Tech Talk for Tuesday October 9th 2018

U.S. equity index futures were lower this morning. S&P 500 futures were down 13 points in pre-opening trade.

The Canadian Dollar was virtually unchanged following release of the Canadian September Housing Start Report at 8:15 AM EDT. Consensus was an increase to 205,000 from 201,000 in August. Actual was 189,000.

DR Horton (DHI $40.65) is expected to open lower after reporting less than consensus fiscal fourth quarter sales.

Mohawk Industries (MHK $169.35) is expected to open lower after JP Morgan downgraded the stock to Underweight from Neutral.

Whirlpool (WHR $112.56) is expected to open lower after JP Morgan downgraded the stock to Underweight from Neutral.

Wal-Mart (WMT $94.69) is expected to open higher after Deutsche Bank upgraded the stock to Buy from Hold.

EquityClock's Daily Market Comment

Following is a link:

http://www.equityclock.com/2018/10/05/stock-market-outlook-for-october-9-2018/

Note seasonality charts on Non-farm Payrolls, Hourly Earnings, Canada Employment, Soybean Futures, Computer Hardware Industry, Software & Services Industry and Railroads.

WALL STREET RAW RADIO – SATURDAY, OCTOBER 6, 2018

WITH YOUR HOST, MARK LEIBOVIT

GUESTS INCLUDE: DON VIALOUX, HARRY BOXER AND SINCLAIR NOE:

https://tinyurl.com/ycv97uek

Excerpts from Wall Street Raw by Don Vialoux

Investing during the U.S. Presidential Cycle

The best time to own U.S. equities during the four year U.S. Presidential Election Cycle based on data since 1929 is from the fourth quarter of a Midterm Election Year to the first two quarters in the Pre-election Year. Average return per period based on the Dow Jones Industrial Average was 16.4%. After the "political noise" related to the Midterm Election is over, equity prices move higher.

The best quarter to own U.S. equities during the Presidential Election Cycle is the fourth quarter of a Midterm Election Year. Average gain per period for the Dow Jones Industrial Average was 6.7%.

Question: Will history repeat?

Consider the following:

On the positive side:

? Momentum by U.S. equity indices since May has been surprisingly strong. Despite greater than average "political noise" prior to the Midterm Election this year, U.S. equity indices (particularly the Dow Jones Industrial Average) have moved higher when they normally move lower from April to October. The Dow Jones Industrial Average reached an all-time high on Wednesday.

? Earnings gains will be extraordinarily strong during at least the next two quarters. Consensus shows that quarterly earnings for S&P 500 companies on a year-over year basis will increase 19.3% in the third quarter and 17.2% in the fourth quarter. Responses to third quarter results will start to show late this week when major U.S. banks release third quarter results

? Trade negotiations, that will help the U.S. economy next year, are moving forward including deals with South Korea, Canada and Mexico. Initial negotiations with Europe also have been encouraging.

On the negative side:

? A bump in U.S. Treasury yields above 3.11% for 10 year Treasuries and 3.25% for 30 year Treasuries disturbed U.S. equity markets last week. Interest sensitive equities (e.g. Utilities, REITs) were particularly hard hit.

? Trade negotiations between the U.S. and China are uncertain. Watch out for a sharp fall in the Shanghai Composite this week when trading resumes after China's holiday.

In conclusion: Chances for a typical move by U.S. equity indices between now and the second quarter next year are above average. Weakness related to increasing political noise and rising interest rates are likely to abate between now and Midterm Election Day on November 6th. Short term weakness will provide a buying opportunity in economic sensitive sectors. Watch for short term technical signs of a bottom by major U.S. equity indices before making a significant commitment.

What about the Canadian equity market?

? The TSX Composite historically has followed U.S. equity indices during the fourth quarter of a Midterm Election year and the first two quarters of a Pre-election year.

? Third quarter earnings prospects for Canada's top companies are encouraging (albeit less than earnings prospects for S&P 500 companies). Consensus is calling for an average (median) 10.9% increase on a year-over-year basis by TSX 60 companies. Companies expected to record the largest percent gains in the third quarter include energy, information technology and financial companies

? The TSX Composite Index peaked on July 13th and subsequently formed an intermediate Head & Shoulders pattern. The Index already is intermediate oversold based on short term technical indicators, but has yet to show signs of bottoming.

