Tech Talk for Monday October 24th 2022
U.S. equity index futures were higher this morning. S&P 500 futures were up 14 points in pre-opening trade.
The Shanghai Composite Index dropped $61.37 to $2,977.56 and the Hang Seng Index fell to $10,300.43 following news of changes in China's political leadership.
Medtronic gained $0.97 to $84.23 after announcing a split of its operations into two separate entities.
Tesla dropped $6.46 to $207.98 after the company announced price cuts on some of its vehicles.
Meta Platform fell $1.48 to $128.53 after Mizuho lowered its target price from $225 to $180.
EquityClock's Daily Comment
Headline reads "The ratio between the High yield and Investment Grade Bond ETFs has broken above multi-year resistance as credit conditions improve compared to the strains realized at the end of the second quarter".
http://www.equityclock.com/2022/10/22/stock-market-outlook-for-october-24-2022/
The Bottom Line
Momentum barometers last week confirmed that U.S. and Canadian equity indices bottomed at the end of September. Percent of stocks in the S&P 500 and TSX Composite Index trading above their 50 and 200 day moving averages continued to move higher. See end of this report for the data. Despite their medium and long term uptrends, momentum data remains Oversold (i.e. below 40%). Upside potential in both markets remains significant between now and the first week in January.
Strength last week fits nicely with long term seasonal trends. During a presentation at the Wealth 365 Summit last week, Jake Bernstein noted an interesting statistic for the Dow Jones Industrial Average. Optimal seasonal period to own the Dow Jones Industrial Average during the past 102 years has been from October 28th to January 11th. The trade has been profitable 83% of the time. Also, broadly based Canadian and U.S. equity indices technically reached a low at the end of September when they usually bottom during the U.S. mid-term Presidential election cycle.
Strength last week is attributed partially to better than consensus fiscal third quarter revenues and earnings by major U.S. and Canadian companies. Look for more good news as the frequency of quarterly reports ramps up this week.
Watch for "bumps in the road" between now and November 9th as investors digest news from the Federal Reserve (on November 2nd), the Bank of Canada (October 27th) and the U.S. Congressional mid-term elections (November 8th). Consensus calls for a 0.75% increase in the Fed Fund Rate to 3.75%-4.00% on November 2nd followed by a pause in rate hikes thereafter (although the Federal Reserve may hesitate to increase the rate on this date until after the Congregational mid-term elections). Consensus calls for another 0.75% increase in the Bank of Canada's lending rate to major Canadian banks on Wednesday to 4.00%. Consensus calls for control of the House of Representative changing from Democrats to Republican after the mid-term elections. Consensus calls for little or no change in the number of seats held by Democrats and Republicans in the Senate after the mid-term elections.
Investors also will watch closely for a response to the September PCE Price Index released at 8:30 AM EDT on Friday. This data point is considered the prime indicator by the Federal Reserve for determining the trend in U.S. inflation. Consensus calls for a the core index is a gain of 0.5% versus an increase of 0.6% in August (Year-over-year, a gain of 5.2% versus an increase of 4.9% in August)
Technical signs of a short term peak in the U.S. Dollar Index have arrived. The U.S. Dollar Index dropped below its 20 day moving average on Friday. Short term momentum indicators (daily Stochastics, RSI, MACD) have turned down. Seasonal influences are negative from mid-November to the end of the year, partially due to year-end transaction by major U.S. based companies.
Weakness in the U.S. Dollar Index favours commodity prices and related stocks (other than crude oil at this time of year). Sector indices such as base metals, steels, industrial and chemicals recorded impressive gains on Friday. All have just entered their period of seasonal strength between October and January.
Conversely, the Canadian Dollar shows technical signs of a short term bottom. Nice move above its 20 day moving average on Friday! Daily momentum indicators also have turned higher.
Seasonal influences favour the Canadian Dollar over the U.S. Dollar between mid-October and the first week in February.
Consensus for Earnings and Revenues for S&P 500 Companies
Despite encouraging third quarter results released last week, analysts lowered earnings estimates again last week. According to www.factset.com third quarter earnings on a year-over-year basis are expected to increase 1.5% (versus previous estimate at 1.6%) and revenues are expected to increase 8.5%. Fourth quarter earnings are expected to increase 2.7% (versus previous 3.6%) and revenues are expected to increase 5.4% (versus previous estimate at 5.8%). For 2022 earnings are expected to increase 6.7% (versus previous 7.0%) and revenues are expected to increase 10.4% (versus previous 10.6%).
Preliminary estimates for 2023 also moved lower. According to www.factset.com first quarter 2023 earnings are expected to increase 5.1% (versus previous estimate at 5.8%) and revenues are expected to increase 4.7% (versus previous estimate at 5.5%). Second quarter 2023 earnings are expected to increase 3.5% (versus previous estimate at 4.3%) and revenues are expected to increase 1,9% (versus previous estimate at 2.7%). For all of 2023, earnings are expected to increase 7.3% (versus previous estimate at 7.6%)) and revenues are expected to increase 4.0% (versus previous estimate at 4.2%).
Economic News This Week
September U.S. New Home Sales released at 10:00 AM EDT on Wednesday are expected to drop to 590,000 from 685,000 in August.
