Tech Talk for Monday February 3rd 2020

U.S. equity index futures were higher this morning. S&P 500 futures advanced 21 points in pre-opening trade. Index futures responded to news that the Chinese central bank injected monetary stimulus into the Chinese economy valued at $173 billion.

The Shanghai Composite Index plunged 229.92 to 2746.61 on its first day of trade following the Chinese New Year holiday. The 7.72% drop implies a recovery from a drop of more than 10% in Chinese equities priced on exchanges outside of China since start of the Chinese New Year holiday.

Gilead Sciences gained $2.80 to $63.20 on news that the company is developing a vaccine for the coronavirus.

Nike advanced $1.60 to $97.90 after UBS added the stock to its Analyst Focus List.

Northrop Grumman dropped $6.52 to $369.05 after Goldman Sachs downgraded the stock to Sell from Buy.

EquityClock's Daily Market Comment

Following is a link:

http://www.equityclock.com/2020/02/01/stock-market-outlook-for-february-3-2020/

Note seasonality charts on the VIX Index, S&P 500 Index and Canada's GDP.

The Bottom Line

World equity markets remained in their traditional mid-January to mid-February technical pattern last week. The period is known for higher than average volatility. The Coronavirus was a major contributor to increased volatility last week. Technical signs of a short term bottom have yet to surface. Most equity markets resume an intermediate uptrend following this period. Ultimately, recent weakness will provide a buying opportunity. Preferred strategy is to wait until short term technical indicators show signs of bottoming from deeply oversold levels during the next month before increasing equity exposure.

Observations

World equity markets have a history of moving from a period of high volatility early each year to a period of strength after the end of Chinese New Year holiday. Trading by Chinese equity markets have been extended this year beyond the holiday due to the coronavirus. The Shanghai Composite is slated to open more than 10% lower than its close on January 23rd at 2,976.53 based on a drop by proxy securities that track the Shanghai Composite Index (e.g. China large cap iShares: FXI).

Medium term technical indicators for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 50 day moving average, Bullish Percent Index) moved lower again last week from an intermediate overbought level and is trending down. See end of this report for charts.

Medium term technical indicators for Canadian equity markets also moved lower from an intermediate overbought level. See end of this report for charts.

Most short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum indicators) continued to move lower last week

Short term technical indicators for Canadian markets and sectors also moved lower last week.

Consensus for fourth quarter earnings by S&P 500 companies improved again last week thanks to slightly higher results released to date. According to FactSet, fourth quarter earnings on a year-over-year basis are expected to decline 0.3% (versus previous estimate of a drop of 1.9% last week) and fourth quarter revenues are expected to increase 3.1% (versus 2.9% last week). For all of 2019, earnings are expected to increase 0.3% (versus 0.2% last week) and revenues are expected to increase 4.3% versus 4.1% last week.

Beyond fourth quarter reports, consensus earnings for S&P 500 companies turn positive and earnings gains accelerate as the year progresses, albeit at a lower rate indicated last week. According to FactSet, first quarter 2020 earnings are expected to increase 3.7% on a year-over-year basis (versus 4.3% last week) and revenues are expected to increase 4.3 %. Second quarter 2020 earnings are expected to increase 6.1% (versus estimate of 6.5% last week) and revenues are expected to increase 4.8%. Third quarter earnings are expected to increase 10.1% (versus previous estimate of 10.2%) and revenues are expected to increase 5.8%. Fourth quarter earnings are expected to increase 13.2% (versus previous estimate of 14.7%) and revenues are expected to increase 6.1%. Earnings for all of 2020 are expected to increase 9.1% (versus a previous estimate of 9.5%) and revenues are expected to increase 5.2%.

Economic News This Week

January ISM Manufacturing PMI to be released at 10:00 AM EST on Monday is expected to increase to 48.5 from 47.2 in December.

December Construction Spending to be released at 10:00 AM EST on Monday is expected to increase 0.4% versus a gain of 0.6% in November.

