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TechTalk for Monday September 21st 2015

 

Economic News This Week

August Existing Home Sales to be released at 10:00 AM EDT on Monday is expected to slip to 5,500,000 units from 5.590,000 units in July

Canadian July Retail Sales to be released at 8:30 AM EDT on Wednesday is expected to increase 0.7% versus a gain of 0.6% in June.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 275,000 from 264,000 last week.

August Durable Goods Orders to be released at 8:30 AM EDT on Thursday are expected to fall 2.2% versus a gain of 2.2% in July. Excluding transportation, August Orders are expected to increase 0.2% versus a gain of 0.4% in July.

August New Home Sales to be released at 10:00 AM EDT on Thursday are expected to increase to 515,000 units from 507,000 units in July.

Third estimate of second quarter GDP to be released at 8:30 AM EDT on Friday is expected to grow at a 3.7% rate, unchanged from the second estimate

September Michigan Sentiment Index to be released at 10:00 AM EDT on Friday is expected to increase to 87.0 from 85.7 in August.

 

Earnings News This Week

Monday: Lennar, Red Hat

Tuesday: Autozone, Carnival, Darden Restaurants, General Mills

Thursday: Bed, Bath & Beyond, KB Homes, Nike

Friday: Blackberry.

 

The Bottom Line

Buy on weakness during the next three weeks. Most equity markets and economic sensitive sectors and commodities reached an intermediate low on or about August 25th. Volatility remains elevated. News by the Federal Reserve on Thursday did not help. Equity markets around the world appear to be forming a base building pattern that likely will continue well into October until the traditional late October to early May period of seasonal strength resumes. Traditional weakness in equity markets during the next three weeks is an opportunity to accumulate favoured equities, economic sensitive sectors and commodities on technical signs of bottoming.

 

Equities

Daily Seasonal/Technical Equity Trends for September 18th 2015


Green: Increase from previous day

Red: Decrease from previous day

The S&P 500 Index slipped 2.97 points (0.15%) last week. Intermediate trend changed last week to up from down. The Index remains above its 20 day moving average. Short term momentum indicators changed on Friday to mixed.

Percent of S&P 500 stocks trading above their 50 day moving average increased last week to 23.40% from 18.80%. Percent continues to recover from an intermediate oversold level.

Percent of S&P 500 stocks trading above their 200 day moving average slipped last week to 29.20% from 30.60%. Percent bottomed on August 25th

Bullish Percent Index for S&P 500 stocks increased last week to 43.40% from 36.20% and moved above its 20 day moving average. The Index continues to recover from an intermediate oversold level.

Bullish Percent Index for TSX Composite stocks increased last week to 34.01% from 30.36% and moved above its 20 day moving average. The Index continues to trend higher from an intermediate oversold level.

The TSX Composite Index gained 185.43 points (1.38%) last week. Intermediate trend remains down (Score: -2). Strength relative to the S&P 500 Index remains neutral (Score: 0). The Index moved above its 20 day moving average (Score: 1. Short term momentum indicators are trending up (Score: 1). Technical score last week remained at 0.

Percent of TSX stocks trading above their 50 day moving average increased last week to 32.79% from 17.00%. Percent continues to trend higher from an intermediate oversold level.

Percent of TSX stocks trading above their 200 day moving average increased last week to 23.48% from 19.84%. Percent continues to trend higher from an intermediate oversold level.

The Dow Jones Industrial Average slipped 48.04 points (0.29%) last week. Intermediate trend changed to up from down. Strength relative to the S&P 500 Index remains neutral. The Average moved above its 20 day moving average last week. Short term momentum indicators changed to mixed on Friday. Technical score improved last week to 3 from -2.

Bullish Percent Index for Dow Jones Industrial Average stocks increased last week to 40.00% from 26.67% and moved above its 20 day moving average. The Index is trending higher from an intermediate oversold level.

Bullish Percent Index for NASDAQ Composite stocks increased last week to 42.93% from 39.68% and moved above its 20 day moving average. The Index continues to move higher from an intermediate oversold level.

The NASDAQ Composite Index added 4.89 points (0.10%) 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 changed to mixed from positive on Friday. Technical score improved last week to 3 from 2.

The Russell 2000 Index added 5.65 points (0.49%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains positive. The Index moved above its 20 day moving average last week. Short term momentum indicators changed to mixed from positive on Friday. Technical score last week improved to 1 from 0.

