Tech Talk for Monday October 29th 2018

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Pre-opening Comments for Monday October 29th

U.S. equity index futures were higher this morning. S&P 500 futures gained 26 points in pre-opening trade.

Index futures were virtually unchanged following release of economic news at 8:30 AM EDT. Consensus for September Personal Income was an increase of 0.3% versus an upwardly revised gain of 0.4% in August. Actual was an increase of 0.2%. Consensus for September Personal Spending was an increase of 0.4% versus an upwardly revised gain of 0.5% in August. Actual was an increase of 0.4%.

Red Hat jumped $59.92 to $176.60 after IBM offered to purchase the company for $190 per share cash.

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Caterpillar (CAT $115.05) is expected to open lower after Stifel Nicolaus lowered its target price to $142 from $168

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Apple added $3.18 to $219.52 after Jefferies initiated coverage on the stock with a Buy rating.

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Colgate Palmolive (CL $59.58) is expected to open lower after SunTrust downgraded the stock to Hold from Buy.

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EquityClock’s Daily Market Comment

Following is a link:

http://www.equityclock.com/2018/10/26/stock-market-outlook-for-october-29-2018/

Note seasonality chart on the PHLX Semiconductor Index.

 

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GUESTS: DON VIALOUX, HENRY WEINGARTEN, SINCLAIR NOE AND DINESH D’SOUZA ENCORE

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Excerpt from Wall Street Raw

Volatility jumped last week. The VIX Index moved to 27% from 19% implying increased uncertainty in U.S. equity markets. Traders are concerned about rising interest rates, the mid-term election and the impact on rising tariffs on Chinese goods.

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Look for continuation of high volatility in U.S. equity markets until at least mid-term Election Day on November 6th. The latest polls indicate no change in control of the Senate, but a change in control in the House of Representatives. Control will change if the Democrats are able to swing 23 seats to their favour.

Higher volatility in U.S. equity markets supported higher gold prices last week. However, many gold equities did not benefit. Companies such as Goldcorp reported disappointing third quarter results. Gold equity prices responded accordingly.

Weakness in U.S. equity prices has occurred despite extraordinary third quarter reports released to date by S&P 500 companies: over 80% of reporting companies beat consensus earnings and over 60% beat consensus sales.

Cannabis stocks in Canada remained under technical pressure again last week. Traders started to take profits on the day after Canada cannabis use was legalized on October 17th. The industry is having difficulty supplying sufficient product to satisfy a sharp increase in demand.

 

The Bottom Line

Seasonal influences for major U.S. equity indices turned positive at the end of the second week in October. Note seasonality charts below for the S&P 500 Index and Dow Jones Industrial Average.

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Seasonal influences normally are most notable during U.S. Mid-term election years (although bottom of the correction has been delayed this year and has yet to surface). Investors are concerned 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 23 House seats to the opposition party. Recent election polls suggest that history is about to repeat. Anticipation of a possible change, regardless of the final result, is a major reason for uncertainty between now and the Mid-term Election on November 6th

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Seasonal influences also turn positive for Canadian equities at the end of the second week in October. The TSX Composite Index has closely followed its seasonal pattern this year. However, its seasonal low has yet to arrive this year. Performance of the TSX Composite Index normally is negative from the third week in July to mid-October. This year, the TSX Composite Index dropped 10.7% from its seasonal peak reached on July 13th to its close on Friday at 14,888.26.

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Last Monday, the recommendation was to begin to invest in North American equity markets and economic sensitive sectors for a seasonal move that could last to the second quarter of 2019. However, an unexpected volatility spike at mid-week precluded the strategy. If initial investments were made last week, continue to hold them. North American equity markets are exceptionally intermediate oversold and are close to their bottom. Preferred strategy now is to wait until technical evidence (particularly short term indicators) show signs of bottoming before adding to equity positions for the seasonal trade lasting until next Spring. Please be patient.

Economic News This Week

September Personal Income to be released at 8:30 AM EDT on Monday is expected to increase 0.3% versus a gain of 0.3% in August. September Personal Spending is expected to increase 0.4% versus a gain of 0.3% in August.

October ADP Employment Report to be released at 8:15 AM EDT on Wednesday is expected to show a drop to 195,000 from 230,000 in September.

