Tech Talk for Monday July 2nd 2018

U.S. equity index futures were lower this morning. S&P 500 futures were down 14 points in pre-opening trade. Futures responded to growing concerns about a trade war after the European Union threatened to impose tariffs valued at $300 billion against U.S. goods.

Adding to futures weakness was the presidential election in Mexico of left-leaning Lopez Obrader.

Constellation Brands dropped $1.24 to $217.63 after Stifel Nicolaus lowered its target price to $224 from $230.

Nordstrom slipped $0.50 to $51.28 after Cowen lowered its target price to $51 from $56.

Walgreen lost $0.31 to $59.70 after Mizuho dropped its target price to $64 from $77.

Chubb (CB $127.02) is expected to open lower after JP Morgan lowered its target price to $160 to 175.

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WITH YOUR HOST, MARK LEIBOVIT – SATURDAY – JUNE 30, 2018

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The Bottom Line

Any strength by U.S. equity markets between now and mid-July will provide a seasonal profit taking opportunity. U.S. equity markets have a history of moving higher from late June to mid-July prior to release of encouraging second quarter corporate results (frequently called "the summer rally"). This year will be helped by strong second quarter corporate results (19% year-over-year gain by S&P 500 companies and a 24% increase by TSX 60 companies (led by the energy sector). Thereafter, seasonal influences turn Negative from the third week in July to mid-October. Caveat emptor!

Seasonal influences are particularly relevant during U.S. Mid-term election years. Volatility in equity markets increases from late April to mid-October due to concerns 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 24 House seats to the opposition party. Anticipation of a possible change, regardless of the final result, is a major reason for a correction in North American equity markets between late April and October.

Ditto for Canadian equities: take seasonal profits on strength between now and mid-July! Seasonal influences for Canadian equity markets follow a similar pattern to the U.S. They normally recover from late June to until mid-July in anticipation of encouraging second quarter corporate results and turn negative until mid-October/ Data shows that the TSX Composite Index has advanced in 13 of the past 20 periods from June 1st to October 12th. However, the seven drops in the past 20 periods were significant: five of the seven drops exceeded 12%. Accordingly, caution by equity investors is advised. Current technical, seasonal and fundamental considerations suggest that a 12% + correction by the TSX Composite Index this summer is higher than average.

Economic News This Week

June Manufacturing ISM to be released at 10:00 AM EDT on Monday is expected to slip to 58.3 from 58.7 in May.

May Construction Spending to be released at 10:00 AM EDT on Monday is expected to increase 0.5% versus a gain of 1.8% in April.

June ADP Employment Report to be released at 8:15 AM EDT on Thursday is expected to increase to 180,000 from 178,000 in May.

June Non-Manufacturing ISM to be released at 10:00 AM EDT on Thursday is expected to slip to 58.2 from 58.6 in May.

June Non-farm Payrolls to be released at 8:30 AM EDT on Friday are expected to slip to 190,000 from 223,000 in May. June Unemployment Rate is expected to remain unchanged at 3.8%. June Hourly Earnings are expected to increase 0.3% versus a gain of 0.3% in May.

May U.S. Trade Deficit to be released at 8:30 AM EDT on Friday is expected to increase to $47.0 billion from $46.2 billion in April.

Canadian May Merchandise Trade Deficit to be released at 8:30 AM EDT on Friday is expected to increase to $3.6 billion from $1.9 billion in April.

Canadian June Unemployment Rate to be released at 8:30 AM EDT on Friday is expected to remains unchanged from May at 5.8%. June Employment is expected to increase 17,500 versus a decline of 7,500 in May.

Earnings News This Week

Monday: Stryker

Thursday: Micron

Observations

Volume on North American equity markets is expected to be lower than average this week due to holidays. Canadian equity markets are closed today to celebrate Canada Day. U.S. equity markets are closed on Wednesday to celebrate Independence Day.

