Tech Talk for Monday May 28th 2018

The TSX Composite Index is expected to open slightly lower this morning. The Index is expected to respond to drop in the price of crude oil, down another $0.98 to $66.90 per barrel in overnight trade. Russia and OPEC reportedly are considering an increase in oil production.

Trading activity on Canadian markets is expected to be quiet today in response to closed U.S markets for their Memorial Day holiday.

The Bottom Line

First quarter results by a wide variety of U.S. and Canadian companies were spectacular. S&P 500 companies have reported a year-over year gain of 24.6%. Despite results, responses by U.S. equity markets remained muted. The S&P 500 Index and Dow Jones Industrial Average were slightly lower than levels set ten weeks ago. Short and intermediate term technical indicators remain overbought and some are showing early signs of peaking.

U.S. equity markets have a history of reaching a seasonal peak at this time of year. The first week in May historically is the week when U.S. equity indices, commodities and sectors change their seasonality from Positive to Neutral/Negative. Subsequently seasonal influences regularly turn Negative in the third week in July and bottom in mid-October. This year, seasonal influences have varied slightly mainly due to unusual strength in the energy sector triggered by non-recurring geopolitical events. Last week, technicals on the energy sector turned lower.

Seasonal influences are particularly relevant in 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.

Seasonal influences for a wide variety of equity markets have a history of peaking at this time of year including Chinese, Japanese and most European equity markets Last week, weakness was particularly notable in emerging markets and related ETFs.

Seasonal influences for Canadian equity markets follow a similar pattern. They normally peak near the end of May, turn neutral until mid-July and turn negative until mid-October. History is about to repeat. Short and intermediate technical indicators for the Canadian equity market already are overbought and are showing early signs of peaking.

Economic News This Week

May Consumer Confidence Index to be released at 10:00 AM EDT on Tuesday is expected to slip to 128.1 from 128.7 in April

May ADP Employment Report to be released at 8:15 AM EDT on Wednesday is expected to drop to 186,000 from 204,000 in April.

Next estimate of First Quarter U.S. GDP to be released at 8:30 AM EDT on Wednesday is expected to slip to 2.2% from the previous estimate at 2.3%.

U.S. April Trade Deficit to be released at 8:30 AM EDT on Wednesday is expected to increase to $71.0 billion from 68.0 billion in March.

Bank of Canada Policy Announcement is released at 10:00 AM EDT on Wednesday. No change in the overnight lending rate is anticipated.

Beige Book is released at 2:00 PM EDT on Wednesday.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to drop to 224,000 from 234,000 last week.

April Personal Income to be released at 8:30 AM EDT on Thursday is expected to increase 0.3% versus a gain of 0.3% in March. April Consumer Spending is expected to increase 0.4% versus a gain of 0.4% in March.

Canadian First Quarter GDP to be released at 8:30 AM EDT on Thursday is expected to grow at a 2.0% annual rate versus growth at a 1.7% rate in the fourth quarter. March GDP is expected to increase 0.2% versus a gain of 0.4% in February.

May Chicago PMI to be released at 9:45 AM EDT on Thursday is expected to increase to 58.1 from 57.3 in April.

May Non-farm Payrolls to be released at 8:30 AM EDT on Friday are expected to increase to 185,000 from 164,000 in April. May Unemployment Rate is expected to remain unchanged from April at 3.9%. May Hourly Earnings are expected to increase 0.3% versus a gain of 0.1% in April..

May Manufacturing ISM to be released at 10:00 AM EDT on Friday is expected to increase to 58.1 from 57.3 in April.

April Construction Spending to be released at 10:00 AM EDT is expected to increase 0.8% versus a 1.7% drop in March.

Earnings News This Week

Observations

U.S. markets are closed today.

Technical action by individual S&P 500 stocks was modestly bullish last week. Number of stocks breaking intermediate resistance totaled 26 while number of stocks breaking support totaled 14. Notably, health care stocks were on the list of breakouts. The Up/Down ratio increased last week to (220/208=) 1.06 from 1.03.

Earnings focuses this week once again are on U.S. retail merchandisers and Canadian banks.

Medium term technical indicators in the U.S. (Percent of stocks trading above their 50 day moving average, Bullish Percent Index) remained at or near overbought levels last week and showed early signs of peaking.

Medium term technical indicators in Canada remained in upward trends last week and remained overbought.

