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Tech Talk for Monday July 10th 2017

 

The Bottom Line

Not much changed last week for world equity markets! Equity markets (except China) remain intermediate overbought and vulnerable to a correction. The usual period of summer weakness from Mid-June to Mid-October has arrived. The Dow Jones Industrial Average and S&P 500 Index probably reached an intermediate peak on June 19th. However, volatility measured by the VIX Index remains relatively mute. Political events in a wide variety of countries (most notably in the U.S.) could change that quickly. Be careful out there! A spike in volatility above levels reached last week will be the most likely sign that the summer correction has been confirmed. Meanwhile, holding a robust position in cash in your investment portfolio makes sense.

The Canadian equity market continues to be the weakest equity market among developed nations, down 5.75% from its high set on February 23rd at 15,943.09. Short and intermediate technical signs of a bottom have yet to appear.

 

Economic News This Week

Canadian June Housing Starts to be released at 8:15 AM EDT on Tuesday are expected to increase to 200.000 from 194,622 in May.

May Wholesale Inventories to be released at 10:00 AM EDT on Tuesday are expected to increase 0.3% versus a decline of 0.5% in April.

Bank of Canada Policy Announcement at 8:30 AM EDT on Wednesday is expected to increase its overnight lending rate to 0.75% from 0.50%.

Janet Yellen is scheduled to testify at 10:00 AM EDT on Wednesday in front of the House Finance Committee.

The Beige Book is released at 2:00 PM EDT on Wednesday.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to slip to 245,000 from 248,000 last week.

June Producer Prices to be released at 8:30 AM EDT on Thursday are expected to remain unchanged versus unchanged in May. Excluding food and energy, June Producer Prices are expected to increase 0.2% versus a gain of 0.3% in May.

June Consumer Prices to be released at 8:30 AM EDT on Friday are expected to increase 0.1% versus a decline of 0.1% in May. Excluding food and energy, June Consumer Prices are expected to increase 0.2% versus a gain of 0.1% in May.

June Retail Sales to be released at 8:30 AM EDT on Friday are expected to increase 0.1% versus a decline of 0.3% in May. Excluding auto sales, June Retail Sales are expected to increase 0.2% versus a decline of 0.3% in May.

June Capacity Utilization to be released at 9:15 AM EDT on Friday is expected to increase to 76.8% from 76.6% in May. June Industrial Production is expected to increase 0.3% versus no change in May.

July Consumer Sentiment to be released at 10:00 AM EDT on Friday is expected to remain unchanged from June at 95.1

May Business Inventories to be released at 10:00 AM EDT on Friday are expected to increase 0.3% versus a decline of 0.2% in April .

 

Earning News This Week

Tuesday: Pepsico, Yum Brands

Thursday: Cogeco

Friday. Citigroup, JP Morgan Wells Fargo

 

Observations

The earnings and sales outlook for S&P 500 stocks remains promising (albeit at a slightly lower level than previous: According to FactSet, 5% of companies have reported second quarter results to date. Consensus calls for a year-over-year gain in earnings by 6.5% (down from 6.6% last week). Consensus for sales calls for an increase of 4.8% (down from 4.9% last week). 76 companies have issued negative guidance for the second quarter while 38 companies have issued positive guidance. Six S&P 500 companies are scheduled to report this week including one Dow Industrial stock (JP Morgan). Focus is on Citigroup, JP Morgan and Wells Fargo that are expected to report on Friday. Beyond the second quarter, consensus offered by FactSet shows a 7.3% increase in third quarter earnings (down from 7.4%) and a 5.1% increase in sales. Fourth quarter earnings are expected to increase 12.4% and sales are expected to increase 5.1%. For 2017, earnings are expected to increase 9.8% and sales are expected to increase 5.3% (down from 5.4%).

A word of caution on U.S. second quarter earnings reports! On one hand, consensus estimates are notorious for under-estimating actual earnings. On the other hand, consensus estimates for Dow Jones Industrial Average companies are significantly lower than consensus estimates for S&P 500 companies (3.0% increase for Dow companies versus a 6.5% increase for S&P 500 companies). The discrepancy implies that a small number of S&P 500 companies (think FANG companies) will report oversized sales and earnings gains while other companies will report less than consensus results. Rotation within sectors could be significant during the next few weeks.

Second quarter earnings reports for TSX 60 companies are expected to be impressive. On a year-over-year basis, earnings per share on average (median) are expected to increase 11.3%. Canadian equity prices have yet to respond at a time when short term technicals have yet to show signs of bottoming.Stay tuned.