Canadian August GDP to be released at 8:30 AM EDT on Wednesday is expected to increase 0.1% versus a gain of 0.2% in July.

Chicago October PMI to be released at 9:45 AM EDT on Wednesday is expected to increase to 60.5 from 60.4 in September.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to remain unchanged from last week at 215,000.

September Construction Spending to be released at 10:00 AM EDT on Thursday is expected to increase 0.2% versus a gain of 0.1% in August.

October Manufacturing ISM to be released at 10:00 AM EDT on Thursday is expected to increase to 59.6 from 58.8 in September.

October Non-farm Payrolls to be released at 8:30 AM EDT on Friday are expected to increase 189,000 from 134,000 in September. October Unemployment Rate is expected to remain at 3.7% set in September. October Average Hourly Earnings are expected to increase 0.3% versus a gain of 0.3% in September

September U.S. Trade Deficit to be released at 8:30 AM EDT on Friday is expected to slip to $52.4 billion from $53.2 billion in August.

Canadian October Employment to be released at 8:30 AM EDT on Friday is expected to increase 17,000 versus a gain of 63,300 in September. Canadian October Unemployment Rate is expected to remain unchanged from September at 5.9%.

Canada September Merchandise Balance to be released at 8:30 AM EDT on Friday is expected to remain unchanged from August at a surplus of $500 million.

September Factory Orders to be released at 10:00 AM EDT on Friday are expected to drop 0.8% versus a gain of 2.3% in August.

 

Selected Canadian and U.S. Earnings News This Week

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Observations

Third quarter reports by S&P 500 companies are a focus again this week. Forty eight percent of companies have reported to date. Most beat consensus earnings per share estimates (77%) and sales (59%) estimates. Another 139 S&P 500 companies are scheduled to release results this week (including 6 Dow Jones Industrial companies).

Technical action by individual S&P 500 stocks was bearish last week. Number of stocks breaking intermediate resistance totaled 9 while number of stocks breaking support totaled 135. The Up/Down ratio increased last week to (96/351 =) 0.27 from 0.58.

U.S. economic focus this week is on the October employment report to be released on Friday.

Canadian economic focus this week is on the August GDP report to be released on Wednesday. .

Medium term technical indicators for U.S. equity markets (e.g. Percent of stocks trading above their 50 day moving average, Bullish Percent Index) turned lower last week. See charts near the end of this report

Medium term technical indicators in Canada also turned lower last week. See charts near the end of this report.

Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) turned back down last week

Short term technical indicators for Canadian markets and sectors also turned back down last week.

Short term political concerns remain elevated. Issues include heightened tariff wars with China, the Mueller investigation and ramp up of U.S. mid-term election political rhetoric.

Longer term outlook for S&P 500 company earnings remains positive and improving. According to FactSet, consensus calls for a 22.5% increase in earnings in the third quarter on a year-over-year basis (up from 19.5% last week) and a 7.6% increase in sales in the third quarter (up from 7.4% last week). Consensus calls for a 16.1% increase in earnings and 6.3% increase in sales in the fourth quarter. Consensus calls for a 20.5% increase in earnings (up from 20.2%) and an 8.2% increase in sales for 2018. Consensus calls for a 6.5% increase in earnings and 6.6% in sales in the first quarter 2019. Consensus calls for a 6.8% increase in earnings and 5.1% in sales in the second quarter 2019. Consensus for 2019 calls for a 10.0% increase in earnings and a 5.4% increase in sales.

An important long term technical indicator shows that U.S. equity markets are intermediate oversold and due for a recovery. Following is a chart showing Percent of S&P 500 stocks trading above their 50 day moving average overlaid by the S&P 500 Index. Note that major upside moves by the Index occurred after Percent recovered from below 20%. Percent closed on Friday at 11.00.

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Ditto for Percent of TSX stocks trading above their 50 day moving average overlaid by the TSX Index! Percent closed on Friday at 13.38.

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Trader’s Corner

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for October 26th 2018

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Green: Increase from previous day

Red: Decrease from previous day

 

Commodities

Daily Seasonal/Technical Commodities Trends for October 26th 2018

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Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for October 26th 2018

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Green: Increase from previous day

Red: Decrease from previous day

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

Changes Last Week

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StockTwits Released on Friday @EquityClock

Technical action by S&P 500 stocks to 10:00: Bearish. No intermediate breakouts. Breakdowns: $CL $CHK $CERN $SYK $T.