The Dow Jones Transportation Average fell 15.37 points (0.19%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains positive. The Average fell below its 20 day moving average on Friday. Short term momentum indicators turned mixed on Friday. Technical score slipped last week to -1 from 2.

The Australia All Ordinaries Composite Index added 98.00 points (1.92%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed on Friday to neutral from negative. The Index moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score last week improved to 0 from -2.

The Nikkei Average dropped 102.31 points (3.20%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed last week to negative from neutral. The Average remains below its 20 day moving average. Short term momentum indicators are trending up. Technical score last week slipped to -4 from -2.

iShares Europe 350 units dropped $0.44 (1.06%) last week. Intermediate trend changed to up from down. Strength relative to the S&P 500 Index remains neutral. Units moved below their 20 day moving average on Friday. Short term momentum indicators turned mixed from up on Friday. Technical score last week changed to 1 from -2

The Shanghai Composite Index dropped 102.31 points (3.20%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed last week to negative from neutral. The Index remains below its 20 day moving average. Short term momentum indicators changed to mixed on Friday. Technical score dropped to -5 from -2

iShares Emerging Markets added $0.33 (0.99%) last week. Intermediate trend changed to up from down on a move above $34.28. Strength relative to the S&P 500 Index changed to positive from neutral. Units remain above their 20 day moving average. Short term momentum indicators turned mixed from up on Friday. Technical score improved last week to 5 from 0.

 

Currencies

The U.S. Dollar Index added 0.16 (0.17%) last week. Intermediate trend remains down. The Index remains below its 20 day moving average. Short term momentum indicators are trending down.

The Euro slipped 0.37 (0.33%) last week. Intermediate trend remains up. The Euro closed at its 20 day moving average on Friday. Short term momentum indicators are trending up.

The Canadian Dollar gained US 0.23 cents (0.30%) last week. Intermediate trend changed to up from down on a move above US 76.24 cents. The Canuck Buck moved above its 20 day moving average. Short term momentum indicators are trending up.

The Japanese Yen gained 0.40 (0.48%) last week. Intermediate trend remains up. The yen remains above its 20 day moving average. Short term momentum indicators are mixed.

 

Commodities

Daily Seasonal/Technical Commodities Trends for September 18th 2015

Green: Increase from previous day

Red: Decrease from previous day

The CRB Index lost 2.54 points (1.34%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed last week to neutral from positive. The Index fell below its 20 day moving average on Friday. Short term momentum indicators are mixed. Technical score fell last week to -3 from 2.

Gasoline slipped $0.01 per gallon (0.73%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains negative. Short term momentum indicators momentum indicators are trending up.

Crude Oil added $0.39 per barrel (0.87%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains positive. Crude remains above its 20 day moving average. Short term momentum indicators are mixed. Technical score remains at 1

Natural Gas dropped $0.08 per MBtu (2.97%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to negative from positive. “Natty” remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score last week dropped to -6 from 0.

The S&P Energy Index gained 1.40 (0.03%) last week. Intermediate trend remains down. The Index dropped below its 20 day moving average on Friday. Strength relative to the S&P 500 Index remains neutral. Short term momentum indicators are mixed. Technical score remained at -3 last week.

The Philadelphia Oil Services Index dropped 1.34 points (0.80%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains neutral. The Index dropped below its 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score last week dipped to -4 from -3

Gold gained $34.50 per ounce (3.13%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to neutral from negative on Friday. Gold moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score improved last week to 4 from -4.

Silver gained $0.65 per ounce (4.48%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to positive from neutral. Silver moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score last week improved to 2 from -3. Strength relative to Gold turned positive.

The AMEX Gold Bug Index gained 9.27 points (8.64%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index improved to neutral from negative. The Index moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score improved last week to 0 from -6

Platinum gained $19.50 per ounce (2.02%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 remains negative. PLAT remains below its 20 day MA

Palladium gained $19.85 per ounce (3.36%) last week. Trend changed to up from down. Strength relative to S&P 500 and Gold turned positive. PALL remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score improved to 6 from 0

Copper fell $0.06 per lb. (2.45%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains positive. Copper remains above its 20 day moving average. Short term momentum indicators have turned mixed. Technical score slipped to 1 from 2.

