Tech Talk for Monday December 21st 2020

Morning Technical Notes for Monday December 21st

Kinder Morgan (KMI), an S&P 100 stock moved below $14.00 completing a double top pattern.

Alphabet (GOOG GOOGL) an S&P 100 stock moved below $1717.30 and $1710.18 respectively completing a double top pattern.

Industrial SPDRs (XLI) moved below $87.53 completing a double top pattern.

Southern Companies (SO), an S&P 100 stock moved below $59.46 completing a double top pattern.

Duke Power (DUK), an S&P 100 stock moved below $87.53 completing a Head & Shoulders pattern.

JP Morgan (JPM), a Dow Jones Industrial Average stock moved above $123.50 extending an intermediate uptrend. The company announced a new share buyback program.

TSX CapREIT ETF (XRE.TO) moved below $16.15 completing a double top pattern.

Power Corp (POW), a TSX 60 stock moved below $28.87 completing a double top pattern.

Brookfield Infrastructure (BIP/UN), a TSX 60 stock moved below $63.31 completing a double top pattern.

Pre-opening Comments for Monday December 21st

U.S. equity index futures were lower this morning. S&P 500 futures were down 64 points in pre-opening trade. Index futures are responding to news that a more virulent form of COVID 19 has surfaced in the U.K.

Tesla dropped $25.99 to $669.40 despite inclusion into the S&P 500 Index this morning. CFRA downgraded the stock from Strong Buy to Neutral.

Walmart slipped $0.18 to $145.95 despite an upgrade by RBC Capital from Sector Perform to Outperform.

Microsoft (MSFT $218.59) is expected to open lower despite an upgrade by Citigroup from Neutral to Buy

EquityClock's Daily Comment

Following is a link:

http://www.equityclock.com/2020/12/19/stock-market-outlook-for-december-21-2020/

The Bottom Line

Most major equity indices around the world moved slightly higher last week. Greatest influences remain growing evidence of a second wave of the coronavirus (negative) and timing of distribution 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. Since Election Day this year, the S&P 500 Index has gained 10.1% and the TSX Composite Index has increased.10.0%.

History by U.S. equity indices between Election Day and Inauguration Day is repeating. Biden was confirmed to be President last week, control of the Senate remains Republican with a smaller majority and control of the House of Representatives remains 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 Georgia 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 Georgia seats currently are 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. Latest poll results are available at https://projects.fivethirtyeight.com/georgia-senate-polls/ 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 spending and control over the economy. U.S. equity markets initially will respond to Democrat control by moving lower and gold price will move higher. Meanwhile, look for higher than average volatility in U.S. equity markets between now and January 5th as various polls on the Georgia senate seats are released.

The "Santa Claus rally" is working so far. The rally period normally occurs from December 14th to January 6th. The S&P 500 Index has gained in 22 of the past 30 periods since 1990 for an average return per period of 1.53%. The TSX Composite has gained in 25 of the past 30 periods for an average return per period of 2.13%. Reasons for the Santa Claus rally include yearend "window dressing" by institutional investors, favourable comments by investment dealers about prospects for next year, end of tax loss selling pressures by individual investors, investment of yearend bonuses received by individual investors (frequently placed into RRSPs in Canada and 401K accounts in the U.S.) and a buoyant investment attitude by all investors related to the Christmas/New Year season.

What about the "Santa Claus Hangover? Following is a recent video by Larry Williams that explains the "Santa Claus Rally" as well as the "Santa Claus Hangover" in the U.S. equity market from January 7th to mid-February.

Santa Claus Rally Exposed | Larry Williams | Real Trading Special (12.07.20) – YouTube

On average, the S&P 500 Index during the past 20 years has dropped 1.5% per period from January 7th to mid-February (i.e. gave up gains during the Santa Claus Rally) This is the time of year when U.S. consumers and investors are paying down debts accrued during the Santa Claus Rally period.

Note that the "Santa Claus Hangover" normally does not happen in the Canadian equity market. The main reason: Canadian investors focus on contributing to their RRSPs during the first 60 days in the New Year and subsequently invest funds into the equity market. Strongest period in the year for the TSX Composite Index relative to the S&P 500 Index is from mid-December to the first week in March.

