Timing the market

Your daily source for reloable market analysis

Send me real-time posts from this site at my email

Tech Talk for Monday November 23rd 2020

 

The Bottom Line

Most major equity indices around the world were mixed last week. Greatest influences remain growing evidence of a second wave of the coronavirus (negative) and possible approval 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.

Results of the recent U.S. President and Congressional elections suggest that history by U.S. equity indices between Election Day and Inauguration Day is repeating. Biden became President, control of the Senate remained Republican with a smaller majority and control of the House of Representatives remained Democrat 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 Georgian 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 Georgian seats previously were 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. 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, higher regulation and higher government control over the economy. U.S. equity markets will respond accordingly to the downside. Meanwhile, look for higher than average volatility in U.S. equity markets between now and January 5th as various polls on the Georgian senate seats are released. The proverbial “Santa Claus rally” from mid-December to the first week in January may not happen this year.

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 last week. It changed from extremely intermediate overbought to intermediate overbought and has rolled over. See Barometer chart at the end of this report.

Medium term technical indicator for Canadian equity markets moved slightly lower 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 slightly lower last week.

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

Year-over-year 2020 consensus earnings and revenues declines by S&P 500 companies ebbed again last west. According to www.FactSet.com, third quarter earnings are expected to fall 6.3% (versus a decline of 7.1% last week) and revenues are expected to slip 1.3% (versus previous decline of 1.6%). Fourth quarter earnings are expected to drop 10.6% (versus previous decline of 10.8%) and revenues are expected to decline 0.2%. Earnings for all of 2020 are expected to fall 14.2% (versus previous decline of 14.5%) and revenues are expected to decline 2.0%.

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 www.FactSet.com earnings in the first quarter of 2021 are expected to increase 14.2% (versus previous estimate at 14.5% and revenues are expected to increase 3.4% (versus previous estimate at 3.3%). Earnings in the second quarter are expected to increase 44.0% (versus previous increase of 43.9%) and revenues are expected to increase 13.5% (versus previous increase of 13.6%. Earnings for all of 2021 are expected to increase 21.9% (versus previous increase of 22.1%) and revenues are expected to increase 7.7% (versus previous increase of 7.8%).

Thanksgiving holiday in the U.S. is observed on Thursday. U.S. equity markets are closed. Trading activity on U.S. equity markets will be below average on Wednesday and Friday. Trading activity on Canadian equity markets will be below average on Thursday.

 

Economic News This Week

October Durable Goods Orders to be released at 8:30 AM EST on Wednesday are expected to increase versus a gain of 1.9% in September. Excluding Transportation Orders, consensus for October Durable Goods Orders are expected to increase 0.4% versus a gain of 0.9% in September.

Next estimate of third quarter U.S. real annualized GDP to be released at 8:30 AM EST on Wednesday is an increase to 33.2% from the previous estimate of 33.1%/

October Personal Income to be released at 8:30AM EST on Wednesday is expected to increase 0.4% versus a gain of 0.9% in September. October Personal Spending is expected to increase 0.7% versus a gain of 1.4% in September.

November Michigan Consumer Sentiment to be released at 10:00 AM EST on Wednesday is expected to increase to78.0 from 77.0 in October.

October New Home Sales to be released at 10:00 AM EST on Wednesday are expected to increase to 970,000 from 959,000 in September.

FOMC Meeting Minutes are released at 2:00 PM EST on Thursday.

 

Selected Earnings News This Week

Another 13 S&P 500 companies are scheduled to report quarterly earnings next week: 95% of S&P 500 companies have reported to date. 84% of S&P 500 companies have reported higher than consensus quarterly earnings and 78% have reported higher than consensus quarterly revenues.

 

Trader’s Corner

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for November 20th 2020

Green: Increase from previous day

Red: Decrease from previous day


Commodities

Daily Seasonal/Technical Commodities Trends for November 20th 2020

Green: Increase from previous day

Red: Decrease from previous day

 

Sectors

Daily Seasonal/Technical Sector Trends for November 20th 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

Note that Far East equity markets have started to outperform U.S. and European equity markets.

 

S&P 500 Momentum Barometer

The Barometer slipped 1.80 to 79.56 on Friday and 5.21 last week. It changed from extremely intermediate overbought to intermediate overbought on a move below 80.00 and has rolled over.

 

TSX Momentum Barometer

The Barometer added 1.56 to 68.22 on Friday, but slipped 1.12 last week. 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

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue