Tech Talk Financial Network
0
All posts from Tech Talk Financial Network
Tech Talk Financial Network in Timing the market,

Tech Talk for Monday October 30th 2017

 

The Bottom Line

Equity markets continue to climb a “wall of worry”. Technical parameters are extremely overbought and are showing early signs of rolling over. Seasonal influences turned positive in mid-October, particularly for economic sensitive sectors (e.g. Materials, Industrials, Financials and Technology). Preferred strategy is to continue to hold seasonally attractive equities and Exchange Traded Funds for now with the understanding the next intermediate trend will be flat to down.

 

Economic News This Week

September Personal Income to be released at 8:30 AM EDT on Monday is expected to increase 0.4% versus a gain of 0.2% in August. September Personal Spending is expected to increase 0.9% versus a gain of 0.1% in August.

Cdn. August GDP to be released at 8:30 AM EDT on Tuesday is expected to increase 0.1% versus no change in July.

Chicago October PMI to be released at 9:45 AM EDT on Tuesday is expected to slip to 62.0 from 65.2 in September.

October Consumer Confidence to be released at 10:00 AM EDT on Tuesday is expected to increase to 121.0 from 119.8 in September

October ADP employment to be released at 8:15 AM EDT on Wednesday is expected to increase to 220,000 from 135,000 in September.

October Purchasing Managers Index to be released at 9:45 AM EDT on Wednesday is expected to increase to 54.5 from 53.1 in September

October Manufacturing ISM to be released at 10:00 AM EDT on Wednesday is expected to slip to 59.5 from 60.8 in September.

September Construction Spending to be released at 10:00 AM EDT on Wednesday is expected to increase 0.1% versus a gain of 0.5% in August.

FOMC announcement to be released at 2:00 PM EDT on Wednesday is expected to maintain the Fed Fund Rate at its current rate.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 235,000 from 233,000.

October Non-farm Payrolls to be released at 8:30 AM EDT on Friday are expected to jump to 323,000 from a drop of 33,000 in September. Private Non-farm Payrolls are expected to jump to 320,000 from a deficit of 40,000 in September. October Unemployment Rate is expected to increase to 4.3% from 4.2% in September. October Hourly Earnings are expected to increase 0.2% versus a gain of 0.5% in September.

September U.S. Trade Deficit to be released at 8:30 AM EDT on Friday is expected to increase to $43.4 billion from 42.4 billion in August.

Canadian October Employment to be released at 8:30 AM EDT on Friday is expected to increase 15,000 versus a gain of 10,000 in September. October Unemployment Rate is expected to remain unchanged from September at 6.2%

Canadian September Merchandise Trade Deficit to be released at 8:30 AM EDT on Friday is expected to slip to $2.9 billion from $3.4 billion in August.

October Services PMI to be released at 9:45 AM EDT on Friday is expected to increase to 55.9 from 55.3 in September.

September Factory Orders to be released at 10:00 AM EDT on Friday are expected to increase 1.2% versus a gain of 1.2% in August.

October Services ISM to be released at 10:00 AM EDT on Friday is expected to slip to 58.7 from 58.8 in September.

 

Observations

Technical action by individual S&P 500 stocks was slightly bearish last week despite new all-time highs set by the Index. The main reason for new index highs was strength in a handful of stocks (mainly high tech stocks). Notable among stocks breaking resistance surprisingly were Utilities. Notable among stocks breaking support were Consumer Staple and Health Care stocks. Number of stocks breaking resistance totaled 50 while number of stocks breaking support totaled 64. Number of stocks trading in an uptrend dropped to 291 from 305, number of stocks trading in a neutral trend dropped to 71 from 73 and number of stocks in a downtrend increased to 138 from 122. The Up/Down ratio dropped last week to (291/138=) 2.11 from 2.50.

Economic news this week is skewed by impact of hurricanes in September. Losses recorded in September are at least partially recovered in October. Focuses are on the Fed meeting on Tuesday and Wednesday, October ISM on Wednesday and October employment report on Friday.