Technical action by individual S&P 500 stocks was bearish once again last week. Number of stocks breaking intermediate resistance totaled 40 (including 16 utility stocks) while number of stocks breaking support totaled 80. Notably, utilities stocks were on the list of breakouts while consumer discretionary, technology and financial stocks were on the list of breakdowns. The Up/Down ratio dropped last week to (228/199=) 1.15 from 1.32.

Earnings news this week is quiet on both sides of the border.

Economic focuses this week are on June employment reports on both sides of the border

Inflationary pressures are rising in the U.S. and Canada (partially because of tariffs that are driving up costs). The Federal Reserve's key inflation metric, the PCE Price Index reached a 6 year high last week. Markets responded. TIPS (Treasury Inflation Protection Notes) measured by the ETF: IPE closed at a 5 year high on Friday. Chances of another 0.25% increase in the Fed Fund rate on August 1st are increasing. Good news for precious metals and related equities!

The U.S. Dollar Index is showing technical signs of rolling over as it enters its seasonal period of weakness at the beginning of July. A change in trend in the U.S. Dollar Index is particularly bullish for energy, precious metals and their related equities/ETFs.

Medium term technical indicators U.S. equity markets (Percent of stocks trading above their 50 day moving average, Bullish Percent Index) trended lower from intermediate overbought levels.

Medium term technical indicators in Canada remained intermediate overbought and have started to trend lower

Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) generally are oversold and showing early signs of bottoming.

Short term technical indicators for Canadian markets and sectors generally turned back upward after a brief period of weakness.

The outlook for S&P 500 earnings and sales remains positive: According to FactSet , earnings and sales estimates moved higher again last week. Second quarter 2018 earnings are expected to increase 20.0% (up from 19.0% last week) on an 8.8% increase in sales (up from 8.7% last week). Third quarter earnings are expected to increase 21.7% (up from 21.4% last week) on a 7.6% increase in sales (up from 7.5% last week). Fourth quarter earnings are expected to increase 17.8% (up from 17.2% last week) on a 5.8% increase in sales. For all of 2018, earnings are expected to increase 20.5% (up from 19.8% last week) on a 7.6% increase in sales.

Short term political concerns remain elevated. Additional proposed tariff U.S. tariffs against Chinese goods valued at $200 billion heightened concerns. Additional proposed 10% tariffs on European cars also added to trade war concerns. Countervailing duties on the U.S. have been announced by Europe, China and Canada (including Canadian tariffs on a wide variety of U.S. goods effective July 1st valued at $16.6 billion as well as $2 billion in government subsidies to support impacted Canadian companies). NAFTA negotiations now appear virtually dead until after the Mexican election on July 1st and the U.S. mid-term election in November. Other issues include impact of revocation of the Iran nuclear weapons agreement (including pressure on users of Iranian oil by the U.S. to halt imports) and increased scrutiny by special council on Russia's influence on the Presidential election. In addition, U.S. mid-term election political rhetoric has started and will ramp up into October.

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for June 29th 2018

Green: Increase from previous day

Red: Decrease from previous day

Technical scores are 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

S&P 500 Index dropped another 36.51 points last week. Intermediate trend remains down. The Index remained below its 20 day moving average. Short term momentum indicators continue to trend down, but are oversold and showing early signs of bottoming.

Percent of S&P 500 stocks trading above their 50 day moving average dropped last week to 53.40 from 63.20. Percent changed to intermediate neutral from intermediate overbought and continues to trend down.

Percent of S&P 500 stocks trading above their 200 day moving average dropped last week to 54.80 from 60.40. Percent changed to intermediate neutral from intermediate overbought and continues to trend down.

Bullish Percent Index for S&P 500 stocks dropped last week to 57.40 from 63.00 and dropped below its 20 day moving average. The Index changed to intermediate neutral from intermediate overbought and continues to trend down.

