Tech Talk for Monday July 23rd 2018

U.S. equity index futures were mixed this morning. S&P 500 futures were unchanged in pre-opening trade.

Papa John dropped $2.39 to $49.20 after Stifel Nicolaus downgraded the stock to Sell from Hold. Target prices was cut to $38 from $50

Hasbro gained $10.50 to $104.43 after reporting higher than consensus second quarter sales and earnings.

Spotify gained $0.60 to $182.79 after BTIG initiated coverage with a Buy rating. Target is $230.

Illinois Tool Works dropped $8.66 to $138.20 after the company lowered its third quarter guidance.

EquityClock's Daily Market Comment

Following is a link:

http://www.equityclock.com/2018/07/20/stock-market-outlook-for-july-23-2018/

Note seasonality charts on the VIX Index, Canadain Consumer Price Index, Canadian Retail Trade, Canadian Dollar and the U.S.Utilities sector.

The Bottom Line

The proverbial "Summer Rally" in North American equity markets continued last week. U.S. and Canadian equity markets have a history of moving higher from late June to mid-July prior to release of encouraging second quarter corporate results. The summer rally this year was helped by anticipation of strong second quarter corporate results (20.8% year-over-year gain by S&P 500 companies and a 24% increase by TSX 60 companies (led by the energy sector). Seasonal influences turn Negative from the third week in July to mid-October. Early signs of a seasonal peak appeared last week. Unless a company announced "blow out" results, many S&P 500 stocks moved lower following release of results. Traders took profits on news, particularly when a company lowered its third quarter guidance (e.g. Netflix,Travelers, American Express, eBay). On average during the past 20 periods, the TSX Composite, S&P 500 Index and Dow Jones Industrial Average have reached a seasonal peak on July 18th. Weakness by U.S. equity indices on Thursday and Friday suggest that history is repeating this year.

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.

Ditto for Canadian equities! Seasonal influences for Canadian equity markets follow a similar pattern to the U.S. They normally recover from late June to until mid-July in anticipation of encouraging second quarter corporate results and turn negative until mid-October.

Weakness in North American equity markets is related to increased volatility triggered by a non-recurring unusual event. The possible event this year is progression to a full-fledged trade war.

Economic News This Week

June Existing Home Sales to be released at 10:00 AM EDT on Monday are expected to increase to 5.45 million units from 5.43 million units in May.

June New Home Sales to be released at 10:00 AM EDT on Wednesday are expected to drop to 670,000 units from 689,000 units in May.

June Durable Goods Orders to be released at 8:30 AM EDT on Thursday are expected to increase 2.8% versus a drop of 0.4% in May. Excluding transportation, June Durable Goods Orders are expected to increase 0.5% versus no change in May.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 215,000 from 207,000 last week.

European Central Bank is expected to announce its interest rate policy at 7:45 AM EDT on Thursday. Press conference is scheduled at 8:30 AM EDT. Rate is expected to remain unchanged at 0%.

First estimate of U.S. second quarter annualized real GDP to be released at 8:30 AM EDT on Friday is expected to show real growth at a 4.0% rate versus a 2.0% rate in the first quarter.

Earnings News This Week

Observations

Technical action by individual S&P 500 stocks was mixed last week. Number of stocks breaking intermediate resistance totaled 39 while number of stocks breaking support totaled 32. The Up/Down ratio increased last week to (275/11=) 1.52 from 1.51.

Frequency of reports will ramp up this week: 174 S&P 500 companies (and eleven Dow Jones Industrial companies) are scheduled to release second quarter results this week. Second quarter reports by Canadian companies will start to flow.

U.S. economic news focuses this week are on the second quarter U.S. GDP report to be released on Friday.

The U.S. Dollar Index, down 0.23 last week, continued to show technical signs of rolling over after entering its seasonal period of weakness at the beginning of July. Weakness was most notable on Friday. The CRB Index responded by moving higher.

Medium term technical indicators for U.S. equity markets (e.g. Percent of stocks trading above their 50 day moving average) rolled over last week, typical at the end of the "summer rally" They remain intermediate overbought.

Medium term technical indicators in Canada continued to roll over last week from overbought levels.

Short term technical indicators for U.S. markets and sectors (20 day moving averages, short term momentum) generally continued to move higher last week and remained overbought

Short term technical indicators for Canadian markets and sectors rolled over last week from overbought levels.

The outlook for S&P 500 earnings and sales remains positive: According to FactSet , 17% of S&P 500 stocks have reported second quarter results to date: 87% have reported higher than consensus earnings and 77% have reported higher than consensus sales. Second quarter 2018 earnings are expected to increase 20.8% (up from 19.9% last week) and sales are expected to increase a 9.0% ( up from 8.8% increase last week) . Third quarter earnings are expected to increase 21.6% on a 7.5% increase in sales. Fourth quarter earnings are expected to increase 18.0% (up from 17.8% last week) on a 5.7% increase in sales. First quarter 2019 earnings are expected to increase 7.1% Up from 6.9% last week) on a 5.5% increase in sales. Second quarter 2019 earnings are expected to increase 10.4% on a 4.7% increase in sales.

Short term political concerns remain elevated. Proposed U.S. tariffs against Chinese goods to be implemented in two months were increased again to products valued at $500 billion. NAFTA negotiations remain on hold and are unlikely to resume until after the U.S. mid-term elections in November. In addition, U.S. mid-term election political rhetoric has started to ramp up and is expected to escalate into October.

Gold stocks have a history of bottoming this week for a seasonal trade to the end of September.

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for July 20th 2018

Green: Increase from previous day

Red: Decrease from previous day

Daily Seasonal/Technical Commodities Trends for July 20th 2018

Green: Increase from previous day

Red: Decrease from previous day

Daily Seasonal/Technical Sector Trends for July 20th 2018

Green: Increase from previous day

Red: Decrease from previous day

Changes Last Week

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

StockTwits Released on Friday @EquityClock

Forest product iShares $WOOD moved below $76.15 extending an intermediate downtrend.

Canadian forest product stocks are leading the breakdown by the lumber sector. $WFT.CA $CFP.CA

Editor's Note: Interfor also broke intermediate support.

Technical action by S&P 500 stocks to 10:00: Mixed. Intermediate breakouts: $COF $STI $TPR. Breakdowns: $OMC $RE $PBCT $STT $APD

Editor's Note: After 10:00 AM EDT, breakouts included DOV and HON. Breakdown: WY.

S&P 500 Momentum Barometer

The Barometer dropped 3.80 to 63.60 on Friday. It remains intermediate overbought and rolling over.

TSX Momentum Barometer

The Barometer dropped 4.17 to 59.17 on Friday. It has dropped from intermediate overbought to intermediate neutral and has rolled over.

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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