Economic news this week is expected to confirm that economic growth in the U.S. has accelerated slightly. Will the Federal Reserve respond by slowing things down? Stay tuned to comments in the Beige Book and by Yellen on Wednesday.

Canadian economic focus is on the Bank of Canada and its expected increase in its overnight lending rate.

Short term technical indicators (momentum, above/below 20 day moving average) deteriorated for most equity indices and sectors last week (exception: China and the materials sector). Notably weaker were European equity indices and related ETFs. Short term technical indicators for commodities and commodity stocks turned lower thanks to U.S. Dollar Index strength.

Medium term technical indicators (Percent of stocks trading above their 50 day moving average, Bullish Percent Index) generally moved lower last week from overbought levels.

Seasonal influences for Canadian and U.S. equity indices normally are bullish between now and July 17th, the date that frequently is a seasonal peak. This year, technical evidence currently suggest that the S&P 500 Index and Dow Jones Industrial Average probably peaked on June 19th

U.S. equity markets have a history of moving lower from mid-June to mid-October in Presidential cycle years after a two term President has been replaced (as indicated this year). See red line in the chart below.

Currency changes had an oversized impact on bond and stock markets last week. Short term technicals suggest that the U.S. Dollar Index has reached a short term bottom. Conversely, the Euro, Japanese Yen and British Pound may have reached a short term top. The Canadian Dollar continued to strengthen in anticipation of the expected Bank of Canada rate increase on Wednesday. Canadian equities trading actively on U.S. exchanges (most notably commodity sensitive equities) responded to the anticipation by moving lower.

 

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for July 7th 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.

 

The S&P 500 Index added 1.77 points (0.07%) last week. Intermediate trend remains up. The Index remains below its 20 day moving average. Short term momentum indicators are trending down.

Percent of S&P 500 stocks trading above their 50 day moving average dropped last week to 5.80 to 60.40. Percent remains intermediate overbought and is trending down.

Percent of S&P 500 stocks trading above their 200 day moving average dropped 2.40 to 71.60 last week. Percent remains intermediate overbought and is trending down.

Bullish Percent Index for S&P 500 stocks increased 0.40 to 72.80 last week and remained above its 20 day moving average. The Index remains intermediate overbought.

Bullish Percent Index for TSX stocks dropped another 4.21 to 62.25 last week and remained below its 20 day moving average. The Index remains intermediate overbought and trending down.

The TSX Composite Index dropped 155.03 points (1.02%) last week. Intermediate trend remains down (Score: -2). Strength relative to the S&P Index remains negative (Score:-2). The Index remains below its 20 day moving average (Score: -1). Short term momentum indicators are trending down (Score: -1). Technical score remained last week at -6.

Percent of TSX stocks trading above their 50 day moving average plunged 14.05 points last week to 28.10. Percent is intermediate oversold, but has yet to show signs of bottoming.

Percent of TSX stocks trading above their 200 day moving average dropped 4.96 points last week to 49.17. Percent has dropped to intermediate neutral and continues to trend down.

The Dow Jones Industrial Average added 64.71 points (0.30%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. The Average remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at 0.

Bullish Percent Index for Dow Jones Industrial stocks was unchanged last week at 83.33 and remained above its 20 day moving average The Index remains intermediate overbought.

Bullish Percent Index for NASDAQ Composite Index slipped 0.28 last week to 61.3 but remained above its 20 day moving average. The Index remains intermediate overbought and is trending down.

The NASDAQ Composite Index gained 12.66 points (0.20%) last week. Intermediate trend remains down. 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 -6.

The Russell 2000 Index added 0.48 (0.03%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. The Index remained above its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

The Dow Jones Transportation Average gained 131.21 points (1.37%) last week. Intermediate trend changed to up from neutral on a move above 9,694.33. 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 increased last week to 6 from 4.

The Australia All Ordinaries Composite Index dropped 20.10 points (0.35%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains neutral. The Index remained below its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 2.

The Nikkei Average dropped 104.34 points (0.52%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to neutral from positive. The Average remained below its 20 day moving average. Short term momentum indicators have turned down. Technical score dropped last week to 0 from 2.

Europe iShares added $0.09 (0.20%) last week. Strength relative to the S&P 500 Index remains neutral. Units remained below their 20 day moving average. Short term momentum indicators have turned down. Technical score dropped last week to 0 from 2.

The Shanghai Composite Index gained another 25.52 points (0.80%) last week. Intermediate trend remains down. 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 2.

Emerging Market ETF slipped $0.25 (0.60%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to neutral from positive. Units moved below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 3.

