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Tech Talk for Monday March 1st 2021

 

The Bottom Line

Equity markets around the world moved lower last week. Greatest influences on North American equity markets remain growing evidence of a second wave of the coronavirus (negative) and timing of distribution of a vaccine (positive).

Observations

TSX Composite Index has a history of outperforming the S&P 500 Index from the end of December to the first week in March. 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. 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 1.5%. History is repeating: Spread in performance by the S&P 500 Index and TSX Composite Index continued to widen last week. Since December 31st, the S&P 500 Index has gained 1.47% and the TSX Composite Index has advanced 3.59%.for a gain of 2.12%. Adjusted for the drop in the U.S. Dollar relative to the Canadian Dollar since December 31st, the S&P 500 gained only 0.82% for a net gain to date by the TSX Composite Index of 2.77%

Short term short term indicators for U.S. equity indices, commodities and sectors (20 day moving averages, short term momentum indicators) trended down again last week and have yet to show signs of bottoming

Intermediate 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 last week. It changed from overbought to neutral and is trending lower. See Barometer chart at the end of this report.

Long term technical indicator for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 200 day moving average) moved lower last week. It changed from extremely overbought to overbought and is trending down. See chart at the end of this report.

Short term momentum indicators for Canadian indices and sectors continued to trend down last week and have yet to show signs of bottoming.

Medium term technical indicator for Canadian equity markets moved lower last week. It changed from overbought to neutral and continues to trend down. See Barometer chart at the end of this report.

Long term technical indicator for Canadian equity markets (i.e. Percent of TSX stocks trading above their 200 day moving average) moved lower last week. It remains overbought. See Barometer chart at the end of this report.

Year-over-year 2020 consensus earnings by S&P 500 companies continued to increase last week with 97% of S&P 500 companies reporting to date. According to www.FactSet.com, fourth quarter earnings on a year-over-year basis increased 3.9% (versus an increase of 3.2% last week) and revenues increased 3.2% (versus an increase of 3.1% last week). Earnings for all of 2020 fell 11.2% (versus previous 11.3%) and revenues declined 1.0% (versus previous 1.1%).

Consensus estimates for earnings and revenues by S&P 500 companies turn strongly positive on a year-over-year basis in the first and second quarters of 2021. According to www.FactSet.com earnings in the first quarter of 2021 on a year-over-year basis are expected to increase 21.2% (versus previous estimate of 21.2%) and revenues are expected to increase 6.0% (versus previous estimate at 5.7%). Earnings in the second quarter are expected to increase 49.7 % (versus previous estimate at 49.5%) and revenues are expected to increase 16.1% (versus previous estimate at 15.7%). Earnings in the third quarter are expected to increase 16.9% and revenues are expected to increase 9.7% (versus previous estimate at 9.5%). Earnings in the fourth quarter are expected to increase 13.0% (versus previous estimate at 13.3%) and revenues are expected to increase 7.0% (versus previous estimate at 6.7%). Earnings for all of 2021 are expected to increase 23.9% (versus previous estimate at 23.6%) and revenues are expected to increase 9.3% (versus previous estimate at 9.2%).

 

Economic News This Week

January Construction Spending to be released at 10:00 AM EST on Monday is expected to increase 0.7% versus a gain of 1.0% in December.

February Manufacturing ISM to be released at 10:00 AM EST on Monday is expected to increase to 58.9 from 58.7 in January.

Canadian December GDP to be released at 8:30 AM EST on Tuesday is expected to increase 0.4% versus a gain of 0.7% in November.

February ADP Private Employment Report to be released at 8:15 AM EST on Thursday is expected to slip to 168,000 from 174,000 in January.

February Non-manufacturing ISM to be released at 10:00 AM EST on Wednesday is expected to remain unchanged from January at 58.7.

Fourth quarter Non-farm Productivity to be released at 8:30 AM EST on Thursday is expected to drop 4.7% versus a previous estimate of a drop of 4.8%.

January Factory Orders to be released at 10:00 AM EST on Thursday are expected to increase 1.9% versus a gain of 1.1% in December.

February Non-farm Payrolls to be released at 8:30 AM EST on Friday are expected to increase to 148,000 from a gain of 49,000 in January. February Unemployment Rate is expected to increase to 6.4% from 6.3% in January. February Average Hourly Earnings are expected to increase 0.2% versus a gain of 0.2% in January.

January U.S. Trade Deficit to be released at 8:30 AM EST on Friday is expected to increase to $67.5 billion from $66.6 billion in December.

January Canadian Trade Deficit to be released at 8:30 AM EST on Friday is expected to increase to $3.00 billion from $1.67 billion in December.

 

Selected Earning News This Week

Fourth quarter corporate reports by major Canadian and U.S. companies are winding down. Another 11 S&P 500 companies are scheduled to report this week.

