higher after RBC Capital upgraded the stock from Sector Perform to Outperform. Target price was raised from $12 to $16.

Molson Coors is expected to open lower after Goldman Sachs downgraded the stock from Buy to Neutral. The company reported lower than expected third quarter earning yesterday and broke badly on the charts on higher than average volume.

Chart courtesy of StockCharts.com www.stockcharts.com

Toyota is slightly higher after reporting a surprising profit in its fiscal second quarter.

Technical Action Yesterday

Technical action by U.S. equities was quietly bearish yesterday. Two S&P 500 stocks broke resistance yesterday (DaVita and Mylan Labs) and three stocks broke support (Bank of New York, CH Robinson and Comcast). The Up/Down ratio slipped from 2.09 to (201/139=) 2.02.

Technical action by Canadian equities was bullish. Six TSX stocks broke resistance (Barrick Gold, Eldorado Gold, Home Capital, Saputo, Sears Canada and West Fraser) and one stock broke support (Chartwell). The Up/Down ratio improved from 2.35 to (127/53=) 2.40.

Interesting Charts

Recent weakness has provided an opportunity to refine the seasonal entry point into Canadian and U.S. equity markets. Average optimal date to enter North American equity markets over the years is the level at the opening on October 28th. The optimal entry point can be fine tuned each year using technical analysis. This year, the optimal entry point was delayed until yesterday when many of the technical indicators finally flashed the “okay to accumulate/buy” signal. Signals included a recovery by Stochastics above the 20% level, a recovery in RSI from an oversold level, signs of a bottom by MACD and at least one day of trading where price exceeds the previous day.

Chart courtesy of StockCharts.com www.stockcharts.com

Chart courtesy of StockCharts.com www.stockcharts.com

Strongest response to the FOMC’s meeting minutes released yesterday afternoon was recorded in the U.S. bond market. Longer term Treasury bonds fell sharply (i.e. the interest rate on long term bonds rose). Negative anticipation to responses to a series of longer term Treasury bond issues coming to market next week also contributed to weakness.

Chart courtesy of StockCharts.com www.stockcharts.com

During the past six months the U.S. Dollar has recorded brief upward spurts to its 50 day moving average where resistance is found and its intermediate downtrend is resumed.

Chart courtesy of StockCharts.com www.stockcharts.com

THE CASTLEMOORE “FOCUS” PORTFOLIO

What does CastleMoore think its typical Canadian investors should be invested in NOW?

We have sold out of our positions in Gold Bullion, and, as the above chart might indicate, we did so just to force bullion prices higher and give the market a false sense of security. We did so on the 26th of October, which, as you can see, was just before the MACD troughed before heading back north. We will be examining re-entry points.

We also sold out of our position of XGD, the Canadian gold-producer ETF.

The Fed left unchanged it key overnight lending rate, leaving some surprised as some expected a slight raising of the rate pursuant to a better-than-expected GDP report of 3.5% versus a consensus estimate of 3.2%. Virtually all the reported growth in the U.S. economy is rooted in the economic stimulus package; Of note, the Cash-for-clunkers program helped goose car sales. However, recent strength in the U.S. dollar, which helps keep inflation in check, was a likely contributor in the decision not to raise rates.

We are expecting short-term strength in the U.S. dollar against most currencies except the yen:

On Wednesday, the yen ETF opened lower, sold off following the Fed announcement to keep rates steady, then regained lost ground and them some to trade higher than the open. It is interesting to note that our monthly international momentum models showed the Japanese market right at the bottom, followed Germany and the U.S. At the top; Israel (technology), Latin America (emerging market), and Australia (commodities). We figure to be more active in the international arena once we are more optimistic about our local markets.