WALL STREET RAW RADIO WITH YOUR HOST, MARK LEIBOVIT GUESTS: DON VIALOUX, HENRY WEINGARTEN, SINCLAIR NOE AND DINESH D’SOUZA ENCORE https://tinyurl.com/y763taaq 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. 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. 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 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. . 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 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. 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. Trader’s Corner Equity Indices and related ETFs Daily Seasonal/Technical Equity Trends for October 26th 2018 Green: Increase from previous day Red: Decrease from previous day Commodities Daily Seasonal/Technical Commodities Trends for October 26th 2018 Green: Increase from previous day Red: Decrease from previous day Sectors Daily Seasonal/Technical Sector Trends for October 26th 2018 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 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. Aecon $ARE.CA moved above $17.44 extending an intermediate uptrend. S&P 500 Momentum Barometers 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. 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 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. 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