The TSX Metals & Mining Index dropped 22.13 points (4.84%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index turned neutral from positive. The Index moved below its 20 day moving average on Friday. Short term momentum indicators turned mixed. Technical score dropped to -3 from 2.

Lumber plunged 16.40 (6.61%) last week. Trend remains down. Relative strength turned to neutral. Lumber fell below its 20 day MA. Momentum indicators are trending down.

The Grain ETN fell $0.50 (1.54%) last week. Strength relative to the S&P 500 Index returned to neutral from positive. Units fell below their 20 day moving average on Friday. Short term momentum indicators are trending down.

The Agriculture ETF dropped $0.70 (1.42%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to negative from neutral. Units remain below their 20 day moving average. Short term momentum indicators are mixed. Technical score dropped last week to -5 from -2.

 

Interest Rates

Yield on 10 year Treasuries fell 5.3 basis points last week. Yield fell below its 20 day moving average on Friday. Short term momentum indicators are trending down.

Conversely, price of the long term Treasury ETF gained $0.71 (5.85%) last week. Trend remains up. Units moved above their 20 day moving average on Friday.

 

Other Issues

The VIX Index slipped 0.62 (2.65%) last week. The Index remains elevated.

Technical action by individual S&P 500 stocks was decidedly bullish last week. Forty seven stocks broke intermediate resistance levels and 11 stocks broke intermediate support levels, typical of a market that is forming a base after an extended period of weakness.

Earnings news this week is quiet. Fourteen S&P 500 companies are scheduled to report. Most notable companies scheduled to report are Nike, KB Homes and Bed, Bath & Beyond to be released on Thursday.

Historically, the weakest three week period for the S&P 500 Index and the TSX Composite are the next three weeks. On average during the past 20 periods, both indices have dropped 2.4% per period (including an average drop per period of 0.84% during the week that follows Quadruple Witching). Full details of the Quadruple Witching study in September is available at

http://www.equityclock.com/2015/09/17/stock-market-outlook-for-september-18-2015/ One of the reasons for the decline include “the earnings confessions period” when companies pre-release bad news when they realize that they will not meet analysts’ third quarter earnings and sales estimates. Another reason is that analysts start to launch their estimates for next year prior to release of third quarter results, realize that their expectations are too high and scale back their third and fourth quarter estimates for the current year.

According to FactSet, third quarter earnings on a year-over-year basis for S&P 500 companies are expected to decline 4.4% and revenues are expected to decline 2.9%. Hardest hit sector by definition will be the energy sector due mainly to lower crude oil prices. U.S. Dollar strength also is a significant factor. Earnings by companies generating more than 50% of revenues outside of the U.S. are expected to report a 14.1% decline in earnings and a 12.1% decline in revenues. Fourth quarter prospects are better. Earnings on a year-over-year basis are expected to increase 0.9% and revenues are expected to decline 1.0%. Preliminary earnings and revenues estimates for the first quarter on 2016 call for strong year-over-year gains mainly because impact of the strong U.S. Dollar will have dissipated.

U.S. Dollar Index has come under pressure recently. The Chinese are thought to be holders of $4 trillion in U.S. Treasuries and reportedly have been major sellers in recent weeks. Chinese selling of Treasuries is bearish for bond prices and the U.S. Dollar and bullish for equity and commodity prices.

Short term momentum indicators for a wide variety of markets, sectors and commodities rolled over last (with the exception of precious metals)

The continuing recovery in medium term technical indicators (i.e. Percent of securities trading above their 50 day moving average, Bullish Percent Index) continue to imply that an intermediate low was set on August 25th for most equity markets and economically sensitive sectors.

Traders will watch for comments by Federal Reserve chairperson, Janet Yellen when she speaks this Thursday

International events also are worth watching. Greece’s Parliamentary elections were yesterday. China Flash PMI on Wednesday is expected to record a modest recovery, but is expected to remain below 50. European PMIs released mainly on Wednesday generally are expected to remain unchanged, but above the 50 level.

 

Sectors

Daily Seasonal/Technical Sector Trends for September 18th 2015


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 0.0 or higher. Conversely, a short position requires maintaining a technical score of 0.0 or lower.

 

Disclaimer: Seasonality and technical ratings offered in this report by www.timingthemarket.ca 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.