Short term technical indicators for U.S. and Canadian equity markets, commodities and most sectors (20 day moving averages, short term momentum) began to roll over from overbought levels

The outlook for S&P 500 earnings and sales remains positive: According to FactSet, 97% of companies have reported first quarter results. Another 8 companies are scheduled to report this week. To date, 78% beat consensus earnings estimates and 77% beat consensus sales estimates. Earnings and sales estimates rose slightly again last week. First quarter 2018 earnings are expected to increase 24.6% on an 8.5% increase in sales. Second quarter 2018 earnings are expected to increase 18.8% on an 8.6% increase in sales. Third quarter earnings are expected to increase 21.1% on a 7.4% increase in sales. Fourth quarter earnings are expected to increase 16.9% on a 5.8% increase in sales. For all of 2018, earnings are expected to increase 19.6% (versus 19.4% last week) on a 7.5% increase in sales (versus 7.3% last week).

Short term political uncertainties remain NAFTA negotiations, North Korean negotiations, rising trade war fears (particularly against China), impact of revocation of the Iran nuclear weapons agreement and increased scrutiny by special council on Russia's influence on the Presidential election. In addition, Mid-term election political rhetoric normally starts to ramp up in June culminating in October.

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for May 25th 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 gained 8.36 points (0.31%) last week. Intermediate trend remains down. The Index remains above its 20 day moving average. Short term momentum indicators are trending up, but are overbought and showing early signs of peaking.

Percent of S&P 500 stocks trading above their 50 day moving average increased last week to 61.80 from 57.80. Percent returned to intermediate overbought from intermediate neutral.

Percent of S&P 500 stocks trading above their 200 day moving average increased last week to 60.52 from 59.80. Percent returned to intermediate overbought.

Bullish Percent Index for S&P 500 stocks increased last week to 58.60 from 57.80 and remained above its 20 day moving average. The Index remains intermediate neutral, but showing early signs of peaking.

Bullish Percent Index for TSX stocks dropped last week to 61.45 from 63.60, but remained above its 20 day moving average. The Index remains intermediate overbought and showing early signs of peaking.

TSX Composite Index slipped 86.64 points (0.54%) last week. Intermediate trend remains up (Score: 2). Strength relative to the S&P 500 Index changed to Neutral from Positive on Friday. (Score: 0). The Index remains above its 20 day moving average (Score: 1). Short term momentum indicators have turned down (Score: -1). Technical score slipped last week to 2 from 6.

Percent of TSX stocks trading above their 50 day moving average slipped last week to 71.49 from 72.02. Percent remains intermediate overbought and showing early signs of peaking.

Percent of TSX stocks trading above their 200 day moving average dropped last week to 54.55 from 56.38. Percent is intermediate neutral and showing early signs of peaking.

Dow Jones Industrial Average added 38 points (0.15%) last week. Intermediate trend remains down. Intermediate trend remains down. Strength relative to the S&P 500 Index remained Neutral. The Average remained above its 20 day moving average. Short term momentum indicators have turned down. Technical score dropped last week to -2 from 0.

Bullish Percent Index for Dow Jones Industrial stocks increased last week to 63.33% from 60.00 and remained above its 20 day moving average. The Index remains intermediate overbought.

Bullish Percent Index for NASDAQ Composite stocks increased last week to 60.86 from 60.17 and remained above its 20 day moving average. The Index remains intermediate overbought.

NASDAQ Composite Index gained 79.51 points (1.08%) 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 up. Technical score remained last week at 6.

Russell 2000 Index added 0.30 (0.02%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. The Index remained above its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

Dow Jones Transportation Average added 169.60 points (1.58%) last week. Intermediate trend remains Neutral. Strength relative to the S&P 500 Index changed to Positive from Neutral. The Average remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 from 2.

Australia All Ordinaries Composite Index dropped 49.90 points (0.81%) last week. Intermediate trend remains Neutral. Strength relative to the S&P 500 Index changed last week to Negative from Neutral. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from 0.

Nikkei Average dropped 479.57 points (2.09%) last week. Intermediate trend remained Neutral. Strength relative to the S&P 500 Index changed to Negative from Positive. The Average dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from +4.

Europe iShares dropped $0.98 (1.96%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index remains Negative. Units dropped below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from -2

Shanghai Composite Index dropped 52.00 points (1.63%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Neutral. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from 0

Emerging Markets iShares added $0.36 (0.78%) 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.

Currencies

The U.S. Dollar Index gained another 0.59 (0.63%) last week. Intermediate trend remains up. The Index remains above its 20 day moving average. Short term momentum indicators are trending up.

