Tech Talk for Monday December 31st 2018
Join us on BNNBloomberg at 11:00 AM EST today. Thank you to Larry Berman at www.etfcm.com for this opportunity.
WALL STREET RAW RADIO
WITH YOUR HOST, MARK LEIBOVIT
SATURDAY, DECEMBER 29, 2018
SPECIAL GUESTS: DON VIALOUX, HENRY WEINGARTEN, HARRY BOXER AND SINCLAIR NOE
Excerpts from Don Vialoux comments on Wall Street Raw
(With added charts)
U.S. equity indices bounced from an important technical oversold level last Wednesday. Bullish Percent Index and Percent of S&P 500 stocks trading above their 50 day moving average reached oversold levels seen on only three other occasions during the past 20 years: July 2002, November 2008 and August 2011. Bullish Percent Index at 11.00% reached its second lowest level on record and Percent of S&P 500 stocks trading above their 50 day moving average reached a low of 1.20%.
Historically, U.S. equity indices have bounced back sharply from these oversold levels: The July 2002 low was followed by a recovery bounce by the S&P 500 Index by over 24% during the next six weeks, the November 2008 low was followed by a recovery bounce exceeding 27% during the next 6 weeks and the August 2011 low was followed by a 12% gain during the next month.
And now the rest of the story! Each bounce proved to be "a bear market recovery". On each occasion after reaching a short term peak, the S&P 500 Index subsequently moved to new lows. Previous lows proved to be part of a base building pattern that set the stage for the next long term cyclical uptrend that lasted for several years.
Ditto for the TSX Composite Index and related technical indicators! Low points for TSX Bullish Percent Index and Percent of TSX stocks trading above their 50 day moving average also occurred in July 2002, November 2008 and August 2011. They closely tracked key data points posted by the S&P 500 Index.
Conclusion: Traders can play the bear market rally on the upside for North American equity markets into early 2019. Longer term investors can continue to hold equities with the intention of adding to positions later this year when equity markets successfully test an intermediate bottom.
Silver was the star performer last week. It completed a double bottom pattern on a break above $14.95 per ounce. Seasonal influences for silver are strongest between mid-December and the end of February. Traders can participate in silver by owning silver futures or the silver ETN: SLV.
Silver stocks and their related ETF are outperforming silver bullion, an encouraging technical sign for both. Easiest way to play silver stocks is through the Silver Equity ETN: SIL.
Encouraging news for the cannabis sector! After the close on Thursday, Green Growth Brands announced plans to take over Alphria (APHA) at $11 Cdn, a 45% premium. Alphria countered by suggesting that the proposed offer was not sufficient. Investors were skeptical about Green Growth Brand's proposal.
The Bottom Line
Note the conclusion above. U.S. and Canadian equity markets have entered into a tradable bear market rally that started last week when technical indicators (Bullish Percent Index, Percent of S&P 500 stocks trading above their 50 day moving average) bottomed at extremely oversold levels. Previous extremely oversold levels during the past 20 years occurred in July 2002, November 2008 and August 2011. Charts showing performance of the S&P 500 Index from its low to their next high in 4-6 weeks were included in the December 27th edition of Tech Talk. Below are charts showing performance of the TSX Composite Index showing a 12.4% gain during the July/August 2002 period, a 24.3% gain during the late November/early January 2008 period and a 10.2% gain in the early August/early September 2011 period. Also, note that in every case the S&P 500 Index and TSX Composite Index thereafter moved lower after conclusion of their bear market rally, broke below their previous extreme oversold levels and eventually bottomed at a multi-year low.
Traders with a time horizon of three months or less can take advantage of a recovery from oversold levels by owning equities that have favourable seasonality and positive strength relative to the market (i.e. S&P 500 and/or TSX Composite) during this period. Focus is on commodity sensitive securities that are responsive to a flat-to-lower U.S. Dollar Index including precious metals, base metals, agriculture and energy related equities and Exchange Traded Funds.
Observations
Trading activity on equity markets remains slow again this week. Markets are closed on Tuesday.