Editor’s Note: After 10:00 AM EDT, breakdowns included ADM, XEC DFS, HOLX, WHR, ABC, DE, GE, COST, PRGO, DLR and XYL. No breakouts.

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Aecon $ARE.CA moved above $17.44 extending an intermediate uptrend.

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S&P 500 Momentum Barometers

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Percent of S&P 500 stocks trading above their 50 day moving average dropped last week to 11.00 from 23.00. Percent remains intermediate oversold. More proof is needed to confirm an intermediate low.

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Bullish Percent Index for S&P 500 stocks dropped last week to 31.90 from 43.00. The Index has dropped to an intermediate oversold level, but has yet to show signs of bottoming.

 

TSX Momentum Barometers

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Percent of TSX stocks trading above their 50 day moving average dropped last week to 13.28 from 25.83. Percent remains intermediate oversold, but has yet to show signs of an intermediate bottom.

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Bullish Percent Index for TSX stocks dropped last week to 40.98 from 46.53. The Index is intermediate neutral and trending down. Technical signs of a bottom have yet to appear.

 

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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18 Responses to “Tech Talk for Monday October 29th 2018”

  1. Bernie Says:

    “Rip Van Winkle would be the ideal investor. He’d invest before his nap, and when he woke up twenty years later, he’d be happy.”

    https://cutthecrapinvesting.com/2018/10/19/beat-the-bank-suggests-investors-put-down-that-coffee-and-take-a-20-year-nap/

  2. Dale Roberts Says:

    Thanks Bernie for the mention. Yup, sleeping through all of this is not a bad idea. Have you read Beat the Bank? It’s great.

    Dale

  3. Ron/BC Says:

    Bernie
    I’ve noticed all the articles from major investment companies have one common theme and that’s to buy and hold stocks and never sell them. While one can argue with that on either side, I always ask myself if the person stating a financial theory has a vested interest in clients holding their stocks rather than selling them and investing in other assets. Each time you will find they do have a financial need for clients to buy and hold forever. That’s the part that makes me question the value of their financial plan plus the sincerity of their comments. And of course over the years many of those ‘bell of the ball’ stocks everyone held onto crashed and burned but no one talks about anymore.
    Still ok to golf in Victoria but getting far more rainy days now and ahead it seems. Will have to golf alone in the rain I guess as my partner is a fair weather golfer. We’re talking about going to the California Coast for awhile this winter but can’t come up with a suitable place to agree on. Too many variables,just like the market………………

  4. Bernie Says:

    Ron/BC,

    The article’s author doesn’t sell investments. He’s is a proponent of investing and holding long term on autopilot. I tend to agree with this philosophy if one is invested in broad based funds and has a long investing horizon. Buffett would also agree. The most successful investors have been the buy and holders.

    Our golf in Nelson came to a close on Oct 21st when they put the course to bed for the season. It was a scheduled close, not weather dictated. Its still mild enough to play here but leaves are falling and its been raining a lot. I bought a leaf blower this fall but found its tough to move wet leaves…lol.

    Enjoy your time in California this winter! We’re going to New Orleans in January for an 11 day Caribbean cruise. Not planning to play golf while away unless its putt putt on the ship.

  5. JP/BC Says:

    Re #1. Bernie:

    I have a very high regard for your opinions and always enjoy your posts. I would like to run a few points past you for your response.

    There are some differences in the world today from times past. I’m wondering how they will impact the markets going forward. The article you referenced makes the case for buy and hold. When analyzing returns by looking backwards, that seems to make sense. BUT…are we experiencing negative influences that would suggest that “this time is different”?

