Tech Talk for Monday October 22nd 2018

U.S. equity index futures were higher this morning. S&P 500 futures were up 12 points in pre-opening trade. Futures are responding to a 4.09% increase in the Shanghai Composite Index last night.

The Canadian Dollar was virtually unchanged at U.S.76.35 cents following release of August Canadian Wholesale Sales at 8:30 AM EDT. Consensus was an increase of 0.2% versus a gain of 1.5% in July. Actual was down 0.1%

Procter & Gamble (PG $87.30) is expected to open higher after Stifel Nicolaus raised its target price to $87 from $83.

Home Depot (HD $179.85) is expected to open lower after Wells Fargo lowered its target price to $220 from $230.

Hasbro dropped $6.54 to $91.50 after the company reported less than consensus third quarter sales and earnings.

Kimberly Clark (KMB $110.23) is expected to open higher after reporting higher than consensus third quarter earnings.

EquityClock's Daily Market Comment

Following is a link:

http://www.equityclock.com/2018/10/19/stock-market-outlook-for-october-22-2018/

Note seasonality charts on Existing Home Sales, Inventory of Existing Homes for Sale, Existing Homes Median Price, Canadian Consumer Price Index and Canadian Retail Trade.

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The Bottom Line

Seasonal influences for major U.S. equity indices turned positive on schedule at the end of the second week in October. Note seasonality charts below for the S&P 500 Index and Dow Jones Industrial Average.

Seasonal influences normally are most notable during U.S. Mid-term election years (although bottom of the correction was delayed this year from late September to the second week in October). Investors are concerned 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 23 House seats to the opposition party. Recent election polls suggest that history is about to repeat. Anticipation of a possible change, regardless of the final result, is a major reason for uncertainty between now and the Mid-term Election on November 6th

Seasonal influences also turned positive for Canadian equities on schedule at the end of the second week in October. The TSX Composite Index has closely followed its seasonal pattern this year: Performance of the TSX Composite Index normally is negative from the third week in July to mid-October. This year, the TSX Composite Index dropped 7.7% from its seasonal peak reached on July 13th to its low set on October 11th.

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Preferred strategy for traders is to begin to invest in North American equity markets and economic sensitive sectors for a seasonal move that could last to the second quarter of 2019. Short term technical indicators for North American equity markets showed signs of a seasonal bottom last week despite higher than average volatility.

Economic News This Week

August Canadian Wholesale Sales to be released t 8:30 AM EDT on Monday are expected to increase 0.2% versus a gain of 1.5% in July.

September New Home Sales to be released at 10:00 AM EDT on Wednesday are expected to drop to 625,000 from 629,000 in August.

Bank of Canada Monetary Report is to be released at 10:00 AM EDT on Wednesday. Consensus calls for an increase in the overnight lending rate to banks to 1.75% from 1.50%. Bank of Canada press conference is scheduled at 11:15 AM EDT.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 213,000 from 210,000 last week.

September Durable Goods Orders to be released at 8:30 AM EDT on Thursday are expected to drop 1.3% versus a gain of 4.4% in August. Excluding transportation, September Durable Goods Orders are expected to increase 0.3% versus a gain of 0.1% in August

Beige Book focusing on changes in monetary policy is released at 2:00 PM on Thursday.

First estimate of third quarter real GDP to be released at 8:30 AM EDT on Friday is expected to show a gain of 3.3% versus an increase of 4.2% in the second quarter.

October Michigan Consumer Expectations Report is expected to remain at 89.1 recorded in September.

Earnings Reports This Week

(Sampling of Dow Jones Industrial companies and other key U.S., Canadian and international companies)

Observations

Third quarter reports by S&P 500 companies are a focus again this week. Seventeen percent of companies have reported to date. Most beat consensus earnings per share estimates (80%) and sales (64%) estimates. Another 158 S&P 500 companies are scheduled to release results this week (including 10 Dow Jones Industrial companies).

Technical action by individual S&P 500 stocks was slightly better than neutral last week. Number of stocks breaking intermediate resistance totaled 15 while number of stocks breaking support totaled 20. The Up/Down ratio increased last week to (151/258 =) 0.58 from 0.55.

U.S. economic focus this week is on the first estimate of third quarter real GDP to be released on Friday. A gain of 3.3% is expected.

Canadian economic focus this week is on the Bank of Canada's monetary report released on Wednesday. Another 0.25% increase is expected.

Medium term technical indicators for U.S. equity markets (e.g. Percent of stocks trading above their 50 day moving average, Bullish Percent Index) were mixed/slightly higher last week. See charts near the end of this report

Medium term technical indicators in Canada also were mixed/slightly 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) started to turn positive last week (notably short term momentum indicators)

Short term technical indicators for Canadian markets and sectors also started to turn positive last week.

Short term political concerns remain elevated. Issues include heightened tariff wars with China, the Mueller investigation and ramp up of U.S. mid-term election political rhetoric.

Longer term outlook for S&P 500 company earnings remains positive. According to FactSet, consensus calls for a 19.5% increase in earnings in the third quarter on a year-over-year basis (up from 19.1% last week) and a 7.4% increase in sales in the third quarter (up from 7.3% last week). Consensus calls for a 16.5% increase in earnings and 6.3% increase in sales in the fourth quarter. Consensus calls for a 20.2% increase in earnings and an 8.2% increase in sales for 2018. Consensus calls for a 7.1% increase in earnings and 6.6% in sales in the first quarter 2019. Consensus calls for a 6.8% increase in earnings and 5.0% in sales in the second quarter 2019. Consensus for 2019 calls for a 10.3% increase in earnings and a 5.4% increase in sales.

An important long term technical indicator turned positive last week. Following is a chart showing Percent of S&P 500 stocks trading above their 50 day moving average overlaid by the S&P 500 Index. Note that major upside moves by the Index occurred after Percent recovered from below 20%, a scenario that was reached on October 12th this year when Percent reached 11.00%

Ditto for Percent of TSX stocks trading above their 50 day moving average overlaid by the TSX Index reached a low of 18.49 on October 11th !

Trader's Corner

(changes since October 12th )

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for October 19th 2018

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Daily Seasonal/Technical Commodities Trends for October 19th 2018

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for October 19th 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

StockTwits Released on Friday @EquityClock

Housing, a leading economic and equity market indicator, showing increasing signs of concern. equityclock.com/2018/10/19/… $SPX $SPY $XHB $ITB

US Existing Home Sales down 22.1% (NSA) in September, much weaker than 14.9% decline that is average for the month. $MACRO #Economy #Housing

Canada #Retail Trade up 2.2% (NSA) in August, a positive divergence compared to 0.9% decline that is average for the month. $MACRO #CDNecon

Canada #CPI down 0.4% (NSA) in September, a divergence compared to the 0.1% increase that is average. $MACRO #CDNecon #CAD

S&P 500 Momentum Barometers

Percent of S&P 500 stocks trading above their 50 day moving average increased last week to 23.00 from 19.75. Percent show technical signs of a bottom from a deeply intermediate oversold level

Bullish Percent Index for S&P 500 stocks dropped again last week to 43.00 from 48.57. The Index continues to trend lower has yet to show technical signs of bottoming.

TSX Momentum Barometers

Percent of TSX stocks trading above their 50 day moving average increased last week to 25.83 from 16.75. Percent remains intermediate oversold and showing early signs of bottoming.

Bullish Percent Index for TSX stocks dropped again last week to 46.53 from 48.57. The Index continues to trend down and has yet to show technical signs of bottoming.

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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