Tech Talk for Monday September 21st 2020

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Morning Technical Notes for September 21st

American International Group (AIG), an S&P 100 stock moved below $27.67 setting an intermediate downtrend.

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Exelon (EXC), an S&P 100 stock moved below $34.15 setting an intermediate downtrend.

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Europe iShares (IEV) moved below $42.30 completing a double top pattern.

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Italy iShares (EWI) moved below $24.56 completing a double top pattern

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Australia iShares (EWA) moved below $19.69 completing a short term Head & Shoulders pattern.

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Pre-opening Comments for Monday September 21st

U.S. equity index futures were lower this morning. S&P 500 futures were down 58 points in pre-opening trade. Dow Jones Industrial Average futures were down 591 points. The Dow Jones Industrial Average is slated to open below its 50 day moving average at 27,472.38. Index futures responded to the spread of COVID 19 in Europe and North America.

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Oracle added $2.32 to $62.07 after President Trump gave his blessings to a proposed Tik Tok deal.

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Darden Restaurants dropped $2.95 to $87.02 after Wedbush downgraded the stock from Outperform to Neutral.

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United Parcel Services added $0.22 to $159.99 after Credit Suisse upgraded the stock from Neutral to Outperform. Target is $192.

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EquityClock’s Daily Comment

Following is a link:

http://www.equityclock.com/2020/09/20/stock-market-outlook-for-september-21-2020/

The Bottom Line

Major equity indices around the world were mixed to slightly lower again last week. The notable exception was strength in the Chinese equity market. Hardest hit was the technology heavy NASDAQ 100 Index, down 12.08% from its September 2nd all-time high. Greatest influences remain a possible second wave of the coronavirus (negative) and possible approval of a vaccine (positive). Momentum indicators for North American equity markets remained unchanged last week at intermediate neutral and extended their intermediate downtrend. The VIX Index remained elevated. It typically moves higher between now and early October. Weakest four week period in the year for most equity market indices around the world is between mid-September and mid-October (particularly the TSX Composite Index and U.S. equity indices during U.S. Presidential election years). Look for volatile, choppy equity markets between now and at least mid-October.

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Observations

The VIX Index (better known as the Fear Index) showing volatility for the S&P 500 Index remained elevated last week.

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Ditto for VXN showing volatility for the NASDAQ 100 Index.

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The Dow Jones Industrial Average and S&P 500 Index during U.S. Presidential Election years have a history of moving lower from early September to the end of October followed by a move higher after the election.

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Other broadly based U.S. equity indices including the NASDAQ Composite Index, NASDAQ 100 Index, Russell 2000 and the Dow Jones Transportation Average have a history of moving lower between now and mid-October.

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The TSX Composite Index has a history of moving lower on a real and relative basis from the beginning of September to at least the middle of October.

S&P/TSX Composite Index Seasonal Chart

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$TSX Relative to the S&P 500
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Medium term technical indicator for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 50 day moving average) moved lower again last week. It remained intermediate neutral and is trending down. See Barometer chart at the end of this report.

Medium term technical indicator for Canadian equity markets was virtually unchanged last week. It remains intermediate neutral and is trending down. See Barometer chart at the end of this report.

More short term short term momentum indicators for U.S. markets/commodities/sectors (20 day moving averages, short term momentum indicators) moved lower again last week

Short term momentum indicators for Canadian markets/sectors were mixed again last week.

Year-over-year 2020 consensus earnings and revenue declines by S&P 500 companies ebbed slightly again last west. According to www.FactSet.com, third quarter earnings are expected to fall 21.8% (versus previous decline of 22.2%) and revenues are expected to decrease 3.8% (versus previous drop of 3.9%). Fourth quarter earnings are expected to drop 12.8% (versus previous 13.0%) and revenues are expected to decline 1.2% (versus previous drop of 1.3%). Earnings for all of 2020 are expected to fall 18.2% (versus previous drop of 18.4%) and revenues are expected to decline 2.8%.

Consensus estimates for earnings and revenues by S&P 500 companies turn positive on a year-over-year basis in the first quarter of 2021. According to FactSet, earnings in the first quarter of 2021 are expected to increase 13.3% (versus previous 13.2%) and revenues are expected to increase 3.3% (versus previous 3.2%). Earnings in the second quarter are expected to increase 44.2% (versus previous 44.3% and revenues are expected to increase 13.9%. Earnings for all of 2021 are expected to increase 26.2% and revenues are expected to increase 8.1%.

 

Economic News This Week

August Existing Home Sales to be released at 10:00 AM EDT on Tuesday are expected to increase to 5.98 million from 5.86 million in July.

August New Home Sales to be released at 10:00 AM EDT on Thursday are expected to slip to 892,000 from 901,000 in July.

August Durable Goods Orders to be released at 8:30 AM EDT on Friday are expected to increase 1.5% versus a gain of 11.4% in July. Excluding transportation, August Durable Goods Orders are expected to increase 1.2% versus a gain of 2.6% in July.

 

Earnings News This Week

Eight S&P 500 companies and one Dow Jones Industrial Average company (Nike) are scheduled to report quarterly results this week.

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Trader’s Corner

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for September 18th 2020

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Green: Increase from previous day

Red: Decrease from previous day

 

Commodities

Seasonal/Technical Commodities Trends for September 18th 2020

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Green: Increase from previous day

Red: Decrease from previous day

 

Sectors

Daily Seasonal/Technical Sector Trends for September 18th 2020

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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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Technical Notes for Friday September 21st

S&P 500 Index moved below its 50 day moving average at 3,342.96. David Keller, chief market strategist for www.stockcharts.com comments on significance of the breakdown at:

https://www.youtube.com/watch?v=kZzRTgjPj7c

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Coal ETF (KOL) moved above $80.00 extending an intermediate uptrend.