 

Trader’s Corner

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for February 26th 2021

Green: Increase from previous day

Red: Decrease from previous day

 

Commodities

Daily Seasonal/Technical Commodities Trends for February 26th 2021

Green: Increase from previous day

Red: Decrease from previous day

 

Sectors

Daily Seasonal/Technical Sector Trends for February 26th 2021

Green: Increase from previous day

Red: Decrease from previous day

 

Technical Scoop

Thank you to David Chapman and www.EnrichedInvesting.com for a link to their weekly comment. Headline reads, “Funky economies, stock fuel, political shift, zombie companies, concerning interest, gold lag, corrective pose”. Following is the link:

Funky-economies-stock-fuel-political-shift-zombie-companies-concerning-interest-gold-lag-corrective-pose.pdf (enrichedinvesting.com)

 

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


Notes for Michael Campbell’s Money Talks:

February 27th 2021

U.S. and Canadian equity indices recently have tracked closely the U.S. Presidential cycle. Historically, the best period to own North American equity indices during the four year cycle has been between U.S. Presidential Election Day until Inauguration Day on January 20th. Investors anticipate improving economic prospects following launch of a new presidential mandate. During the past 17 periods since 1952, the S&P 500 Index has advanced on 11 occasions for an average gain per period of 2.6%.

What happened during the recent period? Returns were exceptional: From November 6th 2020 to January 20th 2021, both the S&P 500 Index and TSX Composite Index gained 10.5%

Historically, what happens to North American equity indices after Inauguration Day? During regime change years (i.e. a change from a Democrat President to a Republican President or vice versa) U.S. equity indices initially move slightly higher during a “honey moon” period to mid-February. Thereafter, indices move lower to early April as the President begins to implement his elected mandate. The correction by the S&P 500 Index from mid-February to April 6th has averaged 2.5% per period since 1952.

What about this time? Democrat President Biden replaced Republican President Trump setting the stage for a difficult period for North American equity markets between mid-February and early April.

Canadian equity indices have a history of outperforming U.S. equity indices at this time of year. During the past 20 periods from the end of December to March 6th, the TSX Composite has outperforming the S&P 500 Index by 1.5% per period. The main reason for outperformance by the TSX is concentrated contributions into RRSPs that subsequently are invested into equities. This year, Canadian investors have until Monday March 1st to make their annual contribution for 2020.

What about this year? Since December 31st, the TSX Composite has outperformed the S&P 500 Index by 2.00%.

A word of caution about investing in North American equities between now and early April! Fourth quarter corporate reports released to date by major North American companies have been exceptional: 79% of S&P 500 companies reported higher than consensus fourth quarter revenues and earnings. Despite strong fourth quarter results, traders have been “selling on news”. Investors are partially concerned about the potential impact of a resurgence of COVID 19 and a recent extension of lock downs that could impact first and second quarter earnings reports.

Look for investment opportunities outside of North America until April. COVID 19 no longer is a major problem in the Far East. Infection rates have been near zero for the past six months. Far East economies and equity markets are well past their recovery stage following their COVID 19 shutdowns. Moreover, seasonal influences on Far East equity markets are positive on a real and relative basis until mid-April.

Chinese equity markets are following their historic pattern for this time of year. They have a history of reaching an important seasonal low near the end of January at the Chinese New Year holiday and moving higher on a real and relative basis to mid-April. This year, Chinese New Year on February 12th was slightly later than usual.

The easiest way to invest in the recovery of Far East economies is through ETFs that track equity markets for China, South Korea, Taiwan, Vietnam and Hong Kong. ETFs ticker symbols include XCH, ZCH and ZEM on the Toronto Exchange and EEM, EWY, EWT, EWH and VNM on U.S. exchanges).

Another possible investment is in North American equities that will benefit from a recovery in Far East economies. The recovery by Far East economies is expected to boost demand for North American commodities including base metals, lumber, grains and fertilizer. Equities of companies producing these commodities already are outperforming the TSX and S&P 500. Also, seasonal influences for these equities are positive into mid-April.

 

Technical Notes for Friday February 26th

Consumer Staples SPDRs (XLP) moved below $63.94 extending an intermediate downtrend.

Junior Gold ETF (GDXJ) moved below $46.93 extending an intermediate downtrend.

Wheaton Precious Metals (WPM), a TSX 60 stock moved below US$37.21 extending an intermediate downtrend.

Pharmaceutical ETF (PPH) moved below $67.47 completing a double top pattern.

Pembina Pipelines (PPL), a TSX 60 stock moved below #33.02 completing a double top pattern. The company announced major non-cash write downs.

U.S. Telecommunications ETF (IYZ) moved below $30.74 completing a double top pattern.

Johnson & Johnson (JNJ), a Dow Jones Industrial Average stock moved below $158.58 completing a double top pattern.

Merck (MRK), a Dow Jones Industrial Average stock moved below $85.60 extending an intermediate downtrend.

Starbucks (SBUX), a Dow Jones Industrial Average stock moved above $107.29 to an all-time high extending an intermediate uptrend.

Algonquin Power (AQN), a TSX 60 stock moved below $19.74 setting an intermediate downtrend.

 

S&P 500 Momentum Barometers

The intermediate Barometer dropped another 4.61 on Friday and 11.42 last week to 55.51. It changed from Overbought to Neutral on a move below 60.00, is trending down and has yet to show signs of bottoming.

The long term Barometer dropped 2.81 on Friday and 8.02 last week to 79.96. It changed from Extremely Overbought to Overbought on a move below 80.00 and continues to trend down.

 

TSX Momentum Barometers

The intermediate Barometer slipped 1.72 on Friday and 6.58 last week to 54.59. It changed from Overbought to Neutral on a drop below 60.00 and is trending down.

The long term Barometer eased 1.32 on Friday and 2.78 last week. It remains overbought and continues to trend 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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