? Resolution of a trade agreement with the U.S. removes a major uncertainty for Canadian equity markets.

In conclusion, weakness in Canadian equity prices between now and November 6th will provide a buying opportunity simultaneously with a buying opportunity in U.S. equity markets.

The Bottom Line

Seasonal influences for major U.S. equity indices turn positive this week. Note seasonality charts below for the S&P 500 Index and Dow Jones Industrial Average.

Seasonal influences are particularly relevant during U.S. Mid-term election years. Volatility in equity markets normally increases at this time of year 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. 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 increased volatility before the Mid-term Election on November 6th

Seasonal influences also are about to turn positive for Canadian equity markets. So far, the TSX Composite Index has closely followed its seasonal pattern. Performance of the TSX Composite Index normally is negative from the third week in July to mid-October. This year, the TSX Composite Index moved lower from its seasonal peak reached on July 13th. Last week the Index extended a Head & Shoulders pattern.

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Volatility spiked last week when the yield on long term Treasuries moved above key resistance levels and reached seven year highs.

A word of caution on China and its short term influence on equity markets! Trade negotiations between the U.S. and China have not gone well to date. Best guess is the Chinese are holding back serious negotiations until after the U.S. Mid-term elections with the hope that they will gain bargaining power. Last week, Chinese equity markets were closed for their annual vacation. However, a proxy for the Shanghai Composite is available through ETFs and closed end funds that trade in U.S. Dollars such as FXI and CAF. Both plunged 5.0% last week implying a similar drop in the Shanghai Composite Index is likely when trading resumes this week. A drop of this magnitude could have an impact on world equity markets.

Preferred strategy for traders is to prepare to invest in equity markets and economic sensitive sectors for a seasonal move that could last to the second quarter of 2019 when short term technical indicators for equity markets show signs of recovery. Currently, short term indicators are trending down and have yet to show signs of bottoming.

Economic News This Week

Canadian equity markets were closed for Thanksgiving yesterday. U.S. equity markets were open, but banks and the bond market were closed for Columbus Day. Hence, trading in U.S. equity markets were significantly lower than average.

Canadian September Housing Starts to be released at 8:15 AM EDT on Tuesday are expected to increase to 205,000 from 201,000 in August.

September Producer Price Index to be released at 8:30 AM EDT on Wednesday is expected to increase 0.2% versus a decline of 0.1% in August. Excluding food and energy, September Producer Price Index is expected to increase 0.2% versus a decline of 0.1% in August.

August Wholesale Inventories to be released at 10:00 AM EDT on Wednesday are expected to increase 0.7% versus a gain of 0.8% in July.

Weekly Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to increase to 210,000 from 207,000 last week.

September Consumer Price Index to be released at 8:30 AM EDT on Thursday is expected to increase 0.2% versus a gain of 0.2% in August. Excluding food and energy, September Consumer Price Index is expected to increase 0.2% versus a gain of 0.1% in August.

October Michigan Consumer Confidence Sentiment Index to be released at 10:00 AM EDT on Friday is expected to increase to 100.4 from 100.1 in September.

Earnings News This Week

Observations

Technical action by individual S&P 500 stocks was bearish again last week. Number of stocks breaking intermediate resistance totaled 17 while number of stocks breaking support totaled 51 (including 14 Financials). The Up/Down ratio dropped last week to (252/183=) 1.38 from 1.79.

U.S. economic focus this week is on inflation (PPI and CPI).

Medium term technical indicators for U.S. equity markets (e.g. Percent of stocks trading above their 50 day moving average, Bullish Percent Index) moved lower last week and continue to trending. See charts near the end of this report

Medium term technical indicators in Canada moved significantly lower last week. They are intermediate oversold, but continue to trend lower. 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) continue to trend lower last week and have yet to show signs of bottoming.

Short term technical indicators for Canadian markets and sectors also continued to trend lower last week and have yet to show signs of bottoming.

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

Longer term outlook for S&P 500 company earnings remains positive. Prospects for 2019 have been raised slightly According to FactSet, consensus calls for a 19.2% increase in earnings and a 7.3% increase in sales in the third quarter. Consensus calls for a 17.1% increase in earnings and 6.3% increase in sales in the fourth quarter. Consensus calls for a 20.3% increase in earnings and a 8.1% increase in sales for 2018. Consensus calls for a 7.5% increase in earnings and 6.4% is sales in the first quarter 2019. Consensus calls for a 7.5% increase in earnings and 4.8% in sales in the second quarter 2019. Consensus for 2019 calls for a 10.4% increase in earnings and a 5.3% increase in sales.

