Tech Talk for Tuesday February 20th 2018

U.S. equity index futures were lower this morning. S&P 500 futures were down 18 points in pre-opening trade.

Wal-Mart dropped $6.39 to $98.39 after reporting slightly lower than consensus fourth quarter earnings. The company also lowered guidance.

Home Depot added $4.03 to $191.00 after reporting higher than consensus fourth quarter results.

Rite Aid jumped $0.48 to $2.63 on news that Albertsons plans to purchase remaining Rite Aid stores not sold to Walgreen.

EquityClock's Daily Market Comment

Following is a link:

http://www.equityclock.com/2018/02/16/stock-market-outlook-for-february-19-2018/

Note seasonality charts on Housing Starts, Lumber Futures, Canadian sales of manufactured goods, Canadian Dollar and Gasoline.

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The Bottom Line

Nice bounce by world equity indices and economic sensitive sectors from deeply oversold levels last week! The Dow Jones Industrial Average and S&P 500 Index reached an intermediate bottom after falling 12% from their all-time highs set on January 26th. The TSX Composite bottomed after falling 10% from its all-time high set on January 4th. U.S. equity indices recovered almost 2/3 of the drop last week. The TSX Composite Index recovered 40% of the drop last week. Short and intermediate technical indicators recovered smartly from oversold levels. However, most remain below their 20 day moving average, implying the likelihood of additional gains in the weeks ahead.

World equity markets and economic sensitive sectors are about to enter their second strongest period of seasonal strength in the year from the end of February to the first week in May. (Strongest period is from mid-October to the first week in January). The February to May period is bolstered by good corporate news released by CEOs at annual meeting (frequently coinciding with release of first quarter reports) combined by seasonally strong economic news related to the spring buying season (e.g. autos, homes). This year the February to May season will be helped by strong gains in corporate sales and earnings triggered by changes in U.S. tax laws. Last week, analysts raised their earnings and sales estimates again for the first quarter of 2018

Now is the time to watch closely for sectors and markets that show positive strength relative to the S&P 500 Index. They are top candidates for purchase the late February-early May seasonal trade. Selected commodity sensitive sectors already have surfaced on the radar screen. Strength is related to weakness in the U.S. Dollar Index and rising demand for commodities, most notably from China. In addition, 'tis the season for commodity prices to move higher to at least the end of April. Last week, Zinc prices broke to a 5 year high, nickel prices broke to a 3 year high, lumber prices broke to an all-time high and copper prices advanced 7.15%. Strongest commodities have been the grains. The grain ETN: JJG has advanced 9% during the past 5 weeks.

Notable among commodity sensitive equities breaking to multi-year highs last week included base metal stocks such as First Quantum, Southern Copper, Rio Tinto and VALE. Look for base metal stocks to continue to move higher during their current period of seasonal strength. ETFs that track the sector include BMO Base Metals ETF (ZMT on the TSX) and iShares Global Base Metals ETF (XBM on the TSX) as well as Copper Miners ETF (COPX) and iShares Global Metals ETF (PICK) in the U.S.

Economic News This Week

January Existing Home Sales to be released at 10:00 AM EST on Wednesday are expected to increase to 5.65 million units from 5.57 million units in December

Minutes to the January 31st FOMC meeting are released at 2:00 PM EST on Wednesday

Weekly Jobless Claims to be released at 8:30 AM EST on Thursday are expected to remain unchanged from last week at 230,000.

Canadian December Retail Sales to be released at 8:30 AM EST on Thursday are expected to drop 0.5% versus a gain of 0.2% in November.

January Leading Economic Indicators to be released at 10:00 AM EST on Thursday are expected to increase 0.6% versus a gain of 0.6% in December.

Canadian January Consumer Price Index to be released at 8:30 AM EST on Friday is expected to increase 0.5% versus a decline of 0.4% in December.

Earnings News This Week

Observations

Technical action by individual S&P 500 stocks turned quietly bullish last week. Number of stocks breaking resistance totaled 22 while number of stocks breaking support totaled 4.Editor's note: After closer examination of data at the end of last week, numbers were adjusted. Number of stocks trading in an uptrend increased to 199 from 189, number of stocks trading in a neutral trend slipped to 99 from 103 and number of stocks in a downtrend dropped to 202 from 208 The Up/Down ratio increased last week to (199/202=) 0.99 from 0.91

U.S. economic news this week is quiet. Focus is on FOMC meeting minutes following appointment of a new Fed chief.

