Pre-opening Comments for Thursday July 8th

U.S. equity index futures are higher this morning. S&P 500 futures are up 5 points in pre-opening trade. Futures responded to an encouraging weekly jobless claims report. Jobless claims last week fell 21,000 to 454,000.

Index futures also were helped by a comment by Treasury Secretary Tim Geithner last night that the White House is proposing a cap on the tax of capital gains and dividends at 20%. Their current tax rate is 15%, but was scheduled to increase to as high as 40% when the Bush tax cuts expire at the end of 2010.

European equity markets were higher overnight following news that the European Central Bank maintained its overnight rate at 1.0% and the Bank of England maintained its overnight rate at 0.5%.

Berkshire Hathaway was downgraded from Hold to Sell at Stifel Nicolaus.

June retail sales by major U.S. retailers were mixed. Nordstrom reported stronger than expected sales. Costco reported sales in line with expectations. American Eagle reported less than expected sales.

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)

Gold Futures (GC) Seasonal Chart

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!

Interesting Charts

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!

WWW.EquityClock.com reports released yesterday

Clock that stock: Family Dollar Stores (FDO)

http://www.equityclock.com/2010/07/07/family-dollar-stores-inc-nysefdo-clock-that-stock/

Market sentiment: Options activity for July 7th

http://www.equityclock.com/2010/07/07/market-sentiment-options-activity-for-july-7-2010/

THE CASTLEMOORE INVESTMENT COMMENTARY

Please join our President and PM, Robert “Hap” Sneddon, on BNN’s Market Call Tonight, 7-8 PM for macro portfolio strategy and technical analysis.

EMERA

We’ve held this for client portfolios for what seems like an eternity now – since early February! The utility sector is heating up of late as the market ponders a theme of deflation or at least anaemic growth. Though yesterday’s action was particularly odd – up 2.11% beating the market on almost double the volume – the market maybe coming to understand that provincial regulators are likely to allow an increased ROE for Emera in the fall. It marginally closed above previous resistance which was at $25.57. A break out? How thick is your line?

US LONG BONDS

Bonds, and particularly long ones, might be verboten but they are going up, and recently broke above resistance. Economic data is rolling over or as Nouriel Roubini says is finding the “new normal”. The question of double dip or not is a difficult one to answer. Sure there should be some type of relapse after all the government “juice”, but no one really knows how it will all settle out. Full blown Japan or Japan-lite or something even less? We anticipate as chart indicators tell a modest retracement. With US final sales at 0.8% and a final GDP of 2.7% (first it was 3.7% then 3.5%) and China (and Canada) slowing its not a stretch to say we may muddle around at least

BALTIC DRY INDEX

…the Baltic Dry Index too is suggesting slower growth, or at least a pause.

S&P 500

We “lightened up” our equity exposure in May. Lightened up is an understatement really, as we only have a very small percentage in equities today. Overhead resistance is just at 1100 –not that far away. So as we always do, we’ll change our minds about things if new data points up, or we get a break above resistance with volume, but until that time it appears that strength is to be sold into – one can always buy back.