Tech Talk for Monday August 20th 2018

– SATURDAY, AUGUST 18, 2018, WITH YOUR HOST, MARK LEIBOVIT

WITH GUESTS: DON VIALOUX, HENRY WEINGARTEN, HARRY BOXER, JIM ROHRBACH AND SINCLAIR NOE

https://tinyurl.com/yd7zmd3v

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 (Cisco, Wal-Mart), many S&P 500 stocks moved lower, particularly if a company offered negative guidance (Macy's NVIDIA) . Last week, the S&P 500 Index and Dow Jones Industrial Average moved slightly higher and TSX Composite Index moved slightly lower. 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 events were political and economic turmoil in Turkey that threatens to extend into Europe and U.S. trade negotiations with China.

Economic News This Week

Canadian June Retail Sales to be released at 8:30 AM EDT on Wednesday are expected to drop 0.2% versus a gain of 2.0% in May. Excluding auto sales, June Retail Sales are expected to be unchanged versus a gain of 1.4% in May.

July Existing Home Sales to be released at 10:00 AM EDT on Wednesday are expected to increase to 5.40 million from 5.38 million units in June.

FOMC Meeting Minutes from the July 31st -August 1st meeting are released at 2:00 PM EDT on Wednesday

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 215,000 from 212,000 last week.

July New Home Sales to be released at 10:00 AM EDT on Thursday are expected to increase to 645,000 from 631,000 units in June.

Jackson Hole Symposium on the U.S. economy starts late on Thursday.

July Durable Goods Orders to be released at 8:30 AM EDT on Friday are expected to drop 0.6% versus a gain of 0.2% in June. Excluding transportation, July Durable Goods Orders are expected to increase 0.5% versus a gain of 0.2% in June.

Earnings News This Week

Observations

Technical action by individual S&P 500 stocks was mixed again last week. Number of stocks breaking intermediate resistance totaled 43 while number of stocks breaking support totaled 42. The Up/Down ratio increased last week to (281/169=) 1.66 from 1.62.

Frequency of U.S. quarterly reports falls again next week. Focus is on reports by retail merchandisers.

Focus on Canadian quarterly reports is on Canada's banks. Royal Bank starts the stream on Wednesday. Consensus says fiscal third quarter earnings on a year-over-year basis for the top 6 banks will increase 8%. Three on the top six banks are expected to increase their quarterly dividend.

U.S. economic focus this week is on news from the Jackson Hole Symposium. How many increases in the Fed Fund Rate beyond a 0.25% increase on September 26th will occur this year, one or two? Comments by Fed officials at the Symposium will give us a clue.

Canadian economic focuses this week is on June Retail Sales.

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 are trending lower despite gains last week

Medium term technical indicators in Canada last week were unchanged. They remain intermediate neutral and continue to trend lower.

Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) turned higher on Friday.

Short term technical indicators for Canadian markets and sectors also turned higher on Friday.

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.

Trader's Corner

Equities and Related ETFs

Daily Seasonal/Technical Equity Trends for August 17th 2018

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Daily Seasonal/Technical Commodities Trends for August 17th 2018

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for August 17th 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 10:30: Bullish. Breakouts: $VTR $PCAR $CNP $EIX $AWK $PEG $LNT. Breakdowns: TROW $AMAT $GOOGL

Editor's Note: After 10:30, breakouts included UHS, JNJ, PAYX, ARE, HSY, SNA, HPQ, CAH, KMB, DAL and IT. Breakdown: LRCX

Alphabet $GOOGL, one of the FAANG stocks moved below $1216.19 completing a double top pattern.

Most S&P 500 breakouts were utilities stocks: $CNP $EIX $AWK $PEG $LNT $XLU

FirstService Corp. $FSV.CA moved above $112.60 to an all-time high extending an intermediate uptrend.

Johnson & Johnson $JNJ, a Dow Jones Industrial stock moved above $1.33.00 extending an intermediate uptrend.

Fortis $FTS.CA moved above $43.16, $43.18 and $43.39 completing a double bottom pattern.

Restaurant Brands International $QSR.CA $QSR, a TSX 60 stock moved below $80.30 Cdn. completing a double top pattern.

BMO Equal Weight Bank ETF $ZEB.CA moved above $30.07 to an all-time high extending an intermediate uptrend. 'Tis the season for strength until the end of November!

MSCI Israel ETF $EIS moved above $54.59 to an all-time high extending an intermediate uptrend.

Transportation factors prominently behind strength in Canada #CPI. Public transportation, typically a steady category, up 11.2%! #CDNecon

Canada CPI up 0.5% (NSA) in July, well above the 0.1% increase that is average for the month. $MACRO #CDNecon #CAD

S&P 500 Momentum Barometer

The Barometer added 3.60 to 67.20 on Friday (and 4.40 last week). It remains intermediate overbought and trending down.

TSX Momentum Barometer

The Barometer added 0.41 to 49.38 on Friday (and unchanged last week). 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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