Canadian economic news this week focuses on increasing inflation pressures despite slowing retail sales growth.

Fourth quarter earnings reports by S&P 500 companies have passed their peak with 80% reported to date. According to FactSet, 75% reported higher than consensus earnings and 78% reported higher than consensus revenues. Another 53 companies are scheduled to report this week (including 2 Dow Jones Industrial stocks).

Frequency of Canadian fourth quarter reports is scheduled to peak. Focus is on Canadian banks when they start to report late in the week.

Medium term technical indicators in the U.S. (Percent of stocks trading above their 50 day moving average, Bullish Percent Index) moved higher last week. Medium term technical indicators in Canada also recovered from deeply oversold levels, but their recovery was less impressive.

Short term technical indicators for U.S. and Canadian equity markets and most sectors (mainly short term momentum) moved strongly higher last week. Many moved above their 50 day moving average, but most remain below their 20 day moving average.

Seasonal influences on a wide variety of U.S. and Canadian equity indices and economic sensitive sectors tend to be choppy in mid-February followed by renewed strength starting near the end of February. See charts below.

The outlook for S&P 500 earnings and sales remains positive: According to FactSet, fourth quarter adjusted earnings (excluding one-time write downs related to the tax bill) are expected to increase 15.2% (Up from 14.0% last week) on a 7.9% increase in sales. Estimates beyond the fourth quarter of 2017 were revised higher again mainly due to changes in U.S. corporate tax laws. First quarter 2018 earnings are expected to increase 17.0% (up from 16.9% last week) on a 7.4% increase in sales. Second quarter 2018 earnings are expected to increase 18.9% (up from 18.7%) on a 7.8% increase in revenues. Third quarter earnings are expected to increase 20.6% (up from 20.3%) on a 6.5% increase in revenues. Fourth quarter 2018 earnings are expected to increase 16.1% on a 5.0% increase in revenues. For all of 2018, earnings are expected to increase 17.9% on a 6.6% increase in sales (up from 6.5%).

Short term political uncertainties remain, including North Korean "sabre rattling", struggling NAFTA negotiations, possibly another shut-down of the U.S. government and increased scrutiny by special council on Russia's influence on the Presidential election

Earnings and revenue prospects beyond the fourth quarter report season are exceptional for U.S. based companies with international exposure. Consensus for S&P 500 earnings on a year-over-year are expected to increase 17.9% in 2018. Earnings will benefit significantly from weakness in the U.S. Dollar on a year-over-year basis when revenues and earnings from international operations are translated into U.S. Dollars. For example, a U.S. based company with 50% of its earnings and revenues coming from international operations will see earnings and revenues increase by 7.0% from foreign currency translation alone following the current 14% fall in the U.S. Dollar Index from its high at 103.82 in January 2017. The U.S. Dollar Index averaged 100 in the fourth quarter of 2016 and 101 in the first quarter of 2017.

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for February 16th 2018

Green: Increase from previous day

Red: Decrease from previous day

Calculating Technical Scores

Technical scores are 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.

S&P 500 Index gained 112.67 points (4.30%) last week. Intermediate trend remains down. The Index remains below its 20 day moving average. Short term momentum indicators have turned up.

Percent of S&P 500 stocks trading above their 50 day moving average jumped last week to 48.00 from 18.20. Percent has recovered from an intermediate oversold level to an intermediate neutral level.

Percent of S&P 500 stocks trading above their 200 day moving average increased last week to 70.40 from 60.20. Percent has recovered from an intermediate neutral level to a neutral overbought level.

Bullish Percent Index for S&P 500 stocks jumped to 57.40 from 40.40, but remained below its 20 day moving average. The Index has recovered from an intermediate neutral level to a slightly overbought level.

Bullish Percent Index for TSX stocks increased last week to 58.80 from 56.00. The Index remains slightly intermediate overbought.