December Factory Orders to be released at 10:00 AM EST on Tuesday are expected to increase 1.1% versus a decline of 0.7% in November.

State of the Union Address on Tuesday evening.

January ADP Employment to be released at 8:15 AM EST on Wednesday is expected to slip to 158,000 from 202,000 in December.

December U.S. Trade Deficit to be released at 8:30 AM EST on Wednesday is expected to increase to $48.00 billion from $43.10 billion in November.

December Canadian Trade Deficit to be released at 8:30 AM EST on Wednesday is expected to increase to $1.15 billion from $1.09 billion in November.

January ISM Non-Manufacturing PMI to be released at 10:00 AM EST on Wednesday is expected to drop to 52.0 from 57.2 in December.

Fourth Quarter Non-farm Productivity to be released at 8:30 AM EST on Thursday is expected to increase 1.2% versus a decline of 0.2% in the third quarter.

Weekly Initial Jobless Claims to be released at 8:30 AM EST on Thursday are expected to slip to 215,000 from 216,000 last week.

January Non-farm Payrolls to be released at 8:30 AM EST on Friday is expected to increase to 165,000 from 145,000 in December. January Unemployment Rate is expected to remain unchanged from December at 3.5%. January Average Hourly Earnings are expected to increase 0.3% versus a gain of 0.1% in December.

January Canadian Employment Rate is to be released at 8:30 AM EST on Friday.

Earnings News This Week

Approximately 45% of S&P 500 companies have reported fourth quarter results to date. Another 94 companies are scheduled to release results this week (including two Dow Jones Industrial companies)

Trader's Corner

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for January 31st 2020

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Daily Seasonal/Technical Commodities Trends for January 31st 2020

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for January 31st 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

*FXI, a proxy for the Shanghai Composite Index dropped 6.16% last week.

Greg Schnell's "Market Buzz"

Released on Friday. Greg asks, "When will Coronavirus Lows Turn Up?" Following is a link:

https://www.youtube.com/watch?v=5g2LLB7-FPs&feature=youtu.be

StockTwits released on Friday @EquityClock

Amazon $AMZN, a NASDAQ 100 stock moved above $2035.80 to an all-time high extending an intermediate uptrend.

Colgate Palmolive $CL, an S&P 100 stock moved above $74.08 extending an intermediate uptrend.

Biogen $BIIB, a NASDAQ 100 stock moved below $275.04 completing a double top pattern.

Gildan Activewear $GIL.CA, a TSX 60 stock moved below $36.84 completing a double top pattern

Canadian lumber stocks are responding to new tariffs and regulation imposed by the BC government on log exports. West Fraser Timber WFT.CA moved below $53.08 completing a double top pattern.

Imperial Oil $IMO.CA, a TSX 60 stock moved below $31.09 to an 8 year low extending an intermediate downtrend

Booking Holdings $BKNG, a NASDAQ 100 stock moved below $1826.69 completing a double top pattern

China Large Cap iShares $FXI moved below intermediate support at $39.61

Germany iShares $EWG moved below $28.53 extending an intermediate downtrend

Emerson Electric $EMR, an S&P 100 stock moved below $71.90 extending an intermediate downtrend

CDW Corp. $CDW, a NASDAQ 100 stock moved below $130.82 extending an intermediate downtrend.

S&P 500 Momentum Barometers

Percent of S&P 500 stocks trading above their 50 day moving average plunged last week from 67.33 to 45.89. Percent changed from intermediate overbought to intermediate neutral on a move below 60.00 and continued to trend down.

Bullish Percent Index for S&P 500 stocks dropped last week from 80.40 to 71.80. The Index remains intermediate overbought and trending down.

TSX Momentum Barometers

Percent of TSX stocks trading above their 50 day moving average dropped last week from 69.72 to 53.92. Percent changed from intermediate overbought to intermediate neutral and continues to trend down.

Bullish Percent Index for TSX stocks slipped last week from 76.50 to 75.97. The Index remains intermediate overbought and showing early signs of turning 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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