Trader's Corner

Note changes in seasonality ratings

Daily Seasonal/Technical Equity Trends for October 5th 2018

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Daily Seasonal/Technical Commodities Trends for October 5th 2018

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for October 5th 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

Tired of seeing your seasonal fund remain stagnant when seasonally favoured sectors move higher? Consider switching to the Seasonal Advantage Portfolio http://www.equityclock.com/About/Seasonal-Advantage-Portfolio/ ... #SeasonalInvestingDoneRight

StockTwits Comments Released on Friday @EquityClock

Precision Drilling $PD.CA $PDS moved below $$4.34 Cdn. and $3.30 U.S. following news of its takeover of Trinidad Drilling.

Canadian National Railway $CNR.CA $CNI, a TSX 60 stock moved above $117.78 Cdn. to an all-time high extending an intermediate uptrend.

Technical action by S&P 500 stocks to 10:15: Quiet. Intermediate breakout: $GE. Breakdowns: $ADI $EMN.

Editor's Note: After 10:15 AM EDT, no additional breakouts. Breakdowns included INCY, AMAT, MYL, WU, ANET, AAL, MGM, PVH, IDXX, CMCSA, HPE and AMZN.

Emerging Markets iShares $EEM moved below $40.63 extending an intermediate downtrend.

CI Financial $CIX.CA moved below $19.78 extending an intermediate downtrend.

Technology SPDRs $XLK moved below support at $73.00.

Goldcorp $G.CA $GG, a TSX 60 stock moved below $$12.99 Cdn. extending an intermediate downtrend.

Bank of Montreal $BMO.CA moved below support at $105.51.

Amazon $AMZN, one of the FAANG stocks moved below$1865 completing a double top pattern.

Editor's Note: Most of the 180 point drop by the price-weighted Dow Jones Industrial Average on Friday can be attributed to the fall by Amazon.

StockTwits Released Yesterday @EquityClock

Germany iShares $EWG moved below $28.79 extending an intermediate downtrend.

Italy iShares $EWI moved below $26.58 extending an intermediate downtrend.

Eurozone iShares $EZU moved below $39.42 extending an intermediate downtrend.

Brazil iShares $EWZ moved sharply higher following election results released last night.

Pacific ex Japan iShares $EPP moved below $43.70 extending an intermediate downtrend.

Semiconductor ETF $SMH moved below $101.38 and $100.90 setting an intermediate downtrend.

Editor's Note: SOXX also broke intermediate support.

Technical action by S&P 500 stocks to 10:00: Bearish. No breakouts. Breakdowns: $EXPE $TSCO $KSU $NTAP $QRVO $ILMN $GWW

Editor's Note: After 10:00 breakouts included D, AEE, PNW, LNT, AWK, XEL, SCG, ESS, ADM and PPL. Breakdowns included DISH, CSTA, PYPL, WYND, ALGN, FLIR, MSI, TTWO, ANSS, CNC, DVN, INFO, ADSK and EA

U.S. Utilities breakouts: $AEE $PNW $LNT $AWK

Later, added XEL, SCG, XEL and PPL.

AMEX Biotech ETF $FBT moved below $148.90 completing a double top pattern.

Natural gas prices and related ETN $UNG move higher on Hurricane Michael's move into the Gulf of Mexico, U.S. largest natgas producing area.

S&P 500 Momentum Barometers

Percent of S&P 500 stocks trading above their 50 day moving average plunged last week to 49.20 from 58.00. Percent remains intermediate neutral and continues to trend down.

Bullish Percent Index for S&P 500 stocks dropped last week to 63.80 from 67.60. The Index remains intermediate overbought and has started to trend down.

TSX Momentum Barometers

Percent of TSX stocks trading above their 50 day moving average plunged last week to 26.05 from 39.33. Percent remains intermediate oversold and continues to trend down.

Bullish Percent Index for TSX stocks dropped last week to 52.65 from 55.10. The Index remains intermediate neutral and continues to trend down.

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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