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 slightly higher last week. It changed from intermediate overbought to extremely intermediate overbought on a move back above 80.00%. See Barometer chart at the end of this report.

Medium term technical indicator for Canadian equity markets was virtually unchanged 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) recovered last week, but returned to elevated levels.

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

Year-over-year 2020 consensus earnings declines by S&P 500 companies ebbed again last week. According to www.FactSet.com, fourth quarter earnings are expected to drop 9.7% on a year-over-year basis (versus previous decline of 9.9%) and revenues are expected to increase 0.1%. Earnings for all of 2020 are expected to fall 13.6% (versus previous decline of 13.7%) and revenues are expected to decline 1.8%.

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 15.6% (versus previous estimate at 15.5%) and revenues are expected to increase 3.6%. Earnings in the second quarter are expected to increase 45.0 % (versus previous increase of 44.7%) and revenues are expected to increase 13.7%. Earnings for all of 2021 are expected to increase 22.1% (versus previous increase of 21.9%) and revenues are expected to increase 7.9%.

U.S. equity exchanges halt trading at 1:00 PM EST on Thursday for the Christmas holiday and are closed on Friday. TSX is closed on Friday.

Economic News This Week

Third quarter U.S. annualized real GDP to be released at 8:30 AM EST on Tuesday is expected to increase 33.1% versus a drop of 31.4% in the second quarter.

November Existing Home Sales to be released at 10:00 AM EST on Tuesday are expected to slip to 6.73 million units from 6.85 million units in October.

November Durable Goods Orders to be released at 8:30 AM EST on Wednesday are expected to increase 0.5% versus a gain of 1.3% in October. Excluding Transportation, November Durable Goods Orders are expected to increase 0.5% versus a gain of 1.3% in October.

November U.S. Personal Income to be released at 8:30 AM EST on Wednesday is expected to drop 0.3% versus a drop of 0.7% in October. November U.S. Personal Spending is expected to slip 0.2% versus a gain of 0.5% in October.

December Michigan Consumer Sentiment Index to be released at 10:00 AM EST on Wednesday is expected to remain at 81.4 set in November.

November U.S. New Home Sales to be released at 10:00 AM EST on Wednesday is expected to slip to 988,000 from 999,000 in October.

Earnings News This Week

Trader's Corner

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for December 18th 2020

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Daily Seasonal/Technical Commodities Trends for December 18th 2020

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for December 18th 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

Technical Notes for Friday December 18th

After the close on Friday, Nike (NKE), a Dow Jones Industrial Average stock reported higher than consensus quarterly revenues and earnings. The stock gained $6.72 to an all-time high at $144.00 extending an intermediate uptrend.

After the close on Friday, the Federal Reserve changed its regulations on U.S. banks to resume share buybacks. JP Morgan quickly announced a new share buyback program. U.S. bank stocks and related ETFs (e.g. KBE, KRE, XLF) advanced about 3%.

Cadence Design Systems (CDNS), a NASDAQ 100 stock moved above $127.50 to an all-time high extending an intermediate uptrend.

Magna International (MG), a TSX 60 stock moved above $82.71 to an all-time high extending an intermediate uptrend.

Corn ETN (CORN) moved above $14.39 extending an intermediate uptrend. Responding to weakness in the U.S. Dollar.

Johnson & Johnson, a Dow Jones Industrial Average stock, moved above $154.40 to an all-time high extending an intermediate uptrend.

IDEXX Labs (IDXX), a NASDAQ 100 stock moved above $485.00 to an all-time high extending an intermediate uptrend.

Changes in Seasonality Ratings

U.S. Technology sector changes from Negative to Neutral

U.S. Utilities sector changes from Positive to Neutral

S&P 500 Momentum Barometer

The Barometer slipped 2.00 on Friday, but gained 7.02 last week to 83.17. It changed last week from intermediate overbought to extremely intermediate overbought on a move above 80.00.

TSX Momentum Barometer

The Barometer dropped 6.54 on Friday, but gained 1.07 last week to 72.43. It remained 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