The Euro dropped 1.04 (0.88%) last week. Intermediate trend remains down. The Euro remains below its 20 day moving average. Short term momentum indicators are trending down.

Canadian Dollar dropped U.S. 0.57 cents (0.73%) last week. Intermediate trend remains down. The Canuck Buck dropped below its 20 day moving average. Short term momentum indicators are trending down.

Japanese Yen added 1.04 (1.15%) last week. Intermediate trend remains up. The Yen moved above its 20 day moving average. Short term momentum indicators are trending up.

British Pound dropped 1.65 (1.22%) last week. Intermediate trend remained 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 May 25th 2018

Green: Increase from previous day

Red: Decrease from previous day

CRB Index slipped 0.35 (0.11%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Neutral. The Index dropped below its 20 day moving average on Friday. Short term momentum indicators have turned down. Technical score dropped last week to 0 from 4.

Gasoline dropped $0.06 cents per gallon (2.69%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Positive. Gas moved below its 20 day moving average on Friday. Short term momentum indicators have turned down. Technical score dropped last week to 2 from 6.

Crude Oil dropped $3.49 per barrel (4.89%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Negative from Positive on Friday. Crude dropped below its 20 day moving average on Friday. Short term momentum indicators have turned down. Technical score dropped last week to -2 from 6.

Natural Gas gained $0.11 per MBtu (3.86%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Positive from Neutral. "Natty" remains above its 20 day moving average. Short term momentum indicators are trending up. Technical score remained last week at 6.

S&P Energy Index dropped 26.08 points (4.54%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index turned Negative on Friday. The Index dropped below its 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 6.

Philadelphia Oil Services Index dropped 12.81 points (7.58%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index turned Negative on Friday. The Index dropped below its 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 6.

Gold added $12.40 per ounce (0.96%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index remains Negative. Gold remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score improved last week to -2 from -4.

Silver added $0.10 (0.61%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to Neutral from Negative. Silver moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 2 from -6.

AMEX Gold Bug Index added 2.45 points (1.38%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index improved to Neutral from Negative. The Index moved above its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to 2 from -4.

Platinum added $14.80 per ounce (1.67%) last week. Trend remains down. Relative strength remains Negative. Dropped below its 20 day MA on Friday. Momentum turned up.

Palladium added $16.60 per ounce (1.73%) last week. Trend remains down. Relative strength improved to Neutral from Negative. Moved above its 20 day MA. Momentum remains down.

Copper added 1.5 cents per lb (0.49%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed to Neutral from Negative. Copper closed at its 20 day moving average. Short term momentum indicators are trending up.

BMO Base Metals ETF dropped $0.52 (4.33%) last week. Intermediate trend remains down. Strength relative to the S&P changed to Negative from Neutral. Units dropped below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -6 from 2.

Lumber dropped $24.70 (3.96%) last week. Trend remains up. Relative strength changed to Neutral from Positive. Moved back above its 20 day MA on Friday. Momentum turned down.

Grain ETN added 1.01 (3.77%) last week. Trend remains up. Relative strength changed to Neutral from Negative. Units moved above their 20 day MA. Momentum: up

Agriculture ETF slipped $0.16 (0.25%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Neutral. Units remain above their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 2 from 4.

Interest Rates

Yield on 10 year Treasuries dropped 13.6 basis points (4.43%) last week. Intermediate trend remains up. Yield dropped below its 20 day moving average. Short term momentum indicators are trending down.

Price of the long term Treasury ETF gained $2.41 (2.06%) last week. Intermediate trend remains down. Units moved above their 20 day moving average. Short term momentum indicators are trending up.

Volatility

The VIX Index slipped 0.13 (1.72%) last week. Intermediate trend remains down. The Index remains below its 20 day moving average.

Sectors

Daily Seasonal/Technical Sector Trends for May 25th 2018

Green: Increase from previous day

Red: Decrease from previous day

StockTwits Released on Friday @EquityClock

Technical action by S&P 500 stocks to 10:00: Mixed. Intermediate breakouts: $FL $SYY $LH $LLY $PEG. Breakdowns: $FTI $HAL $DXC

Italy iShares $EWI moved below $30.74 responding to the Italian election.

Canadian "gassy" stocks not responding to higher natural gas prices. Breakdowns by $ARX.CA $PSK.CA $CR.CA

Wheat ETN $WEAT moved below $7.04 extending an intermediate uptrend. Dryer than average soil conditions on the Prairies.

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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