Tech Talk for Monday August 13th 2018
U.S. equity index futures were lower this morning. S&P 500 futures were down 2 points in pre-opening trade. Index futures are responding to an additional 8% drop in the Turkish Lira in overnight trading.
VF Corp. (VFC $96.29) is expected to open lower after announcing spin off its jeans division into a separate publicly traded unit.
Deere (DE $137.05) is expected to open lower after JP Morgan lowered its target price to $145 from $154
Caterpillar (CAT $135.92) is expected to open higher after JP Morgan raised its target price to $188 from $180.
TJX (TJX $100.70) is expected to open higher after JP Morgan raised its target price to $110 from $95.
EquityClock's Daily Market Comment
Following is a link:
http://www.equityclock.com/2018/08/10/stock-market-outlook-for-august-13-2018/
Note seasonality charts on 10 year Treasury Notes, U.S. Dollar Index, U.S. Consumer Price Index, Canadian Employment and the Pharmaceutical Industry.
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The Bottom Line
The summer swoon in North American equity markets continued last week. Seasonal influences normally turn Negative from the third week in July to mid-October. More signs of a seasonal peak appeared last week. Second quarter earnings reports were strong as anticipated. Earnings by S&P 500 companies released to date were up 24.6%. However, unless a company offered positive guidance (Mosaic Wendy's), many S&P 500 stocks moved lower, particularly if a company offered negative guidance (Magna International, Booking Holdings) . Last week, the S&P 500 Index, Dow Jones Industrial Average and TSX Composite Index moved slightly lower with the entire decline occurring on Friday on Turkish fears. The TSX Composite Index reached an intermediate peak on July 13th.
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 mid-July and October. Note that the largest drop during a mid-term election year is from mid-August to the end of September.
Ditto for Canadian equities! Seasonal influences for Canadian equity markets follow a similar pattern to the U.S. They normally are negative from the third week in July to mid-October. To date, the TSX Composite Index has closely followed this pattern.
Weakness in North American equity markets during the late July/early October period is related to increased volatility triggered by non-recurring unusual events. Last week, the non-recurring unusual event was political and economic turmoil in Turkey that threatens to extend into Europe. On Friday, the VIX Index jumped 16.8% to 13.16%.
Economic News This Week
August Empire State Manufacturing Survey to be released at 8:30 AM EDT on Wednesday is expected to slip to 20.00 from 22.60 in July.
July Retail Sales to be released at 8:30 AM EDT on Wednesday are expected to increase 0.1% versus a gain of 0.5% in June. Excluding auto sales, July Retail Sales are expected to increase 0.3% versus a gain of 0.4% in June.
July Capacity Utilization to be released at 9:15 AM EDT on Wednesday is expected to increase to 78.2 from 78.0 in June. July Industrial Production is expected to increase 0.3% versus a gain of 0.6% in June.
June Business Inventories to be released at 10:00 AM EDT on Wednesday are expected to increase 0.1% versus a gain of 0.4% in May.
July Housing Starts to be released at 8:30 AM EDT on Thursday are expected to increase to 1.260 million units from 1.173 million units in June.
Weekly Initial Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 216,000 from 213,000 last week.
August Philly Fed Index to be released at 8:30 AM EDT on Thursday is expected to slip to 22.0 from 25.7 July.
Canadian July Consumer Prices to be released at 8:30 AM EDT on Friday are expected to increase 0.1% versus a gain of 0.1% in June.
Earnings News This Week
Observations
Technical action by individual S&P 500 stocks was mixed last week. Number of stocks breaking intermediate resistance totaled 30 while number of stocks breaking support totaled 21. The Up/Down ratio increased last week to (282/174=) 1.62 from 1.61.
Frequency of U.S. quarterly reports falls again next week: 91% of S&P 500 companies have reported second quarter results to date. Another 13 S&P 500 companies (including three Dow Jones Industrial company: Home Depot, Cisco, Wal-Mart) are scheduled to release second quarter results.
