Technical Talk: Bull Market Momentum Turning Over?

by Don Vialoux, TechTalk

Upcoming US Events for Today:

  1. ADP Employment Report for May will be released at 8:15am. The market expects 171,000 versus 119,000 previous.
  2. Productivity for the First Quarter will be released at 8:30am. The market expects a quarter-over-quarter increase of 0.7%, consistent with the previous report. Unit Labor Costs are expected to increase by 0.5%.
  3. Factory Orders for April will be released at 10:00am. The market expects a month-over-month increase of 1.4% versus a decline of 4.0% previous.
  4. ISM Services for May will be released at 10:00am. The market expects 53.8 versus 53.1 previous.
  5. Weekly Crude Inventories will be released at 10:30am.
  6. The Fedā€™s Beige Book for June will be released at 2:00pm.

Upcoming International Events for Today:

  1. India PMI Services will be released at 1:00am EST.
  2. German PMI Services for May will be released at 3:55am EST. The market expects 49.8 versus 49.6 previous.
  3. Euro-Zone PMI Services for May will be released at 4:00am EST. The market expects 47.5 versus 47.0 previous.
  4. Great Britain PMI Services for May will be released at 4:30am EST. The market expects 53.0 versus 52.9 previous.
  5. Euro-Zone GDP for the First Quarter will be released at 5:00am EST. The market expects a year-over-year decline of 1.0% versus a decline of 0.6% previous.
  6. Euro-Zone Retail Sales for April will be released at 5:00am EST. The market expects a year-over-year decline of 0.6% versus a decline of 2.4% previous.
  7. Canada Building Permits for April will be released at 8:30am EST. The market expects a month-over-month decline of 2.3% versus an increase of 8.6% previous.
  8. Australia Trade Balance for April will be released at 9:30am EST. The market expects 180M versus 307M previous.

Recap of Yesterdayā€™s Economic Events:

Screen Shot 2013-06-05 at 11.22.32 AM

 

The Markets

Equities traded lower on Tuesday, bringing an end to 20 consecutive Tuesdayā€™s of positive results for the Dow Jones Industrial Average. Concerns pertaining to the Fed tapering its bond buying program led the stock market selloff, pushing the Dow almost 1% lower by midday. The remainder of the week will only fuel further speculation as to what the Fed might do as employment reports for the month of May are released; ADP will release their report this morning at 8:15 followed by the BLS report on Friday. Disappointing results may actually garner a positive reaction as the perception would become that the present easy monetary policy will remain intact. Vice versa if the results are strong. Talk of tapering has had a significant effect on yields over the past month. The 10-year note has jumped from around 1.6% to as high as 2.2%, testing the upper limit of a rising trendline that stretches back to last summer. The 200-day moving average of the yield has now curled higher for the first time since early 2011, implying positive momentum over a long-term scale. This trend is contradictory to seasonal averages. Typically yields trend lower throughout the summer months as equity market volatility forces investors into safe-haven assets. Bonds and interest sensitive plays that typically flourish in the summer may experience some volatility themselves.

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The recent weakness in the S&P 500 has triggered momentum ā€œSellā€ signals with respect to RSI, MACD, and Stochastics. The percent of stocks within the large-cap index trading above 200-day moving averages is also offering a signal that suggests caution is warranted. The percent recently topped 90 (94 to be exact), a level in which significant market peaks have been known to form. The percent is now attempting to push below its 50-day moving average line, a level that has typically provided reliable sell signals for equity market positions. The break below the 50-day moving average line is so far just marginal and more evidence is required to confirm the signal, but downside risks are escalating.

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Seasonal charts of companies reporting earnings today:

BF-B CVGW HOV LAYN STRM CWTR FCEL NDZ SIGM PAY

Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.16.

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S&P 500 Index

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Chart Courtesy of StockCharts.com

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TSE Composite

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Chart Courtesy of StockCharts.com

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Horizons Seasonal Rotation ETF (TSX:HAC)

  • Closing Market Value: $13.33 (up 0.08%)
  • Closing NAV/Unit: $13.29 (down 0.09%)

Performance*

2013 Year-to-Date Since Inception (Nov 19, 2009)
HAC.TO 4.49% 32.9%

* performance calculated on Closing NAV/Unit as provided by custodian

Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.

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