 

Currencies

The U.S. Dollar Index gained 0.37(0.39%) last week. Intermediate trend remains down. The Index remains below its 20 day moving average. Short term momentum indicators are showing early signs of recovering.

The Euro dropped 0.23 (0.20%) last week. Intermediate trend remains up. The Euro remains above its 20 day moving average. Short term momentum indicators have just rolled over from an overbought level.

The Canadian Dollar gained US 0.50 cents (0.65%) last week. Intermediate trend changed to up from neutral on a move above 77.10. The Canuck Buck remains above its 20 day moving averages. Short term momentum indicators are trending up.

The Japanese Yen dropped 1.17 (1.32%) last week. Intermediate trend remains up. The Yen remained below its 20 day moving average. Short term momentum indicators continue to trend downward.

The British Pound dropped 2.80 (2.13%) last week. Intermediate trend remains up. The Pound remains above its 20 day moving average. Short term momentum indicators have rolled over from overbought levels.

 

Commodities and Related ETFs

Editor’s Note: Strength in the U.S. Dollar Index last week had a significant negative impact on commodity prices and related equities and ETFs

Daily Seasonal/Technical Commodities Trends for July 7th 2017

Green: Increase from previous day

Red: Decrease from previous day

* Excludes adjustment from rollover of futures contracts

The CRB Index dropped 2.22 points (1.27%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to neutral from positive. The Index remains above its 20 day moving average. Short term momentum indicators have turned down.

Technical score dropped last week to -2 from 2.

Gasoline slipped 1.40 cents per gallon (0.92%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remained positive. Gas remained above its 20 day moving average. Short term momentum indicators are trending up. Score remained at 2

Crude oil dropped $1.81 (3.93%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to neutral from positive. Crude moved below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from 2.

Natural Gas plunged 0.175 per MBtu (5.77%) last week. Intermediate trend remain neutral. Strength relative to the S&P 500 Index remained neutral. “Natty” moved below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 2.

The S&P Energy Index dropped another 5.96 points (1.25%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains negative. The Index remained below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -6 from -4.

The Philadelphia Oil Services Index dropped another 4.05 points (3.10%) last week. Intermediate trend remains down. 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.

Gold dropped $32.60 per ounce (2.62%) in response to strength in the U.S. Dollar Index. Intermediate trend changed to neutral from up on a move below $1,214.30. 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 dropped last week to -4 from 0.

Silver plunged $1.20 per ounce (7.22%) last week in response to U.S. Dollar Index strength. Intermediate trend changed to down from neutral on a move below $16.06. Strength relative to the S&P 500 Index remains negative. Silver remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -6 form -2.

The AMEX Gold Bug Index dropped another 6.82 points (3.67%) last week. Intermediate downtrend was confirmed on a move below 180.03 on Friday. Strength relative to the
S&P 500 Index turned 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 $22.30 per ounce (2.41%) last week. Trend remains down. Relative strength remains negative. Trades below its 20 day MA. Momentum remains negative. Score: -6

Palladium dropped $5.40 per ounce (0.65%) last week. Intermediate trend remains down. Strength relative to the S&P 500 turned negative. PALL remained below its 20 day moving average. Short term momentum indicators trend down. Technical score remained at -6.

Copper dropped 6.10 cents per lb (2.25%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains positive. Copper remains above its 20 day moving average. Short term momentum indicators have turned down. Technical score slipped last week to 4 from 6.

BMO Base Metals ETF added $0.03 (0.31%) last week. Intermediate trend changed to neutral from down on a move above $9.82. Strength relative to the S&P 500 Index remains positive. Units remained above their 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 from 2.

Lumber dropped $13.10 (3.58%) last week. Trend remains down. Relative strength remained neutral. Trades below its 20 day MA. Momentum turned lower. Score dropped to -4 from 0

The Grain ETN jumped $1.14 (3.93%) last week. Trend remains up. Strength relative to the S&P 500 Index remains positive. Units remain above their 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

The Agriculture ETF slipped $0.10 (0.18%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains negative. Units remain below 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 jumped 9.1 basis points (3.95%) last week. Intermediate trend remains down. Yield remained above its 20 day moving average. Short term momentum indicators are trending up.

Conversely, price of the long term Treasury Bond ETF dropped $2.40 (1.92%) last week. Intermediate trend remains up. Units dropped below their 20 day moving average.

 

Volatility

The VIX Index was virtually unchanged at the end of the week despite an upward spike in mid-week.

 

Sectors

Daily Seasonal/Technical Sector Trends for July 7th 2017

Green: Increase from previous day

Red: Decrease from previous day

 

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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