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Tech Talk for Monday May 11th 2020

 

The Bottom Line

Equity markets moved higher again last week. North American equity markets advanced from intermediate neutral to intermediate overbought. Spread of the coronavirus continues to be a major influence on equity prices. The VIX Index remains elevated.

Buy when it snows, sell when it goes”! The expression originally appeared in my CMT thesis written in 1992. The thesis noted that since 1950 volatility in North American equity indices is higher each year from end-of-April to mid-October, but percent return during the period averages close to zero with some periods slightly higher and some periods slightly lower. Virtually all of North American equity returns are realized each year from mid-October to the end of April. On Friday, it briefly snowed in southern Ontario. An omen??

What about this year? Current equity North American equity indices suggest that history is about to repeat, implying continuation of higher than average volatility and little or no return by equity indices between now and mid-October. However, selected sector opportunities exist between end- of-April and mid-October this year, notably in the Healthcare and Precious Metals sectors. Both sectors were highlighted in Jon Vialoux’s Money Show presentation on Thursday.

Observations

The VIX Index (better known as the Fear Index) peaked in the third week in March, typical of a recovery phase for the U.S. equity market. However, it remains elevated..

Seasonal influences for U.S., European and Far East equity indices historically have reached a peak in late April or early May. Canadian equity indices are the exception with a seasonal peak in late May.

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Medium term technical indicators for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 50 day moving average) moved from intermediate neutral to intermediate overbought last week. See Barometer chart at the end of this report.

Medium term technical indicators for Canadian equity markets also moved from intermediate neutral to intermediate overbought last week. See Barometer chart at the end of this report.

Most short term short term momentum indicators for U.S. markets and sectors (20 day moving averages, short term momentum indicators) turned higher last week. Most sectors and indices remain above their 20 day moving average. In addition, most sectors and indices recorded an improvement in momentum.

Short term momentum indicators for Canadian markets and sectors also turned higher last week.

Year-over-year consensus earnings for S&P 500 companies were reduced significantly again last week in recognition of a greater impact by the coronavirus: 86% of companies have released quarterly results to date. According to FactSet, blended first quarter 2020 earnings have dropped 13.6% (versus a decline of 13.7% last week) and blended revenues increased 0.6% (versus an increase of 0.7% last week). Second quarter 2020 earnings are expected to fall 40.6% (versus a drop of 36.7% last week) and revenues are expected to drop 10.9% (versus a drop of 9.5% last week). Third quarter earnings are expected to fall 23.0% (versus a fall of 20.1% last week) and revenues are expected to decrease 5.2% (versus a decline of 4.3% last week). Fourth quarter earnings are expected to decrease 11.4% (versus a decrease of 9.4% last week) and revenues are expected to decline 1.2% (versus a decline of 0.5% last week). Earnings for all of 2020 are expected to decrease 19.7% (versus a previous decrease of 17.0%) and revenues are expected to decrease 3.4% (versus a previous decrease of 2.9%). Earnings for all of 2021 are expected to increase 26.9% and revenues are expected to increase 8.5%.

 

Economic News This Week

April Consumer Price Index to be released at 8:30 AM EDT on Tuesday is expected to decline by 0.7% versus a drop of 0.4% in March. Excluding food and energy, April Consumer Price Index is expected to slip 0.2% versus a gain of 0.1% in March.

April Producer Price Index to be released at 8:30 AM EDT on Wednesday is expected to slip 0.5% versus a drop of 0.2% in March. Excluding food and energy, April Producer Price Index is expected to be unchanged versus a gain of 0.2% in March

May Empire State Manufacturing Survey to be released at 8:30 AM EDT on Friday is expected to drop 65.00 versus a decline of 78.20 in April.

April Retail Sales to be released at 8:30 AM EDT on Friday are expected to drop 12.0 versus an 8.4% decline in March. Excluding auto sales, April Retail Sales are expected to drop 8.6% versus a drop of 4.2% in March.

April Industrial Production to be released at 9:15 AM EDT on Friday is expected to drop 11.0% versus a decline of 5.4% in March. April Capacity Utilization is expected to drop to 65.0% from 72.7% in March.

March Business Inventories to be released at 10:00 AM EDT on Friday are expected to slip 0.3% versus a decline of 0.4% in February.

May Michigan Consumer Sentiment to be released at 10:00 AM EDT on Friday is expected to decline to 68.0 from 71.8 in April.

 

Selected Earnings Reports This Week

Another 21 S&P 500 companies (including one Dow Jones Industrial company) are expected to report this week.

 

 

 

Trader’s Corner

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for May 8th 2020

Green: Increase from previous day

Red: Decrease from previous day

 

Commodities

Seasonal/Technical Commodities Trends for May 8th 2020

Green: Increase from previous day

Red: Decrease from previous day

 

Sectors

Daily Seasonal/Technical Sector Trends for May 8th 2020

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

Idexx Labs $IDXX, a NASDAQ 100 stock moved above $296.25 to an all-time high extending an intermediate uptrend.

Base Metals ETN $DBB, one third each in copper, zinc and aluminum moved above $12.80 completing a double bottom pattern.

Monster Beverages $MNST, a NASDAQ 100 stock moved above $64.44 resuming an intermediate uptrend.

Silver Miners ETF $SIL moved above $33.75 resuming an intermediate uptrend.

Mexico iShares $EWW moved above $30.81 completing a double bottom pattern.

 

S&P 500 Momentum Barometer

The Barometer advanced last week from 53.91 to 75.95. It moved from intermediate neutral to intermediate overbought on a move above 60.00.

 

TSX Momentum Barometer

The Barometer advanced last week from 50.66 to 72.32. It moved from intermediate neutral to intermediate overbought on a move above 60.00.

 

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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