Tech Talk for Monday May 16th 2022

May 16, 2022 / www.timingthemarket.ca / Article Link

U.S. equity index futures were lower this morning. S&P 500 futures were down 3 points in pre-opening trade. Index futures responded partially to a continuing slowdown in China's economy due to efforts to slow COVID 19 infections.

The Wheat continuous futures contract added $50.20 to $1,228.00 after India banned wheat exports.

McDonald's slipped $1.04 to $244.00 after the company announced plans to exit operations in Russia. The company is expected to take a non-recurring $1.2-$1.4 billion charge following the exit.

Netflix added $13.33 to $187.64 after Wedbush upgraded the stock.

NetEase, Baidu and JD.com moved higher after JP Morgan upgraded selected China based equities listed on U.S. exchanges. NetEase advanced $0.34 to $92.80 after JP Morgan upgraded the stock from Underperform to Outperform.

EquityClock's Daily Comment

Headline reads "There are still questions over what the next week may deliver, but the technicals are certainly sufficient to take a stab back in risk (stocks)". Following is a link:

http://www.equityclock.com/2022/05/14/stock-market-outlook-for-may-16-2022/

The Bottom Line

First technical sign of start of a possible intermediate bottom appeared on Friday in North American equity markets. More base building is needed to confirm start of at least a shallow summer rally that normally occurrs during the second year of the U.S. Presidential cycle from late May to mid-August.

Observations

The VIX Index remains elevated, but showed early signs of peaking late last week, typical start of an intermediate bottoming phase for broadly based U.S. equity indices.

The CNN Fear & Greed Index recovered from 6 to 12 on Friday, first signs that "Extreme Fear" is moderating. See Fear and Greed Index – Investor Sentiment | CNN

Strength in North American equity markets was triggered by comments by Federal Reserve Chairman Powell implying that reductions in the Federal Reserve's balance sheet and increases in the Fed Fund rate by 50 basis points per FOMC meeting will proceed as planned starting on June 1st. North American equity markets responded with the anticipation that no negative surprises to the process are likely to happen. During the next month North American equity markets are likely to respond significantly (one way or the other) to comments by key individual FOMC members when they offer guidelines prior to release of the next FOMC decision scheduled on June 15th.

Consensus earnings estimates for S&P 500 companies on a year-over-year basis in the first quarter of 2022 were unchanged last week. Ninety one percent of companies have reported quarterly results to date. According to www.FactSet.com first quarter earnings on a year-over-year basis are expected to increase 9.1% and revenues are expected to increase 13.4% (versus 13.3% last week)

Consensus earnings estimates for S&P 500 companies beyond the first quarter on a year-over-year basis moved slightly lower again while consensus revenues estimates increased slightly. According to www.FactSet.com second quarter earnings are expected to increase 4.4% (versus 4.8% last week) and revenues are expected to increase 9.9% (versus 9.8% last week). Earnings in the third quarter are expected to increase 10.3% (versus 10.6% last week) and revenues are expected to increase 9.2% (versus 9.0% last week). Earnings in the fourth quarter are expected to increase 9.8% (versus 10.2% last week) and revenues are expected to increase 7.1% (versus 7.2% last week). Earnings on a year-over-year basis for all of 2022 are expected to increase 10.1% and revenues are expected to increase 10.2% (versus 10.0% last week).

Economic News This Week

April Retail Sales to be released at 8:30 AM EDT on Tuesday are expected to increase 0.7% versus a gain of 0.7% in March. Excluding auto sales, April Retail Sales are expected to increase 0.3% versus a gain of 1.4% in March.

April Capacity Utilization to be released at 9:15 AM EDT on Tuesday is expected to increase to 78.6 from 78.3 in March. April Industrial Production is expected to increase 0.4% versus a gain of 0.9% in March.

March Business Inventories to be released at 10:00 AM EDT on Tuesday is expected to increase 1.8% versus a gain of 1.5% in February.

April Housing Starts to be released at 8:30 AM EDT on Wednesday are expected to slip to 1.783 million units from 1.793 million units in March.

Canadian April Consumer Price Index to be released at 8:30 AM EDT on Wednesday is expected to increase 1.0% versus a gain of 1.4% in March. On a year-over-year basis, April CPI is expected to increase 6.1% versus 6.7% in March. Excluding food and energy, April CPI is expected to increase 0.5% versus a gain of 1.0% in March. On a year-over-year basis, April CPI is expected to increase 4.2% versus a gain of 5.5% in March.

May Philly Fed Index to be released at 8:30 AM EDT on Thursday is expected to slip to 17.2 from 17.6 in April.

April U.S. Existing Home Sales to be released at 10:00 AM EDT on Thursday are expected to slip to 565.000 units from 577,000 units in March.

April Leading Economic Indicators to be released at 10:00 AM EDT on Thursday are expected to increase 0.3% versus a gain of 0.3% in March.

Selected Earnings News This Week

Frequency of quarterly reports slows this week declines once again. Fifteen S&P 500 companies (including three Dow Jones Industrial Average companies) are scheduled to release results.