TSX Composite Index gained 418.11 points (2.78%) last week. Intermediate trend remains down (Score: -2). Strength relative to the S&P 500 Index remains Neutral (Score: 0). The Index remains below its 20 day moving average (Score: -1). Short term momentum indicators have turned up (Score: 1). Technical score increased last week to -2 from -4.

Percent of TSX stocks trading above their 50 day moving average increase last week to 26.12 from 13.11. Percent remains intermediate oversold despite its recovery last week.

Percent of TSX stocks trading above their 200 day moving average increase last week to 46.12 from 38.11. Percent has recovered to an intermediate neutral level.

Dow Jones Industrial Average gained 1,029.48 points (4.25%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remained Neutral. The Average remained below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to 0 from -2.

Bullish Percent Index for Dow Jones Industrial Average stocks recovered last week to 56.67 from 43.33, but remained below its 20 day moving average. The Index has recovered from slightly intermediate oversold to slightly intermediate overbought.

Bullish Percent Index for NASDAQ Composite stocks recovered last week to 57.26 from 50.42, but remained below its 20 day moving average. The Index recovered to intermediate slightly overbought from neutral.

NASDAQ Composite Index gained 364.98 points (5.31%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index changed last week to Positive from Neutral. The Index moved above its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to 2 from -4.

Russell 2000 Index gained 65.71 points (4.45%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remained Neutral. The Index remained below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to -2 from -4.

Dow Jones Transportation Average gained 365.71 points (3.61%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index remains Negative. The Average remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to -2 from -4.

Australia All Ordinaries Composite Index added 67.30 points (1.13%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index changed to Neutral from Positive. The Index remains below its 20 day moving average. Short term momentum indicators are trending up. Technical score was unchanged last week at 0.

Nikkei Average gained 337.63 points (1.58%) last week. Intermediate trend remains neutral. Strength relative to the S&P 500 Index remained Negative. The Average remained below its 20 day moving average. Short term momentum indicators have turned up. Technical score improved last week to -2 from -4.

Europe iShares gained $1.80 (3.90%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Neutral. Units remain below their 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to -2 from -4.

Shanghai Composite Index to February 14 (start of Chinese New Year) increased 69.31 points (2.21%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remained Negative. The Index remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to -4 from -6.

Emerging Markets iShares advanced $3.12 (6.72%) last week. Intermediate trend remained up. Strength relative to the S&P 500 Index changed last week to Positive from Negative. Units moved above their 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 6 from -2.

Currencies

The U.S. Dollar Index dropped 1.32 (1.46%) last week and briefly touched a three year low on Friday. Intermediate trend remains down. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down.

The Euro gained 1.68 (1.37%) last week. Intermediate trend remains up. The Euro moved back above its 20 day moving average. Short term momentum indicators have turned up.

Canadian Dollar added U.S. 0.15 cents (0.19%) last week. The Canuck Buck remains below its 20 day moving average. Intermediate trend remains neutral. Short term momentum indicators are trending up.

Japanese Yen gained another 2.21 (2.41%) last week. Intermediate uptrend was confirmed on a move above 93.18. The Yen remains above its 20 day moving average. Short term momentum indicators are trending up.

British Pound gained 1.90 (1.37%) last week. Intermediate trend remains up. The Pound remained below its 20 day moving average. Short term momentum indicators have turned up.

Commodities and Related ETFs

Daily Seasonal/Technical Commodities Trends for February 16th 2018

Green: Increase from previous day

Red: Decrease from previous day

* Excludes adjustment from rollover of futures contracts

The CRB Index gained 5.07 points (2.69%) thanks mainly to weakness in the U.S. Dollar Index. Intermediate trend remained up. Strength relative to the S&P 500 Index changed to Neutral from Positive. The Index remained below its 20 day moving average. Short term momentum indicators turned up. Technical score remained last week at 2.

Gasoline jumped 16.5 cents per gallon (9.35%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Positive from Neutral. Gas moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 6 from -2.

Crude Oil gained $0.40 per barrel (0.65%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Neutral. Crude remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to 2 form 0.

Natural gas slipped $0.02 (0.78%) last week. Intermediate trend changed to down from up on a move below $2.568. Strength relative to the S&P 500 Index remains Negative. "Natty" remains below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -6 from -2.