Bullish Percent Index for TSX stocks dropped last week to 63.82 from 65.45 and dropped below its 20 day moving average. The Index remains intermediate overbought and trending down.

TSX Composite Index fell 172.41 points (1.05%) last week. Intermediate trend remains up Score: 2). Strength relative to the S&P 500 Index remains Positive (Score: 2). The Index moved back above its 20 day moving average on Friday (Score: 1). Short term momentum indicators turned down (Score: -1) but show early signs of bottoming. Technical score slipped last week to 4 from 6.

Percent of TSX stocks trading above their 50 day moving average dropped last week to 61.15 from 68.46. Percent remains intermediate overbought and trending down.

Percent of TSX stocks trading above their 200 day moving average slipped last week to 59.92 from 61.00. Percent has rolled over from an intermediate overbought level.

Dow Jones Industrial Average dropped another 309.48 points (1.26%) last week. Intermediate trend remains down. Strength relative to the S&P 500 remains Negative. The Average remains below its 20 day moving average. Short term momentum indicators are trending down, but are showing early signs of bottoming. Technical score remained last week at -6.

Bullish Percent Index for Dow Jones Industrial stocks dropped last week to 53.33 from 60.00 and remained below its 20 day moving average. The Index is intermediate neutral and trending down.

Bullish Percent Index for NASDAQ Composite stocks dropped last week to 58.10 from 63.60 and moved below its 20 day moving average. The Index has dropped from intermediate overbought to intermediate neutral and has turned down.

NASDAQ Composite Index dropped 182.52 points (2.37%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Negative from Positive. The Index dropped below its 20 day moving average last week. Short term momentum indicators are trending down, but show early signs of bottoming. Technical score dropped last week to -2 from 4.

Russell 2000 Index dropped 42.51 points (2.52%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed last week to Neutral from Positive. The Index moved below its 20 day moving average last week. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 4.

Dow Jones Transportation Average dropped another 428.21 points (3.97%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index remains Negative. The Average remained below its 20 day moving average last week. Short term momentum indicators are trending down. Technical score remained last week at -4.

Australia All Ordinaries Composite Index dropped 32.40 points (0.51%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Positive. The Index remains above its 20 day moving average. Short term momentum indicators are trending higher, but show early signs of peaking. Technical score remained last week at 6.

Nikkei Average dropped 212.32 points (0.09%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index remains Neutral. The Average remained below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -2.

Europe iShares dropped $0.52 (1.15%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Negative. Units remained below their 20 day moving average. Short term momentum indicators are trending down, but show early signs of bottoming. Technical score remained last week at -6.

Shanghai Composite Index dropped another 42.34 points (1.47%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remained Negative. The Index remained below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -6.

Emerging Markets ETF dropped another $0.59 (1.34%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Negative. Units remain below their 20 day moving average. Short term momentum indicators are trending down, but showing early signs of bottoming. Technical score remained last week at -6.

Currencies

The U.S. Dollar Index added 0.17 (0.18%) last week. Intermediate trend remains up. The Index remains above its 20 day moving average. Short term momentum indicators are mixed, but showing early signs of peaking.

The Euro added 0.21 (0.18%) last week. Intermediate trend remains down. The Euro moved above its 20 day moving average on Friday. Short term momentum indicators are mixed, but show early signs of bottoming.

The Canadian Dollar added U.S. 0.73 cents (0.97%) last week. Intermediate trend remains down. The Canuck Buck remains below its 20 day moving average. Short term momentum indicators have turned up.

Japanese Yen dropped 0.60 (0.66%) last week. Intermediate trend remains down. The Yen remains below its 20 day moving average. Short term momentum indicators are trending down.

British Pound fell 0.54 (0.41%) last week. Intermediate trend remains down. The Pound remains below its 20 day moving average. Short term momentum indicators are trending down.

