Tech Talk for Monday August 6th 2018

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WALL STREET RAW RADIO

SATURDAY, AUGUST 4, 2018

WITH YOUR HOST, MARK LEIBOVIT

GUESTS INCLUDE: DON VIALOUX, JIM ROHRBACH, RAY MERRIMAN, SINCLAIR NOE, HARRY BOXER, AND HENRY WEINGARTEN

https://tinyurl.com/ycjrpdte

 

The Bottom Line

The summer swoon in North American equity markets continued last week. Seasonal influences normally turn Negative from the third week in July to mid-October. More signs of a seasonal peak appeared last week. Second quarter earnings reports were strong as anticipated. Earnings by S&P 500 companies released to date were up 24%. However, unless a company offered positive guidance (e.g. Apple, Tesla), many S&P 500 stocks moved lower, particularly if a company offered negative guidance (e.g. Twitter, Wynn Resorts). Last week, the S&P 500 Index added 0.76% and the Dow Jones Industrial Average was unchanged. Both indices reached a peak on July 25th. The TSX Composite Index added 0.16% last week, but reached an intermediate peak three weeks ago.

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Seasonal influences are particularly relevant during U.S. Mid-term election years. Volatility in equity markets increases from late April to mid-October due to concerns about a possible change in political control in Congress. These concerns are very real this year. Republicans control the House by 16 votes and the Senate by one vote. On average during a Mid-term election year, the controlling party loses 24 House seats to the opposition party. Anticipation of a possible change, regardless of the final result, is a major reason for a correction in North American equity markets between mid-July and October.

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Ditto for Canadian equities! Seasonal influences for Canadian equity markets follow a similar pattern to the U.S. They normally are negative from the third week in July to mid-October.

Weakness in North American equity markets during the late July/early October period is related to increased volatility triggered by non-recurring unusual events. The possible event this year is progression to a full-fledged trade war. Last week, the Shanghai Composite Index dropped 4.0% in anticipation of a trade war while Mexican equities moved slightly higher in anticipation of renewed NAFTA negotiations.

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Economic News This Week

July Canadian Housing Starts to be released at 8:15 AM EDT on Thursday are expected to drop to 220,000 from 248,100 in June.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 220,000 from 218,000 last week.

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

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

July Canadian Employment to be released at 8:30 AM EDT on Friday is expected to increase 24,000 versus a gain of 31.8 in June. July Unemployment Rate is expected to dip to 5.8% from 6.0% in June.

 

Earnings News This Week

earnings

 

Observations

Monday is a holiday for Canadian markets

Technical action by individual S&P 500 stocks was mixed last week. Number of stocks breaking intermediate resistance totaled 48 while number of stocks breaking support totaled 37. The Up/Down ratio increased last week to (279/173=) 1.61 from 1.60.

Frequency of U.S. reports falls next week: 81% of S&P 500 companies have reported to date. Another 47 S&P 500 companies (and one Dow Jones Industrial company: Disney) are scheduled to release second quarter results. The flow of second quarter reports by Canadian companies continues to ramp up with a focus on gold producers.

U.S. economic focuses this week are on inflation (PPI on Thursday and CPI on Friday).

Canadian economic focuses this week is on the employment report on Friday.

The U.S. Dollar Index, up 0.50 last week, continues to show short term momentum signs of rolling over after entering its seasonal period of weakness at the beginning of July.

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Medium term technical indicators for U.S. equity markets (e.g. Percent of stocks trading above their 50 day moving average, Bullish Percent Index) remain intermediate overbought and are showing signs of rolling over.

 

Medium term technical indicators in Canada last week were mixed, but trending lower.

Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) for the most continue to trend down.

Short term technical indicators for Canadian markets and sectors also continued to trend lower last week.

The outlook for S&P 500 earnings and sales remains positive: According to FactSet , 81% of S&P 500 stocks have reported second quarter results to date: 80% have reported higher than consensus earnings and 74% have reported higher than consensus sales. Second quarter 2018 earnings are expected to increase 24.0% (up from 21.3% last week) and sales are expected to increase at 9.8% (up from 9.3% increase last week). However, analysts slightly lowered earnings and sales guidance thereafter. Third quarter earnings are expected to increase 20.7% on a 7.7% increase in sales. Fourth quarter earnings are expected to increase 17.8% on a 6.0% increase in sales. First quarter 2019 earnings are expected to increase 7.3% on a 6.2% increase in sales. Second quarter 2019 earnings are expected to increase 8.2% on a 4.6% increase in sales.

Short term political concerns remain elevated. Issues include proposed U.S. tariffs against Chinese goods valued at $500 billion, stalled NAFTA negotiations and the ramp up of U.S. mid-term election political rhetoric.

 

Trader’s Corner

Equities and Related ETFs

Daily Seasonal/Technical Equity Trends for August 3rd 2018

spx

Green: Increase from previous day

Red: Decrease from previous day

 

Commodities

Daily Seasonal/Technical Commodities Trends for August 3rd 2018

crb

Green: Increase from previous day

Red: Decrease from previous day

 

Sectors

Daily Seasonal/Technical Sector Trends for August 3rd 2018

sectors

Green: Increase from previous day

Red: Decrease from previous day

 

Changes Last Week

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Technical scores

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

 

Interesting article forwarded to us from Michael Campbell

Headline reads, “Buffet Indicator suggests stock market crash is looming”. Following is a link:

https://safehaven.com/investing/stocks/Buffet-Indicator-Suggests-Stock-Market-Crash-Is-Looming.html

 

StockTwits Released on Friday

Technical action by S&P 500 stocks to 10:15: Mixed. Breakouts: $CPB $GIS $MKC $SJM $CERN. Breakdowns: $NBL $AIG $SRCL $SYMC $INCY.

Editor’s Note: After 10:15 AM EDT, breakouts included KR, AIV, K, ALL and PLD. Breakdown: XEC

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Most of the breakouts this morning were food producer stocks following takeover rumors on Campbell Soup by Kraft Heinz $CPB $KHC

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Utilities SPDRs $XLU moved above $53.29 extending an intermediate uptrend.

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Editor’s Note: REITs iShares has almost an identical chart. Nice breakout in late trading on Friday! Both sectors show positive seasonality at this time of year.

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S&P 500 Momentum Barometer

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The Barometer added 3.00 to 67.00 on Friday (down from 67.80 on Friday July 27th ). It remains intermediate overbought and rolling over.

 

TSX Momentum Barometer

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The Barometer added 0.42 to 54.17 on Friday ( and up from 53.97 on Friday July 27th ).It remains intermediate neutral and trending down.

 

Disclaimer: Seasonality and technical ratings offered in this report and at

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

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