Medium term technical indicators (Percent of stocks trading above their 50 day moving average, Bullish Percent Index) remain at intermediate overbought levels and showing early signs of rolling over.

Short term technical indicators (short term momentum, above/below 20 day moving average) for North American equity indices mostly moved higher last week to overbought level but are showing early signs of rolling over.

Seasonality on a wide variety of equity indices, commodities and sectors began to turn neutral/positive in early October and continue to improve. During the past 20 years, the S&P 500 Index and TSX Composite Index normally bottomed on October 10th. Historically, the month of November has been the strongest month of the year of the S&P 500 Index and TSX Composite.

Earnings reports from U.S. companies continue to pour in this week. Another 135 S&P 500 companies are scheduled to release fiscal third quarter results including 3 Dow Industrial companies.

The outlook for S&P earnings and revenues remains positive. 29 companies have issued negative fourth quarter guidance and 20 companies have issued positive guidance. 55% reported third quarter results by the end of last week. According to FactSet, third quarter earnings are expected to increase 4.7% (up from 1.7% last week) on a 5.7% increase in revenues (up from 5.1% last week). Fourth quarter earnings are expected to increase 10.7% on a 6.1% increase in revenues. For all of 2017, earnings are expected to increase 9.3% (up from 9.2%) on a 6.0% increase in revenues (up from 5.9%). First quarter 2018 earnings are expected to increase 10.5% on a 6.4% increase in revenues. Second quarter 2018 earnings are expected to increase 10.3% on a 6.3% increase in revenues.

Short term uncertainties remain, including assessment of impact of three hurricanes on the U.S. economy, North Korean “sabre rattling”, slow progress by Congress to pass crucial legislation (notably tax reform) and increased scrutiny by special council on Russia’s influence on the Presidential election.

Prospects beyond the third quarter report season are exceptional for U.S. based companies with international exposure. Consensus for S&P 500 earnings on a year-over-year are expected to exceed 10% in the fourth quarter of 2017, first quarter of 2018 and second quarter of 2018. Earnings will benefit significantly from weakness in the U.S. Dollar on a year-over-year basis when revenues and earnings from international operations will benefit from higher valued foreign currencies. The U.S. Dollar Index averaged 100 in the fourth quarter of 2016 and 101 in the first quarter of 2017. If the U.S. Dollar Index currently at 94.51 maintains that average in the fourth quarter of 2017, revenues and earnings from international operations will be boosted from currency alone by 6.0% in the fourth quarter of 2017 and by 7.0% in the first quarter of 2018.

A word of caution on U.S. equity markets in the short term! When the Relative Strength Index for the Dow Jones Industrial Average moves above 70%, the Average is considered overbought. On Friday October 20th, the Relative Strength Index closed at 88.10%, a level not seen during the past 20 years. On Friday, October 27th the Index dropped to 78.79%. Historically, confirmation of a rollover of the Index from near this level has been followed at best by a flat trend and, more frequently, by a downtrend lasting 3-6 months.

The TSX Composite Index is in a similar position. Its Relative Strength Index touched 80% two weeks ago, the highest level in over a decade. On Friday, it closed at 73.41.This Index also is vulnerable to a flat to downward correction during the next 3-6 months when confirmation of a rolls over is received.

The time to buy both markets is when their Relative Strength Index is near or below the 30% level and are starting to turn up

 

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for October 27th 2017

Green: Increase from previous day

Red: Decrease from previous day

 

Calculating Technical Scores

Technical scores are calculated as follows:

Intermediate Uptrend based on at least 20 trading days: Score 2

          Higher highs and higher lows

Intermediate Neutral trend: Score 0

          Not up or down

Intermediate Downtrend: Score -2

          Lower highs and lower lows

Outperformance relative to the S&P 500 Index: Score: 2

Neutral Performance relative to the S&P 500 Index: 0

Underperformance relative to the S&P 500 Index: Score –2

Above 20 day moving average: Score 1

At 20 day moving average: Score: 0

Below 20 day moving average: –1

Up trending momentum indicators (Daily Stochastics, RSI and MACD): 1

Mixed momentum indicators: 0

Down trending momentum indicators: –1

Technical scores range from -6 to +6. Technical buy signals based on the above guidelines start when a security advances to at least 0.0, but preferably 2.0 or higher. Technical sell/short signals start when a security descends to 0, but preferably -2.0 or lower.