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BioMarin Pharma (BMRN), a NASDAQ 100 stock moved above $79.00 completing a double bottom pattern.

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Pembina Pipelines (PPL), a TSX 60 stock moved below $30.88 completing a double top pattern.

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Monster Beverages (MNST), a NASDAQ 100 stock moved below $79.65 completing a Head & Shoulders pattern.

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The Wheat ETN (WEAT) moved above $5.67 extending an intermediate uptrend.

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Kinross (KGC K), a TSX 60 stock moved above US$10.20 and Cdn$13.50 to a 7 year high extending an intermediate uptrend. The company announced an initial dividend.

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Alphabet (GOOGL), a NASDAQ 100 stock moved below intermediate support at $1454.00 and Alphabet Class C (GOOG) moved below intermediate support at $1,454.03.

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Microsoft (MSFT), a Dow Jones Industrial Average stock moved below intermediate support at $197.03

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Splunk (SPLK), a NASDAQ 100 stock moved below $171.28 extending an intermediate downtrend.

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Magna International (MG), a TSX 60 stock moved below $61.00 completing a Head & Shoulders pattern.

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S&P 500 Momentum Barometer

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The Barometer dropped 8.22 on Friday and 1.81 last week to 52.10. It briefly returned above 60.00 and an intermediate overweight rating, but closed below 60.00 on Friday and an intermediate neutral rating. Trend is down.

 

TSX Momentum Barometer

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The Barometer dropped 7.39 on Friday, but gained 2.38 last week to 51.18. It also briefly moved above 60.00, but returned to an intermediate neutral level. Trend is 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

MoneyShowNovember62020




8 Responses to “Tech Talk for Monday September 21st 2020”

  1. Larry/ON Says:

    Tech Talk has some serious words of caution in its’ Bottom Line for the period between now and mid October. IMO you don’t want to think about buying until you see indexes at RSI 30. On CNBC Cramer was doing some cheerleading this morning on AAPL and you could see a temporary lift into positive and it’s come back down.

    Some Covid 19 plays are doing well – ZM, PTON

  2. Larry/ON Says:

    $CAD – Interesting. I did call 0.77 as a target. That was long-term resistance going back almost two years. In line with the declining equity market it peaked Sep 1st and looks like it has broken that upward trend since the March low. Technicians better than me can offer possible downward targets. I’m sitting in USD. It feels great at the moment. CAD looks like a good short now I think down to 0.74-0.73 but I’m wondering when the equity market bottoms whether we see another CAD rally to the 0.80 range during the winter/spring period.

    GLD – Anyone who thought gold offered some kind of protection from an equity downturn is now suffering buyer’s remorse.

  3. Ron/BC Says:

    Here is a chart of RSP which is the equal weight S&P500. The uptrendline broke down in early September and bounced back off 1st support at 107. Price has now broken down below 107 and formed a bearish Head and Shoulder pattern which projects a drop to the 100 support area which has been tested several times now. The broad market has been weakening since the June/September time frame and actually has been losing steam since February 2019.

    https://stockcharts.com/h-sc/ui?s=RSP&p=D&yr=2&mn=0&dy=0&id=p39447316729&a=673066190

  4. Bman/Van Says:

    Financial pulling back well, has BNS with a divvy of 6.7% and TD is getting close to that 59ish. Looks to be a more challenging choice than I though on Friday. Shaping up to be a number of good options for a long term hold plus long term with covered call.

  5. Vik Says:

    @Bman/Van
    I’ve been looking at TD as well to build a long-term position in RRSP. After reading some blogs online seems like a good candidate for setting up a DRIP and not touching it…Covered call selling would be a nice addition that to income as well.

    I am new to selling covered calls. Is the volume and open interest suitable? Always under the impression that options volume on TSX is not worth the effort fighting wide spreads.
    Also, is it still reasonable given commissions? I guess it would depend on # contracts as well…at least for TD its $9.99 + $1.25 per contract

    Alternatively, another option could be to hold US stocks in RRSP and write covered calls on them there…would take care of the volume issue and better tax treatment? Thanks

  6. Bman/Van Says:

    Hi Vik

    The volume and open interest for CAD banks is ok, but not great. Have traded US bank options as well SPY which are way more liquid and have some crazy volumes. If you are looking to sell less than 50 contracts/day (5000 shares) its not a problem. Above this level, I have tended to influence the market price negatively, but its not till you are looking for 200-300/day contracts this becomes really evident. The spreads are larger than the US, but you can still get what you want, just need to be patient and stick to your guns. Hard to say much about the commission side as it’s been some time since I paid fees based per trade. With TD if it hits $59, I would wait till it gets back to $62-63 before selling a $65 call option 3 months out given the relative bounces we have seen and achieve an even greater return without giving up too much of the upside. BNS is more like $53-55, $57 call option. Working on RY, but need to study it a little more.

  7. Larry/ON Says:

    Re Banks: I think you have to be careful. IMO it’s too early to jump in. For BNS the div payout ratio is currently very high at 64% and could hit close to 100% of TTM earnings if we get a couple more bad quarters. We need more bad news to be priced in with the second wave and any closures and loan write-offs that may come. CMHC has come out with a prediction of a 9 to 18% drop in housing prices from pre-pandemic levels by spring 2021. There is way too much hanging over the banks and I think even if the dividends look great their PE valuations are not a bargain. The forward PE valuations are all elevated.

  8. Larry/ON Says:

    Re 7. I did more checking. I was relying on Yahoo Finance for forward PE estimates provided by Thomson Reuters which are really bad. Forward PE estimates provided by BMO and CFRA are much more optimistic and not elevated. Still, I think we should get better opportunities to buy at lower levels than at present.

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