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Good Morning, everyone, and welcome to Thursday morning. Well, US employment numbers just came out and stock index futures really haven’t moved very much. Stock index futures are currently below fair value. We’re not seeing any aggressive selling in the premarket. Commodities are mixed with the energies higher while the metals are lower at this particular time on Thursday morning. Well, yesterday we certainly saw the market jiggle quite a bit and bonds sold off sharply. Bond yields especially on the long end of the yield curve moved up sharply. Looking at the 30 year bonds, making a higher high here. Of course, US 30 year mortgages are attached to this particular chart nd so that’s probably not a good sign for the real estate sector going forward. Now, currencies continued their current trend and the US dollar index continued higher. The euro continued lower and other currencies. Not the US dollar moved down yesterday, including the Canadian dollar. Looking at the major stock market indices, they rolled over yesterday. The S&P 500, the Nasdaq 100, and then the ishares for the TSX 60 dropped yesterday. What you’re going to see on a lot of charts is lower highs. That’s not a bullish sign.
We ran up, we tried to test the high from a couple of months ago, couldn’t break through it, and now the market has reversed. We were waiting for the end of the summer rally. The market has been overbought. We had a full moon on Monday. There’s just a whole bunch of reasons why we pulled back yesterday. The actual reason doesn’t really matter. It’s how the market reacts to that particular situation. In most cases, the situation is never going to repeat itself. You don’t need to get too hung up on exactly why the market decided to roll over yesterday. My concern right now is that the fear index, while it popped, it didn’t pop through the top of the fly paper channel. Yes, that is bearish, but it would be more convincing if the VIX were to pop up about and start trading above 17. Now, we have some important numbers coming out after hours. The market is going to be watching Apple and Amazon’s earnings tonight after hours. And it doesn’t really matter what the earnings are. It’s, of course, how the market reacts to those earnings that we really need to be concerned about.
So we are coming into Thursday’s trading action with Apple and Amazon both back on sell signals. Now, the biggest weakness in the Canadian market yesterday was InfoTech, and that was led lower by Shopify. In both cases, we put in lower highs last week and rolled over, and now we’re taking out last week’s lows. That is a bearish sign going forward, so we’ll just have to keep an eye on that. Semiconductors also put in a lower high and are back on a sell signal. In fact, they’re starting to trade below last week’s lows, so that is no longer a potential area of support. Advanced Micro Devices had a wild day on Wednesday, trading above the previous day’s high, then coming right back down and ending the day on a sell signal, still holding the lows from June. That is a positive note so far. Then looking at Intel, looks like we’re putting in a double top. A close below 34.29 on Thursday would give us a sell signal for Intel, which would join NVIDIA, which put in a lower high last week. And now we’re back on a sell signal as of Wednesday’s close.
Looking at commodity prices, the metals moved down yesterday. They’re moving down in the market this morning. I’ve always got questions about gaps. Gaps are important. They’re potholes in the market. There are areas of the market where the market didn’t function. The market only functions if there are buyers and sellers that agree on price. If they don’t agree on price, you get gaps. And if you get gaps, the market remembers those. So the only time you need to worry about a gap is when the gap is in front of you. And so when SIL was moving up, you could see it traded up, filled the gap, and then pulled back. And so here we are. We’re moving down. The first gap has been filled and now we’re continuing into the second gap and you can see the bottom of the second gap is down there. That is another potential target and a potential area of support. So the market will be watching that closely on the way back down. Now, gold stocks were down across the board. XGD, GDX both down sharply yesterday and silver miners were also down on Wednesday, making a new low for this move, but still looking to see what happens at the lows from early July.
Now, energy pulled back yesterday. We saw a pullback in crude oil still trading or closing above the upper channel line while gas traded down to the lower channel line. We’re looking for a close on Thursday below $70.01. Then natural gas was down again yesterday. We’re trying to get it to hold 6.64. We closed at 6.67. If that breaks, then 6.25 should be our next target to the downside. Then looking at energy stocks on the TSX, they still closed above the upper channel line as they did in the US. In the US, though, the XLE ran up to resistance at 67.50, so congratulations. If you had an order in it up there, it got filled. Now we’re starting to pull back. The US energy sector could be putting in a double top here. We’ll just have to wait and see. We’re almost done. Just a couple more charts. Finance financials in the US traded down yesterday. They did not generate a sell signal. We’re looking for a close below 35.01. We closed at 3503. We’re sitting right on the edge of a new sell signal for the XLF. If we look at US bank stocks and US regional banks, they’re both still on buy signals, no change, trading in the channel.
Unlike Canadian banks, the financials on the TSX rolled over yesterday as did the bank stocks. We’ve been watching the TD Bank, which appeared to be the strongest bank going into the recent rally. It is still holding up as is the national bank. The weakest bank stock that we looked at recently was the Bank of Nova Scotia, and it is still the weakest Canadian bank at this time. Okay, folks, that is all for this morning’s presentation. So far, it looks like we’re going to see a little selling at the open. I think the market should be fairly quiet today as a lot of participants are going to be watching to see what happens with Apple and Amazon after hours on Thursday. Enjoy the rest of your day. Next time you’ll hear my voice is on Friday morning.
Stephen Whiteside
Thursday, August 3, 2023