Commodities and related ETFs

Daily Seasonal/Technical Commodities Trends for June 29th 2018

Green: Increase from previous day

Red: Decrease from previous day

The CRB Index gained 2.86 points (1.45%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index changed to Positive from Negative thanks mainly to strength in crude oil prices. Crude remained above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 form -2.

Gasoline gained $0.10 per gallon (4.88%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Positive from Negative. Gas moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 6 from -2.

Crude Oil jumped $5.57 per barrel (8.12%) last week. Intermediate uptrend was confirmed on a move above $72.90. Strength relative to the S&P 500 Index remained Positive. Crude remained above its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

Natural gas slipped $0.02 per MBtu (0.68%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Positive. "Natty" dropped below its 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score slipped last week to 2 from 3.

S&P Energy Index added 5.57 points (1.03%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to Positive from Negative. The Index moved above its 20 day moving average last week. Short term momentum indicators turned higher last week. Technical score increased last week to 2 from -2.

Philadelphia Oil Services Index added 1.72 points (1.12%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Positive from Negative last week. The Index moved above their 20 day moving average last week. Short term momentum indicators have turned up. Technical score increased last week to 6 from -2.

Gold fell $16.20 per ounce (1.27%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains negative. Gold remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -6.

Silver dropped $0.26 per ounce (1.58%) last week. Intermediate trend changed to down from up on a move below $16.07. Strength relative to the S&P 500 Index remains Negative. Silver remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -6.

AMEX Gold Bug Index fell 2.41 points (1.36%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Negative. Silver remains below its 20 day moving average. Short term momentum indicators moved up on Friday. Technical score increased last week to -4 from -6.

Platinum dropped $15.60 per ounce (1.79%) last week. Trend remains down. Relative strength remains Negative. PLAT remains below its 20 day MA. Momentum remains down.

Palladium added $4.50 per ounce (0.48%) last week. Trend remains down. Relative strength remains Negative. PALL remains below its 20 day MA. Momentum remains down.

Copper dropped another 4.1 cents per lb (3.58%) last week. Intermediate trend changed to neutral from up on a move below 3.00. Copper remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from -2.

BMO Base Metals ETF fell $0.41 (3.58%) last week. Intermediate trend changed to down from up on a move below $10.93. Strength relative to the S&P 500 Index remains Negative. Units remain below their 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -6.

Lumber dropped 7.60 (1.36%) last week. Trend remains down. Relative strength changed to Neutral from Negative. Remains below its 20 day MA. Momentum turned up.

Grain ETN dropped $0.63 (2.62%) last week. Trend remains down. Relative strength remains Negative. Trades below its 20 day MA. Momentum remains down.

Agriculture ETF dropped $0.82 (1.30%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Negative. Units remain below their 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at -2.

Interest Rates

Yield on 10 year Treasuries dropped 5.1 basis points (1.76%) last week. Intermediate trend remains neutral. Yield remains below its 20 day moving average. Short term momentum indicators are trending down.

Price of the long term Treasuries ETF added $1.19 (0.99%) last week. Intermediate uptrend was confirmed on Friday when units moved above $122.24. Units remain above their 20 day moving average. Short term momentum indicators are trending up.

Volatility

The VIX Index added 1.32 (9.59%) last week. The Index moved back above its 20 day moving average.

Sectors

Daily Seasonal/Technical Sector Trends for June 29th 2018

Green: Increase from previous day

Red: Decrease from previous day

StockTwits Released on Friday @EquityClock

Technical action by S&P 500 stocks to 10:15: Bullish. Intermediate breakouts: $NKE $KMB $XEC $RIG $VRTX. Breakdowns: $UHS $MDT

Editor's Note: After 10:15 AM EDT, breakouts included WFC, SLG, CELG and TDG. Breakdowns included ULTA, CFG and FAST.

Nike $NKE, a Dow Jones Industrial stock moved above $75.91 extending an intermediate uptrend.

20 Year Treasury Bond iShares $TLT moved above $122.24 extending an intermediate uptrend.

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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