    Some points:
    – QE has indebted governments to the tune of $trillions. This is like borrowing for a vacation. You have a good time on the trip, but once you return you have nothing left but debt. You have just delayed the time until your next vacation, if you can afford one at all. What if you lose your job? The good times is a record 10 year bull in the markets which can’t be justified with a corresponding increase in GDP. What will the next bear look like?
    – There is a rise in nationalism. The EU was shaky to begin with, and now some member states are either leaving or considering leaving. Many are basically bankrupt and don’t want austerity. What will that due to world trade, confidence levels, and the stock markets?
    – We have aging demographics. As the baby boomers age, the cost to social programs rises. As they leave the workforce to retire they pay less tax while they require more government services, especially as they approach their final years. New technologies are extending our lives, but they come at an increased financial cost. Who will pay for that?
    – Related to the above, many countries/states/provinces/cities have huge unfunded pension liabilities. This will require increased taxes. This is a drag on the economy. If they cut pensions, there will be riots, and less spending by pensioners.
    – Record low interest rates has caused excessive personal debt. Governments and individuals will pay increased interest on their record debt as rates eventually normalize (Ontario already pays a $billion a month in interest). What will be the consequences to individuals, governments and the economy?
    – An increasing number of catastrophic natural disasters are occurring. This disrupts production, causes individuals to spend their savings (or borrow) for recovery, leaving them with less to spend in the future and not enough or retire on, and costs large amounts of borrowed money to governments as they rebuild infrastructure.
    – We have massive “creative” accounting disguising the actual health of companies, highly leveraged trading, record levels of speculation, lack of government oversight and regulation, rampant company share buybacks to artificially boost share price, extreme concentration of wealth and tax avoidance (think Panama Papers), amongst many other Ponzi schemes that technology has allowed to occur. That’s not to say that there aren’t good companies out there….but what happens when inevitable reversion to the mean in the markets occurs? All ships will fall at the same time.

    All of the above are factors we haven’t seen in the past. For those that “buy and hold”, if you have been invested in the markets for the past few decades, you will probably be OK, barring massive cuts to dividends. But for those that are relying on compounding to increase their nest egg enough to retire on, I don’t see how that can end well.

    Do you have any counter arguments that will counter the negative factors I have addressed? I would love to be proven to be “just a fear monger”.

  6. Bernie Says:

    Dale,

    Re: #2
    I had no idea you followed this blog. Must be a first comment for you. I haven’t read beat the bank but have read reviews so I get a gist of what its about. As for investing in ETFs/mutual funds I agree one should focus on “low fees” if buying index products. Outside of indexes I feel long term performance trumps low fees. That’s why I like Mawer funds so much!

  7. Ron/BC Says:

    Bernie
    Well I agree with the principle of buy and hold with real estate as the property does rise in value historically ‘if’ you don’t mind the ups and downs along the way with recessions etc. Even then the selloffs can be brutal and take time to come back. But at least with real estate none of the properties go broke unlike stocks. So a Fund with a large mix of stocks such as an International Fund should do ok over time to hold and grow in value. But just like real estate the entry point is important as we all have a life span and at some point will be withdrawing money for retirement or dealing with major financial issues along the way. And those financial changes and surprises do change your plan.
    We still haven’t nailed down a winter trip yet. I don’t really care if we do go south as I don’t need to be entertained to enjoy life. A walk along the beach here in the pounding rain is something I used to do all the time when I was alone. I just bought water proof hiking shoes,lol……………

  8. dutchcanuck Says:

    Bernie, I would suggest that when sailing out of New Orleans you spend a few days in NO.
    Wonderful city with unique ambience.

  9. Bernie Says:

    Re: #5
    JP/BC your arguments come out loud and clear. The broad markets have never been underwater over any 20 year period but, that said, the times “might” be different this time. I still think the odds are with you if you invest long term in a well diversified portfolio of global equities and fixed income products and have many years in your arsenal to weather the storms. I’ve become a very “lazy” investor in retirement so I don’t tend to keep up with the news or market trends as much as I used to. I suppose I can afford to be “lazy”, my income streams are more than adequate to meet my needs and my wife still brings in employment income. I don’t really have any counter arguments to state, only suggestions for those who really stress over the future. I would invest in-line with your risk tolerance. If you’re a “sky is falling” type of individual you probably shouldn’t be investing in equities anyway. Perhaps stick with cash, GICs, other fixed income products if you’re able. I hate to generalize here but its very important to KNOW your risk tolerance before acting.

  10. Bernie Says:

    Ron/BC, I don’t have 100% water proof hiking shoes but own a pair of water shoes. lol

    dutch, Totally agree your suggestion. We’re arriving there 3 days early to take in the city. Our hotel is in the French quarter.