S&P Energy Index added 9.48 points (1.93%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Negative. The Index remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to -4 from -6.

Philadelphia Oil Services Index added 2.05 points (1.52%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Negative. The Index remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score improved last week to 0 from -2.

Gold gained $37.20 per ounce (2.82%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Positive. Gold moved back above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 6 from 2.

Silver gained $0.57 per ounce (3.53%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Neutral. Silver remains below its 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to 2 from 0.

AMEX Gold Bug Index gained 10.40 points (5.96%) last week. Intermediate trend remains down. Strength relative to the S&P 500 Index remains Neutral. The Index remains below their 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to -2 from -6.

Platinum gained $50.80 per ounce (5.28%) last week. Trend remains up. Relative strength remains Positive. Moved above its 120 day moving average. Momentum turned up.

Palladium gained $72.40 per ounce (7.52%) last week. Trend remains Neutral. Relative strength changed to Neutral from Negative. Moved above its 20 day MA. Momentum turned up.

Copper gained 21.7 cents per lb. (7.15%) last week. Intermediate trend changed to neutral from down on Friday on a move above 3.258. Strength relative to the S&P 500 Index changed to Positive from Neutral. Copper moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 4 from -4.

BMO Base Metals ETF gained $0.73 (6.23%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed last week to Positive from Negative. Units moved above their 20 day moving average. Short term momentum indicators turned up. Technical score increased last week to 6 from -2.

Lumber added $24.80 (5.13%) to an all-time high. Trend remains up. Relative strength remains Positive. Remains above its 20 day moving average. Momentum remains up.

Grain ETN gained $0.69 (2.71%) last week. Trend remains up. Relative strength remains Positive. Units remain above their 20 day MA. Momentum remains up.

Agriculture ETF gained $2.57 (4.27%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Neutral. Units remain below their 20 day moving average. Short term momentum indicators have turned up. Technical score increased last week to 2 from 0

Interest Rates

Yield on 10 year Treasuries increased 4.6 basis points (1.62%) last week. Intermediate trend remains up. Yield remains above its 20 day moving average. Short term momentum indicators are trending up and are overbought.

Price of the long term Treasury ETF added $0.77 (0.65%) last week. Intermediate trend remains down. Units remain below their 20 day moving average.

Volatility

The VIX Index plunged 9.44 (33.74%) last week. Trend remains up. The Index dropped below its 20 day moving average on Friday.

Sectors

Daily Seasonal/Technical Sector Trends for February 16th 2018

Green: Increase from previous day

Red: Decrease from previous day

StockTwits Released on Friday @ EquityClock

Technical action by S&P 500 stocks to 10:15: Bullish. Breakouts: $NKE $MCO $PGR $VRSN $GPN. Breakdown: $VFC

Editor's Note: After 10:15 AM EST, breakouts included CMA, DE, LMT, INTU, HII, PNC, ACN and ANSS.

Nike $NKE, a Dow Jones Industrial stock moved above $68.83 to an all-time high extending an intermediate uptrend.

Deere $DE moved above $171.43 to an all-time high extending an intermediate uptrend on better than consensus quarterly results.

CAE $CAE.CA moved above $23.67 to an all-time high extending an intermediate uptrend.

Base Metals ETN $DBB (one third each in copper, zinc and aluminum) moved above $19.74 to a 5 year high extending an intermediate uptrend.

'Tis the season for prices of copper and base metals to move higher to the end of April!

‘Tis the season for copper and related equities to move higher to the end of April! Analyst on BNN is bullish. See bnn.ca/video/good-reason-to…

Steel ETF $SLX moved above $51.50 to a 6 year high extending an intermediate uptrend.

Russel Metals $RUS.CA moved above $31.71 to an all-time high extending an intermediate uptrend.

Canadian Pacific $CP.CA, a TSX 60 stock moved above $234.97 to a 3 year high extending an intermediate uptrend.

#Housing starts show best start to a year since 2011, up 10.8% (NSA). Average change: -2.3%. #Economy $MACRO

Canada Manufacturing Sales up 2.1% in 2017, below the 2.7% average annual increase. #CDNecon #CAD $MACRO

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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