Tech Talk for Monday December 28th 2020

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Morning Technical Notes for Monday December 28th

Materials SPDRs (XLB) moved above $72.05 to an all-time high extending an intermediate uptrend.

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South Korea iShares (EWY) moved above $82.82 to an all-time high extending an intermediate uptrend.

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Hong Kong iShares (EWH) moved above $24.32 extending an intermediate uptrend.

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Natural Gas ETN (UNG) moved below $8.58 to an all-time low extending an intermediate downtrend

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Zoom (ZM), a NASDAQ 100 stock moved below $366.28 completing a Head & Shoulders pattern.

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Pre-opening Comments for Monday December 28th

U.S. equity index futures were higher this morning. S&P 500 futures gained 26 points in pre-opening trade. Index futures responded to news that President Trump signed the COVID relief and government funding bill.

The TSX is closed today for the Boxing Day holiday.

Qualcomm added $1.90 to $150.69 after Mizuho raised its target price from $154 to $163.

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Micron advanced $0.51 to $71.09 after Mizuho raised its target price from $75 to $85

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Applied Materials gained $0.65 to $85.98 after Mizuho raised its target price from $82 to $96.

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Advanced Micro Devices improved $0.63 to $92.44 after Mizuho raised its target price from $93 to $102.

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The Bottom Line

Most major equity indices around the world moved slightly higher or slightly lower last week. Greatest influences remain growing evidence of a second wave of the coronavirus (negative) and timing of distribution of a vaccine (positive)

Observations

The Dow Jones Industrial Average and S&P 500 Index are following their historic trend after a U.S. Presidential Election. Indeed, the strongest 12 week period during the four year U.S. Presidential Cycle has occurred from U.S. Presidential Election Day to Inauguration Day on January 20th. Since Election Day this year, the S&P 500 Index has gained 9.9%% and the TSX Composite Index has increased.10.6%.clip_image002

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What about this time? Biden was confirmed as President, Republicans maintained control of the Senate with a smaller majority and Democrats maintained control of the House of Representatives with a smaller majority. Net result is political gridlock for the next two years, a scenario that historically has been mildly bullish for U.S. equity markets

A caveat to this observation! The run off Georgia Senate Elections for two seats on January 5th could have a significant impact on U.S. equity prices. After recent elections, the Republicans controlled 50 seats and the Democrats controlled 48 seats. Both Georgia seats currently are held by Republicans. However, recent polls suggest that the battle between the Republican and Democrat candidates is extremely tight with the Democrats leading in one of the two seats. Latest poll results are available at https://projects.fivethirtyeight.com/georgia-senate-polls/ If Democrats win both seats, the Republicans will control 50 seats, the Democrats will control 50 seats and Vice President Kamala Harris will have the power to break voting ties in the Senate. Effectively, the Democrats will gain control over the Senate and will be able to pursue a “progressive” agenda including higher personal and corporate taxes, more regulations, higher government spending and more control over the economy. U.S. equity markets initially will respond to Democrat control by moving lower and gold price will move higher. Meanwhile, look for higher than average volatility in U.S. equity markets between now and January 5th as various polls on the Georgia senate seats are released.

The “Santa Claus rally” is working so far. The rally period normally occurs from the close on December 14th to the close on January 6th. The S&P 500 Index has gained in 22 of the past 30 periods since 1990 for an average return per period of 1.53%. The TSX Composite has gained in 25 of the past 30 periods for an average return per period of 2.13%. This year, the S&P 500 Index has added 1.53% to date and the TSX Composite Index has gained 1.36% to date. Reasons for the Santa Claus rally include yearend “window dressing” by institutional investors, favourable comments by investment dealers about prospects for next year, the end of tax loss selling pressures by individual investors, start of investment of yearend bonuses received by individual investors (frequently placed into RRSPs in Canada and 401K accounts in the U.S.) and a buoyant investment attitude by all investors related to the Christmas/New Year season.