Long positions require maintaining a technical score of -2.0 or higher. Conversely, a short position requires maintaining a technical score of +2.0 or lower.

S&P 500 Index gained 5.86 points (0.23%) last week. Intermediate trend remains up. The Index remained above its 20 day moving average. Short term momentum indicators have turned down.

Percent of S&P 500 stocks trading above their 50 day moving average (also known as the S&P 500 Momentum Barometer) dropped last week to 69.60 from 78.00. Percent remains intermediate overbought and has rolled over.

Percent of S&P 500 stocks trading above their 200 day moving average dropped last week to 71.80 from 76.00. Percent remains intermediate overbought and has rolled over.

Bullish Percent Index dropped last week dropped last week to 70.60 from 73.00 and dropped below its 20 day moving average. The Index remains intermediate overbought and has rolled over.

Bullish Percent of TSX stocks slipped last week to 68.80 from 69.40, but remained above its 20 day moving average. Percent remains intermediate overbought and showing early signs of rolling over.

TSX Composite Index added 96.29 points (0.60%) last week. Intermediate trend remains up (Score: 2). Strength relative to the S&P 500 Index remains Neutral (Score: 0). The Index remains above its 20 day moving average (Score: 1). Short term momentum indicators have rolled over (Score: -1). Technical score remained last week at 2.

Percent of TSX stocks trading above their 50 day moving average slipped last week to 69.14 from 71.19. Percent remains intermediate overbought and trending down.

Percent of TSX stocks slipped last week to 60.91 from 62.55. Percent remains intermediate overbought and trending down.

Dow Jones Industrial Average gained 105.55 points (0.45%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. The Average remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

Bullish Percent Index for Dow Jones Industrial stocks slipped last week to 83.33 from 86.67 and remained above its 20 day moving average. The Index remains intermediate overbought.

Bullish Percent Index for NASDAQ stocks dropped last week to 63.34 from 64.97 and dropped below its 20 day moving average. The Index remains intermediate overbought and trending lower.

NASDAQ Composite Index gained 72.21 points (1.09%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index turned positive on Friday. The Index remained above its 20 day moving average. Short term momentum indicators also turned up on Friday. Technical score increased last week to 6 from 2.

Russell 2000 Index slipped 0.93 (0.06%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index turned last week to negative from neutral. The Index returned back above its 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 2.

Dow Jones Transportation Average dropped 39.45 points (0.41%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains negative. The Average remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at 0.

Australia All Ordinaries Composite Index added 10.70 points (0.10%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. The Index remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

Nikkei Average increased 550.81 points (2.57%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. The Average remains above its 20 day moving average. Short term momentum indicators are trend up. Technical score remained last week at 6.

Europe iShares dropped $0.42 (0.89%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains negative. Units dropped below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 0.

Shanghai Composite Index added 38.16 points (1.13%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to neutral from negative. The Index remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 from 0.

Emerging Markets iShares slipped $0.12 (0.26%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains neutral. Units returned above their 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score remained last week at 2.

 

Currencies

The U.S. Dollar Index gained 0.93 (0.99%) last week. Intermediate trend changed to up from neutral after completing a reverse head and shoulders pattern. The Index remains above its 20 day moving average. Short term momentum indicators are trending up.

The Euro dropped 1.69 (1.43%) last week. Intermediate trend changed to down upon completion of a head & shoulders pattern. The Euro remained below its 20 day moving average. Short term momentum indicators are trending down.