Bank of Canada statement on the Canadian economy is released at 10:00 AM EDT. Consensus is that the rate offered to major Canadian banks will increase from 3.25% to 4.00%. A press conference is scheduled at 11:00 AM EDT
September Durable Goods Orders released at 8:30 AM EDT on Thursday are expected to increase 0.5% versus a decline of 0.2% in August. Excluding Transportation Orders, September Durable Goods Orders are expected to increase 0.2% versus a gain of0.3% in August.
Third quarter U.S. real GDP released at 8:30 AM EDT on Thursday is expected to grow 2.1% versus a decline of 0.6% in the second quarter.
September PCE Price Index released at 8:30 AM EDT on Friday is expected ease slightly from the year-over-year 6.2% level. Core PCE Price Index is expected to increase on a year-over-year basis to 5.2% from 4.9% in August
September Personal Income released at 8:30 AM EDT on Friday is expected to increase 0.4% versus a gain of 0.3% in August. September Personal Spending is expected to increase 0.4% versus a gain of 0.4% in August.
August Canadian GDP released at 8:30 AM EDT on Friday is expected to increase 0.1% versus a gain of 0.1% in July
September Core PCE Price Index released at 8:30 AM EDT on Friday is expected to increase 0.5% versus a gain of0.6% in August (Year-over-year, an increase of 5.2% versus a gain of 4.9% in August)
October Michigan Consumer Sentiment released at 10:00 AM EDT on Friday is expected to remain unchanged from September at 59.8.
Selected Earnings News This Week
News by S&P 500 companies that have reported third quarter results has been encouraging: Twenty percent of companies have released results to date with 72% reporting higher than consensus earnings per share and 70% reporting higher than consensus revenues. Price responses generally have been strongly positive.
Frequency of reports escalates this week starting on Tuesday. Another 165 S&P 500 companies are scheduled to release quarterly results (including 12 Dow Jones Industrial Average companies). Six TSX 60 companies are scheduled to report.
Focuses this week are reports released by the big cap technology companies.
Trader's Corner
All changes are based on previous October 14th indications
Equity Indices and Related ETFs
Daily Seasonal/Technical Equity Trends for October 21st 2022
Green: Increase from previous day
Red: Decrease from previous day
Commodities
Daily Seasonal/Technical Commodities Trends for October 21st 2022
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for October 21th 2021
Green: Increase from previous day
Red: Decrease from previous day
All changes in seasonality ratings are relative to the S&P 500 Index
Links offered by valued providers
Michael Campbell's Money Talks for October 22nd
Michael Campbell's MoneyTalks - Complete Show (mikesmoneytalks.ca)
Greg Schnell asks "Are you tired of the noise"?
Are You Tired of the Noise? | The Canadian Technician | StockCharts.com
David Keller discusses "Top ten stocks in accumulation phase".
Top Ten Stocks in Accumulation Phase | The Mindful Investor | StockCharts.com
Mary Ellen McGonagle offers "Three reasons we're headed higher from here"
Three Reasons We’re Headed Higher From Here | The MEM Edge | StockCharts.com
Erin Swenlin notes that "Broad market rallies were confirmed by a silver cross index when the 20 day moving average moved above the 50 day moving average for the S&P 500 Index, NASDAQ Composite Index and NYSE Composite Index".
Broad Market Rallies Confirmed by Silver Cross Index | DecisionPoint | StockCharts.com
Tom Bowley is "Preparing for a strong fourth quarter".
Preparing For A Strong Q4 | Tom Bowley | Your Daily Five (10.19.22) - YouTube
Tom Bowley asks "Do we have a BIG drop ahead"? Tom says probably not, but you need to know the odds.
Do We Have A BIG Drop Ahead? | Trading Places with Tom Bowley | StockCharts.com
Josef Schachter is asked about "Long term higher energy prices"?
Long Term Higher Energy Prices? - HoweStreet
Bob Hoye asks "Is it time to start buying Gold Miners"?
"Cash is King" During a Recession - HoweStreet
Links offered by Mark Bunting and www.uncommonsenseinvestor.com
"Lots of Things Are Breaking" Globally – Uncommon Sense Investor
"It’s Right to Get Invested Here." – Uncommon Sense Investor
How Much Income & Capital Appreciation Do You Need? – Uncommon Sense Investor
David Rosenberg Warns S&P 500 May Plunge 27%, the Worst Is yet to Come (businessinsider.com)
Mark Leibovit Comments (39th minute for October 22nd release)
This Week in Money - HoweStreet
Technical Scoop for October 24th from David Chapman and www.EnrichedInvesting.com
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
The intermediate term Barometer advanced 10.40 on Friday and 17.20 last week to 28.80. It remains Oversold. An uptrend from the bottom at 3.00 on September 26th has been established.
The long term Barometer added 4.40 on Friday and 7.40 last week to 22.60. It remains Oversold. An uptrend from the bottom at 11.40 on September 27th has been established.
TSX Momentum Barometers
The intermediate term Barometer added 12.71 on Friday and 13.98 last week to 35.17. It remains Oversold. It continues to recover from its bottom set on September 26th at 7.20 .
The long term Barometer gained 5.51 on Friday and 6.35 last week to 28.81. It remains Oversold. It continues to recover from its bottom on September 26th at 16.95.
Disclaimer: Seasonality ratings 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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