  11. JP/BC Says:

    Re #9. Bernie:

    Several years ago I attended an investing seminar put on by TD Waterhouse. Near the beginning of the event he was making a case for buy and hold. He said that if you look at any 20 year period of a stock market of any developed country you will see good returns. He said you will always be rewarded for patience. I put up my hand and asked a question: I said “What about the Japanese Nikkei index?” The speaker then went quiet. His next words were: “I see your point”

    Here is a chart of the Nikkei. Pick the worst 20 year performance period. It’s eye opening. Could this happen in the US. I can’t say no with any certainty. http://topforeignstocks.com/wp-content/uploads/2015/10/Japan-Nikkei-Return-Since-1980.png

  12. Bernie Says:

    JP/BC,

    Re: #11
    You got me there JP…wow! However, I did stress global diversity with equities and fixed income. The odds of that kind of portfolio being underwater over a 20 year period are very slim…buttt, should the worst case scenario transpire (or we take a major asteroid hit) we’ll all be in trouble. Further to my previous comment (#9): if going with a GICs it would be prudent to ladder them.

  13. Ken Says:

    Ron/BC

    Tangerine is now offering 3% for six months on up to a million without locking in for new clients. I’m guessing it went up last week after the BOC rate hike.

    A belated thanks for the heads up a while back.

  14. JP/BC Says:

    Re #12. Bernie: I get your point of being diversified, but the long positive run in bonds is not likely to be repeated with interest rates on the rise. There is regional diversification, but the markets are more global than ever before. I think we, as a society, are going to have to rely on new wealth generating technologies to offset some of the negative factors I mentioned. The important caviat will be spreading the wealth that new technology creates.

    I am a fairly new retiry with a comfortable income. I’m very happy with my lifestyle. I especially appreciate the internet and how easy it is to research purchases, vacations, hobbies etc.

  15. Ron/BC Says:

    Ken
    Thanks for letting me know. The last quote they gave me was 2.5% for 6 months after I told them I’d pull my cash out and go elsewhere. And that expires in November. They did have a 2.75% rate for new accounts and sometimes will pay that for ‘new cash’. You do have to give them a hard time now and again to get them to renew the rate plus phone ‘before’ your promotional rate expires. A friend of my partner that I referred was happy with the promotional rate until she called to get a new promotion quote several months later and they said she couldn’t have that rate. She obviously didn’t threaten them,lol. Not aggressive enough. Also Oaken Financial pays 3% for a one year GIC but of course the cash is tied up for a year. And EQ Bank pays 2.30% all the time with no promotional quote. And of course you can transfer the cash at any time no charge. Thanks again and I’ll have to call them up soon before my present quote expires in November.

  16. Sherri Says:

    Armstrong today:

    “We still see next week as the main target. The polls are showing that the Republicans will lose the House. That definitely has capital scared. The Democrats are just hostile right now and it does not matter if something is good or bad – they are simply out for revenge. That is what has capital really upset.

    As we approach month-end closing, a simple close below the September low of 2575432 will be a technical bearish indication for on the Dow at least, that would be an outside reversal to the downside. The next monthly turning point will be December and of course we have the big convergence of four models coming in together for November.

    The number to watch will be 23995 followed by 23340. These are the two important numbers to watch for month end closing. Keep in mind that electing both will point to a Panic to the downside will point to a test of the 21-22000 area. Keep in mind that at year-end, we need a closing above 24720.

    So, nothing yet indicates anything serious just yet. A slingshot move would certainly come into play if we get a monthly close below 23995. However, a closing BELOW 22415 at the end of the month will also warn of a decline into November.”

  17. bruce Says:

    tnx Sherri……..

  18. Bernie Says:

    #14 JP I wouldn’t suggest long term investing for you. I don’t think you’re wired to be a set it and forget it type of guy. As I was saying I have little interest anymore in keeping up with the latest investment ideas and trends. These days I’m not only smelling the coffee I enjoying drinking it too. You’d be better served to garner fresh ideas from others on here like Dutch Canuck or to get expert TA on trades from Ron/BC. I’ve become too much of a lazy investor to be of much assistance to you. By the way, there is a book on DGI called “The Lazy Investor” authored by Canadian Derek Foster. I own it. I’m happy you’re enjoying retirement…welcome to the club!

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