U.S. economic focuses this week are on Retail Sales on Wednesday and Housing Starts on Friday.
Canadian economic focuses this week is on Consumer Prices to be reported on Friday.
Medium term technical indicators for U.S. equity markets (e.g. Percent of stocks trading above their 50 day moving average, Bullish Percent Index) remain intermediate overbought and moved lower last week.
Medium term technical indicators in Canada last week remain intermediate neutral and continued to move lower last week
Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) turned notably lower on Friday.
Short term technical indicators for Canadian markets and sectors also continued to trend lower last week.
The outlook for S&P 500 earnings and sales remains positive: According to FactSet, 91% of S&P 500 stocks have reported second quarter results to date: 79% have reported higher than consensus earnings and 72% have reported higher than consensus sales. Second quarter 2018 earnings on a year-over-year basis are up 24.6% (up from 24.0% last week) and sales are 9.9% (up from 9.8% increase last week). However, analysts slightly lowered earnings and sales guidance thereafter. Third quarter earnings are expected to increase 20.3% (down from 20.7%) on a 7.7% increase in sales. Fourth quarter earnings are expected to increase 17.6% (down from 17.8%) on a 5.9% increase in sales (down from 6.0%). First quarter 2019 earnings are expected to increase 7.3% on a 6.2% increase in sales. Second quarter 2019 earnings are expected to increase 7.8% (down from 8.2%) on a 4.6% increase in sales.
Short term political concerns remain elevated. Issues include heightened tariff wars, stalled NAFTA negotiations and the ramp up of U.S. mid-term election political rhetoric. Added to the list is currency instability that surfaced on Friday triggered by a political and economic crisis in Turkey. The Euro completed a Head & Shoulders pattern on Friday on a move below 115.19. Turkey's Lira dropped 15% on Friday and Turkey iShares plunged 14.53%.
Trader's Corner
Equities and Related ETFs
Daily Seasonal/Technical Equity Trends for August 10th 2018
Green: Increase from previous day
Red: Decrease from previous day
Commodities
Daily Seasonal/Technical Commodities Trends for August 10th 2018
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for August 10th 2018
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
Technical action by S&P 500 stocks to 10:00: Bearish. Breakouts: $CCL $ESRX $CMS $EVRG. Breakdowns: $AMP $ADI $BK $STT $MCHP $FCX.
The Euro broke support at 115.19 completing a Head & Shoulders pattern. $XEU
Italy iShares $EWI moved below $27.79 extending an intermediate downtrend. Currency fears?
Chile iShares $ECH moved below $45.24 extending an intermediate downtrend. Lower copper prices take their toll.
South Korea iShares $EWY moved below $64.89 extending an intermediate downtrend.
Steel ETF $SLX moved below $44.59 completing a Head & Shoulders pattern.
Metals & Mining ETF $XME moved below $34.71 setting an intermediate downtrend.
SNC Lavalin $SNC.CA, a TSX 60 stock moved below $53.33 extending an intermediate downtrend. Saudi contract concerns?
Recipe Unlimited $RECP.CA, formerly Cara moved above $29.77 extending an intermediate uptrend.
Inter Pipeline $IPL.CA, a TSX 60 stock moved below $24.11 completing a double top pattern.
BCE Inc. $BCE.CA, a TSX 60 stock moved below support at $53.15
S&P 500 Index pulling back from rising trend channel resistance.
equityclock.com/2018/08/10/… $SPX $SPY $ES_F
Canada employment down 0.2% (NSA) in July. Average is for no change in this summer month. $MACRO #CDNecon #CAD
US CPI unchanged (NSA) in July, less than the 0.1% increase that is average. $MACRO #Economy #Inflation
S&P 500 Momentum Barometer
The Barometer dropped 5.80 to 62.80 on Friday. It remains intermediate overbought and rolling over.
TSX Momentum Barometer
The Barometer dropped 3.12 to 49.38 on Friday. It remains intermediate neutral and trending 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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