What about the “Santa Claus Hangover? Following is a link to a recent video by Larry Williams that explains the “Santa Claus Rally” as well as the “Santa Claus Hangover” in the U.S. equity market:

Santa Claus Rally Exposed | Larry Williams | Real Trading Special (12.07.20) – YouTube

On average, the S&P 500 Index during the past 20 periods from January 7th to February 14th has dropped 1.5% per period. Effectively, all of the gains recorded during the Santa Claus rally period were lost during the Santa Claus Hangover period. This is the time of year when U.S. consumers and investors are paying down debts accrued during the Santa Claus Rally period.

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Note that the “Santa Claus Hangover” normally does not happen in the Canadian equity market. The main reason: Canadian investors focus on contributing to their RRSPs during the first 60 days in the New Year and subsequently invest more funds into the equity market. Strongest period in the year for the TSX Composite Index relative to the S&P 500 Index is from mid-December to the first week in March. As indicated in the chart below, average gain per period for the TSX Composite Index relative to the S&P 500 Index during the past 20 periods was 3.3%.

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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 slightly lower last week. It remained extremely intermediate overbought above 80.00%. See Barometer chart at the end of this report.

Medium term technical indicator for Canadian equity markets was virtually unchanged last week. It remained intermediate overbought. See Barometer chart at the end of this report.

Short term short term momentum indicators for U.S. markets/commodities/sectors (20 day moving averages, short term momentum indicators) moved lower last week from elevated levels.

Short term momentum indicators for Canadian markets/sectors remained virtually unchanged at elevated levels last week.

Economic News This Week

December Chicago Purchasing Managers Index to be released at 9:45 AM EST on Wednesday is expected to slip to 56.4 from 58.2 in November

 

Selective Earnings News This Week

Nil

 

Trader’s Corner

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for December 24th 2020

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Green: Increase from previous day

Red: Decrease from previous day

Commodities

Daily Seasonal/Technical Commodities Trends for December 24th 2020

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Green: Increase from previous day

Red: Decrease from previous day

 

Sectors

Daily Seasonal/Technical Sector Trends for December 24th 2020

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Green: Increase from previous day

Red: Decrease from previous day

 

The Canadian Technician

Greg Schnell offers “Three heart-warming wishes for 2021). Favourable comments are offered on Ballard Power (BLDP), Shopify (SHOP) and Lightspeed (LSPD). Following is a link:

https://stockcharts.com/articles/canada/2020/12/three-heart-warming-wishes-fro-928.html

 

Changes in Seasonality Ratings

NASDAQ Composite Index and NASDAQ 100 Index change from Neutral to Positive.

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U.S. Industrial sector changes from Positive to Neutral.

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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

Changes Last Week

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S&P Momentum Barometer

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The Barometer added 3.81 on Thursday, but slipped 1.41 last week to 81.76. It remains extremely intermediate overbought with a rating above 80.00.

 

TSX Momentum Barometer

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The Barometer added 0.47 on Thursday and was unchanged last week at 72.43. It remains intermediate overbought.

 

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




11 Responses to “Tech Talk for Monday December 28th 2020”

  1. Ron/BC Says:

    Here is a 2 year Daily chart of the XIU.to on the $TSX. Price has cleared the February high of 26.21 by a little and has been trying to “clear AND hold” above this resistance level all month. Meanwhile it has become very overbought in the process. But price is king and as long as price can hold above 26.21 it will establish solid support at that level. I just wouldn’t bet my life on it……………….

    https://stockcharts.com/h-sc/ui?s=XIU.TO&p=D&yr=2&mn=0&dy=0&id=p82782003476&a=673066273

  2. Paula Says:

    Ron/BC
    I just happen to be looking at some old charts of XIU.TO including a couple of yours that I saved. Here is one that I liked to look at b/c it has your 50 and 200 day indicator as well as your XIU.TO:$SPX ratio chart. I think the ratio chart is a better way to compare indices. I have not done anything with your comments on the chart but I think they could be updated.

    https://schrts.co/cczNFNUG

  3. Ron/BC Says:

    Paula
    The biggest factor I think (could be wrong) on the ratio chart is the effect of the Currency changes more than anything else. If I was smart enough I’d compare them on an equal basis,but don’t know how to do that. That currency factor has caused me to question a lot of the price action in charts with CD$ or U.S.$.