The Canadian Dollar dropped US 1.19 cents (1.50%) last week. Intermediate trend changed to neutral from up on a move below 78.16. The Canuck Buck remains below its 20 day moving average. Short term momentum indicators are trending down.

Japanese Yen slipped 0.16 (0.18%) last week. Intermediate trend remains up. The Yen remains below its 20 day moving average. Short term momentum indicators are trending down.

British Pound slipped 0.60 (0.45%) last week. Intermediate trend remains up. The Pound remains below its 20 day moving average. Short term momentum indicators are trending down.

 

Commodities and Related ETFs

Daily Seasonal/Technical Commodities Trends for October 27th 2017

Green: Increase from previous day

Red: Decrease from previous day

* Excludes adjustment from rollover of futures contracts

 

The CRB Index added 2.77 points (1.50%) last week. Intermediate trend remain up. Strength relative to the S&P 500 Index changed to positive from neutral. The Index remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 6 from 2.

Gasoline added 7.4 cents per gallon (4.50%) last week. Intermediate trend changed to neutral from down. Strength relative to the S&P 500 Index changed to neutral from negative. Gas remained above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 from 0.

Crude Oil gained $2.06 per barrel (1.50%) last week. Intermediate uptrend was confirmed on Friday on a move above $52.86. Strength relative to the S&P 500 Index changed to positive from neutral. Crude Oil remained above its 20 day moving average. Short term momentum indicators are trending up. Technical score increase last week to 6 from 4.

Natural Gas gained $0.05 per MBtu (1.72%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index change to neutral from negative. “Natty” moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 from 0.

S&P Energy Index dropped 2.81 points (0.56%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains negative. The Index remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -2.

Oil Services Index dropped another 4.39 points (2.57%) last week. Intermediate trend remains neutral. Strength relate to the S&P 500 Index remains negative. The Index remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -4.

Gold dropped $8.70 per ounce (0.68%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains negative. Gold remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -2.

Silver dropped $0.33 (1.93%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index changed to negative from neutral. Silver dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from 0.

AMEX Gold Bug Index dropped 10.49 points (5.31%) last week. Intermediate trend changed to down from up on a move below 195.10. Strength relative to the S&P 500 Index remained negative. The Index remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -6 from -4.

Platinum dropped $12.20 per ounce (1.32%) last week. Trend remains neutral. Relative strength changed to negative. Remains below its 20 day MA. Momentum: down.

Palladium dropped $11.60 per ounce (1.20%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. Remains above its 20 day moving average. Short term momentum indicators are trending down. Score remained last week at 4.

Copper dropped $0.07 per ounce (2.21%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed last week to neutral from positive. Copper dropped below its 20 day moving average on Friday. Technical score dropped last week to 0 from 4.

BMO Base Metal ETF slipped $0.12 (1.00%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to neutral from positive. Units dropped below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to0 from 4.

Lumber gained another $16.70 (3.91%) last week. Trend remains up. Relative strength remains positive. Trades above its 20 day MA. Momentum remains up. Score remains at 6.

Grain ETN added $0.15 (0.59%) last week. Intermediate trend remains up. Relative strength remains neutral. Remains below its 20 day MA. Momentum remains down.

Agriculture ETF added $0.09 (0.15%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains neutral. Units remained above their 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at 2

 

Interest Rates

Yield on 10 year Treasuries increased another 4.7 basis points (1.97%) last week. Intermediate trend changed to up from down. Yield remains above its 20 day moving average. Short term momentum indicators are trending up.

Conversely, price of the long term U.S. Treasury Bond ETF dropped $0.74 (0.68%) last week. Intermediate trend remains up. Units dropped below their 20 day moving average.

 

Volatility

The VIX Index slipped 0.17 (1.71%) last week. The Index closed at its 20 day moving average.

 

Sectors

Daily Seasonal/Technical Sector Trends for October 27th 2017

Green: Increase from previous day

Red: Decrease from previous day

Disclaimer: Seasonality and technical ratings offered in this report and www.equityclock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed