Russell 2000 a Death Cross...

A death cross occurs when a nearer-term 50-day moving average falls below a longer-term, 200-day moving average. Technicians argue that a death cross can be a bearish sign.

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The chase by Frances Horodelski:

“………and to be brutally honest, unlike their male counterparts with thinning hair, laugh lines, and graying temples, these ladies’ on-camera careers typically have a “sell-by” date…..” Randall Forsyth, Barron’s. Ouch.So with that as your thought for the day, let’s get going.

Last week was miserable for commodity and Canadian stock investors. There were margin calls (or the worry of them) as well as some wholesale selling of Canadian equities (program trades) with no-one on the other side willing to step up. We are also into the end of the quarter which can see wild shifts in portfolios.

At the same time, the U.S. dollar’s bid hasn’t dissipated putting further pressure on the commodity trade. Last week saw the material sub-sector decline almost 5%. Only utilities and industries were up last week on the TSX. In other weakness, the small cap sectors in the U.S. were bleeding and not keeping up with the big cap new highs. Indeed, the Russell 2000 was down 1.21% last week and has declined three weeks in a row.

The week isn’t quite as busy as last week, but influential things are happening. First, we start with merger Monday with more than $25 billion worth of deals announced – all kind of “old-tech” with Siemens buying Dresser-Rand and Merck KGaA buying Sigma-Aldrich. Both deals are all cash and at premiums of 14% and 37%, respectively (with DRC the premium is based on the price before the rumour spiked the stock on Friday and +37% since July). EMC is highlighted in the Wall Street Journal as talking about a potential combination with the likes of Hewlett Packard.

In other news, the week is active with climate change front and centre in advance of the UN’s climate change summit which starts tomorrow. It is also “flash” PMI time (again!) with HSBC’s PMI for China to be released tonight (estimate 50 versus last month’s 50.2). We will see similar numbers for the U.S. and Europe tomorrow with France being the expected very weak link with a 47 level (versus last month’s 46.9). A number under 50 indicates a contraction in the manufacturing side of the economy.

We’ll also get a third and final look at U.S. GDP that is estimated to be even higher than the previous look at 4.2% (that number comes out Friday). There are a few major companies reporting results including Bed Bath & Beyond on Tuesday and Nike on Thursday. We have Blackberry’s new product launch (the Passport) on Thursday.
With respect to monetary policy, this week will see speeches from eight Federal Reserve officials including New York Fed Dudley today. Also today, Mario Draghi attends a European Parliament committee on monetary policy.

Other things to be watching. The price of gasoline in the U.S. is down 34 cents in the past 13 weeks. For context, each penny drop in gasoline adds $1 billion to consumers’ pockets – like a tax cut. Barron’s has bullish stories on Bank of America (50% upside), Yahoo! (potential value to $58) and a positive turn to European equities and beer stocks.
According to people who watch the calendar, beware the autumnal equinox “markets have a history of moving up or down” into this day (uh, duh, don’t they always go up or down?). Alternatively, there is the old “sell Rosh Hashanah, buy Yom Kippur” adage. The Jewish New Year holiday begins Wednesday evening.

According to Richard Ross, technician at Auerbach Grayson who has been negative on equities, watch the dollar index as it approaches the 89 level where previously two spikes there have resulted in a 57% and 17% declines in the S&P 500. Standard & Poor’s notes that 46% of S&P 500 sales come from foreign sources – a strong dollar can ultimately pressure those return profits (I say ultimately because hedging and smooth are on-going ways that big corporations alleviate the immediate pain).

And that’s it. Market weakness is evident this morning as investors grapple with the euphoria of Alibaba, enthusiastic pace of M&A, the narrowing breadth in the markets but more importantly, for Canadian investors, who wants to buy our “stuff” and our companies? It’s tough out there – looking for opportunities requires a very sharp pencil. We’ll cover the opportunities all day long on BNN. Join us.
Every morning Business Day Host Frances Horodelski