Technical action by individual S&P 500 stocks continued to be negative last week. Number of stocks breaking intermediate resistance totaled 0 while number of stocks breaking support totaled 63. The Ratio of stocks in an intermediate uptrend/ stocks in an intermediate downtrend dropped last week to (88/391 =) 0.22 from 0.34.
U.S. and Canadian economic focus this week is the December ISM report on Thursday and the December employment reports 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) moved higher last week. See charts near the end of this report
Medium term technical indicators in Canada also moved higher last week. See charts near the end of this report.
Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) moved higher last week.
Short term technical indicators for Canadian markets and sectors also moved higher last week.
Short term political concerns remain elevated. Issues include heightened tariff wars between the U.S. and China, shut down of Congress related to extension of government deficit limits and the Mueller investigation.
Longer term outlook for earnings and sales by S&P 500 companies remains positive. Consensus for the fourth quarter of 2018 calls for a 12.4% increase in earnings and a 6.3% increase in sales. Consensus for 2019 calls for a 7.9% increase in earnings and a 5.3% increase in sales.
Major U.S. companies are seeking places to invest their new found cash flow following changes in U.S. tax laws. Look for anticipation of news about share buybacks, increased dividends, take overs, employee bonuses and wage increases prior to release of fourth quarter results.
Seasonal influences in the first and second quarters of a U.S. Pre-Presidential Election Year are favourable. Average gain per period for the Dow Jones Industrial Average since 1929 is 5.2% in the first quarter and 4.5% in the second quarter.
The U.S. Dollar Index recently completed a double top pattern on a move below 95.93, an encouraging technical sign for commodities and commodity related equities and Exchange Traded Funds (particularly if the U.S. and China are able to reach a trade agreement).
Economic News This Week
December ADP Employment to be released at 8:30 AM EST on Thursday is expected to slip to 175,000 from 179,000 in November.
Weekly Jobless Claims to be released at 8:30 AM EST on Thursday are expected to increase to 225,000 from 216,000 last week.
December ISM to be released at 10:00 AM EST on Thursday is expected to slip to 58.0 from 59.3 in November.
November Construction Spending to be released at 10:00 AM EST on Thursday is expected to increase 0.3% versus a decline of 0.1% in October.
December Non-farm Payrolls to be released at 8:30 AM EST on Friday are expected to increase to 178,000 from 155,000 in November. Private Non-farm Payrolls are expected to increase to 175,000 from 161,000 in November. December Unemployment Rate is expected to remain unchanged from November at 3.7%. December Average Hourly Earnings are expected to increase 0.3% versus a gain of 0.2% in November.
December Canadian Employment to be released at 8:30 AM EST on Friday is expected to increase 5,000 versus a gain of 94,100 in November. December Unemployment Rate is expected to increase to 5.7% from 5.6% in November.
Federal Reserve Chairman Powell speaks at 10:15 AM EST on Friday.
Earnings News This Week
Nil
Trader's Corner
Equity Indices and related ETFs
Daily Seasonal/Technical Equity Trends for December 28th 2018
Green: Increase from previous day
Red: Decrease from previous day
Commodities
Daily Seasonal/Technical Commodities Trends for December 28th 2018
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for December 28th 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
S&P 500 Momentum Barometers
Percent of S&P 500 stocks trading above their 50 day moving average dropped to a 7 year low at 1.20 before recovering to 8.00 by the end of the week.
Bullish Percent Index dropped to a 10 year low at 11.00 before recovering to 16.60 by the end of the week.
TSX Momentum Barometers
Percent of TSX stocks trading above their 50 day moving average increased last week to 24.28 from 18.93.
Bullish Percent Index for TSX stocks increased last week to 33.88 from 31.43.
StockTwits Released on Friday @EquityClock
Technical action by S&P 500 stocks to 10:00: Nil.
The Astrologers Fund 2019 Forecasts for the Stock Market, Trump, Gold and Bitcoin
Following is a link:
https://www.youtube.com/watch?v=ksdg3PRDX0U&t=170s
http://www.equityclock.com/about/seasonal-advantage-portfolio/
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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