  4. Ron/BC Says:

    Paula

    Here is a chart that has me very interested. IAU tracks the price of $GOLD very well. See the ratio chart of IAU:GLD above and see how well IAU does comparatively. If I see IAU price clear that 18.10-18.25 area I’ll buy some. Already have some XGD.to but as you can see with the other ratio charts IAU is outperforming XGD.to as well as GDX. Not that I’m a wild bull on $GOLD but a chart is a chart and I do like these. And the price is low and the volume very strong.

    https://stockcharts.com/h-sc/ui?s=IAU&p=D&yr=1&mn=0&dy=0&id=p47786980112&a=673066554

  5. Paula Says:

    Ron/BC
    Some time ago I remember reading an article on Stockcharts about “Price (same scale)” and I think this maybe apply when comparing different stocks/indices. This is an indicator under Overlays but I don’t know how to use it and haven’t been able to find the article – am getting sucked down a rabbit hole, so I give up.

    Did you ever get through to your broker to journal over from USD to CAD?

  6. Paula Says:

    Ron/BC
    Thanks for the IAU chart. Here is an old GDX chart of yours that I have added some of my own lines to. The dotted horizontal blue line ~ 39 seems to me to be about where your 18.10-18.25 area is on IAU. I added IAU:GDX ratio chart on the bottom and see that IAU is outperforming. I already own some GDX.

    Wouldn’t this be an example of a good time to set a buy on stop, with a limit, order?

    https://schrts.co/wznXeWvB

  7. Ron/BC Says:

    Paula
    I never did get to talk to anyone at Questrade. Not even the 4 people I have extension numbers for. And they didn’t call me back either. So for now I’ll just keep my U.S.$ as they won’t go out of favour for long. They even sent me the portion of my RIF I must take yearly in CD$ and charged me the exchange rate to switch from U.S. to CD$. I finally did get to talk so ‘someone’ who called me back and said there was nothing they could do about that. Looks to me like they have waaaaay too much business that is swamping the quality of the service. I’d like to know if anyone recommends a brokerage that they are very happy with.
    I emailed Stockcharts with the question about currency differences in the same stock and how it affects ratio charts especially. So we’ll see how that pans out.

    And yes, buying on a stop with a limit order is a good idea.

  8. Bernie Says:

    Ron/BC,

    Re: Your unhappiness with Questrade
    Maybe you should try a different broker. I’ve heard (and read) a lot of good things about Qtrade. The promo rewards to move don’t hurt either.

    https://milliondollarjourney.com/review-canadian-discount-brokerages.htm

  9. Ron/BC Says:

    Bernie
    Thanks for the info. Years ago the Credit Union I dealt with suggested Qtrade for trading etc. So a couple of weeks later I looked up Questrade as I thought that’s what the Q stood for. I opened an account with Questrade then and haven’t changed. I’ll contact them and see what they are all about. I had dealt with TD Waterhouse before that and Richardson/Greenshields before that.

  10. Bernie Says:

    Ron/BC,

    I’ve dealt with BMO Investorline for the past 13 years. I don’t recall having any issues with them and on the occasions I needed to call I got through right away. Don’t know why I always did but suspect I got priority for having gold star status. I see they’re now rated the best of the bank brokers. I don’t really have any need to move to another broker but wish they would lower their commission costs. They’re commission free with mutual funds but charge the full $9.95 on ETF trades.

  11. Ron/BC Says:

    Bernie

    Thanks for the heads up with BMO Inverstorline. I read a lot of very negative comments about QTrades when browsing through comments. I guess I should accept the fact that Questrade is swamped with new customers spending their serb money etc. And just use the platform they provide which works well. Or switch to someone like you suggest like BMO Investorline. The old saying, “Better to deal with the devil you know rather than the devil you don’t” is usually good advice.

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