Vialoux's Technical Talk - January 5, 2015

by Don Vialoux, EquityClock.com

Pre-opening Comments for Monday January 5th

U.S. equity index futures were lower this morning. S&P 500 futures were down 5 points in pre-opening trade.

Chevron slipped $1.88 to $110.70 after Citigroup downgraded the stock from Buy to Neutral. Target price is $115.

Ford dropped $0.13 to $15.23 after Citigroup downgraded the stock from Buy to Neutral.

Intel (INTC $36.34) is expected to open higher after MKM Partners upgraded the stock from Neutral to Buy. Target is $45.

Merck gained $0.59 to $57.78 after Bernstein upgraded the stock from Market Perform to Outperform.

Wells Fargo slipped $0.56 to $54.14 after Baird downgraded the stock from Outperform to Neutral. Target is $55.

Starbucks eased $0.95 to $80.49 after Janney Capital downgraded the stock from Buy to Neutral. Target price is $85

Becton Dickenson added $0.44 to $140.30 after Raymond James upgraded the stock from Market Perform to Strong Buy. Target is $165.

 

EquityClock’s Daily Market Comment

Following is a link:

http://www.equityclock.com/2015/01/04/stock-market-outlook-for-january-5-2015/

Note comments on the Health Care, Technology and Energy sectors

 

Economic News This Week

November Factory Orders to be released at 10:00 AM EST on Tuesday are expected to decline 0.2% versus a drop of 0.7% in October.

December ISM Services to be released at 10:00 AM EST on Tuesday are expected to slip to 58.5 from 59.3 in November.

December ADP Private Employment Report to be released at 8:15 AM EST on Wednesday is expected to show a gain to 238,000 from 208,000 in November

November Canadian Merchandise Trade Balance to be released at 8:30 AM EST on Wednesday is expected to drop to a deficit of $200 from a surplus of 99 million in October.

FOMC Meeting Minutes for the December 17th meeting are released at 2:00 PM EST on Wednesday.

Weekly Initial Jobless Claims to be released at 8:30 AM EST on Thursday are expected to slip to 290,000 from 298,000 last week.

December Canadian Housing Starts to be released at 8:15 AM EST on Friday are expected to slip to 190,000 units from 195,000 units in November

December Employment to be released at 8:30 AM EST on Friday is expected to increase 10,000 versus a deficit of 10,700 in November. Canadian December Unemployment Rate is expected to remain the same as November at 6.6%.

December Non-farm Payrolls to be released at 8:30 AM EST on Friday are expected to drop to 250,000 from 321,000 in November. December Private Non-farm Payrolls are expected to fall to 250,000 from 314,000 in November. December Unemployment Rate is expected to slip to 5.7% from 5.8% in November. December Hourly Earnings are expected to increase 0.2% versus no change in November.

November Wholesale Inventories to be released at 10:00 AM EST on Friday are expected to increase 0.4% versus a gain of 0.4% in November.

 

Earnings News This Week

Wednesday: Micron, Monsanto

Thursday: Bed, Bath & Beyond

 

Equity Trends

Daily Seasonal/Technical Equity Trends at Friday’s Close

(Includes changes for December 31st and January 2nd)

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Green: Increase from the previous day

Red: Decrease from the previous day

The S&P 500 Index fell 30.57 points (1.46%) last week. Intermediate trend remains up. The Index remains above its 20 day moving average. Short term momentum indicators changed to mixed from up.

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Percent of S&P 500 stocks trading above their 50 day moving average dropped last week to 73.40% from 84.20%. Percent is intermediate overbought and trending down. Historically, a move below 80% has signalled start of a short term downtrend.

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Percent of S&P 500 stocks trading above their 200 day moving average dropped last week to 76.60% from 79.20%. Percent remains intermediate overbought and has rolled over.

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Bullish Percent Index for S&P 500 stocks increased to 75.80% from 75.00% last week and remained above its 20 day moving average. The Index remains intermediate overbought.

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Bullish Percent Index for TSX Composite stocks increased last week to 49.40% from 46.22% and moved above its 20 day moving average. The Index is recovering from an intermediate oversold level and is trending up.

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The TSX Composite Index gained 146.34 points (1.00%) last week. Intermediate trend remains down (Score: 0.0). The Index remains above its 20 day moving average (Score: 1.0). Strength relative to the S&P 500 Index changed to positive from neutral (Score: 1.0). ‘Tis the season when the TSX Composite Index outperforms the S&P 500 Index until at least the beginning of March! Technical score improved to 2.0 from 1.5 out of 3.0. Short term momentum indicators are trending up, but are overbought.

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Percent of TSX stocks trading above their 50 day moving average increased last week to 54.80% from 45.20%. Percent has an intermediate uptrend.

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Percent of TSX stocks trading above their 200 day moving average increased last week to 41.20% from 40.40%. Percent continues to recover from an intermediate oversold level.

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The Dow Jones Industrial Average dropped 220.72 points (1.22%) last week. Intermediate trend remains up. The Average remains above its 20 day moving average. Strength relative to the S&P 500 Index changed to positive from neutral. Technical score improved to 3.0 from 2.5 out of 3.0. Short term momentum indicators have rolled over from an overbought level and are mixed at best.

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Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week and remained below its 20 day moving average. The Index is intermediate overbought and is trending down.

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Bullish Percent Index for NASDAQ Composite stocks increased last week to 56.91% from 55.96% and remained above its 20 day moving average. The Index continues in an intermediate uptrend.

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The NASDAQ Composite Index fell 80.05 points (1.67%) last week. Intermediate trend remains up. The Index fell below its 20 day moving average on Friday. Strength relative to the S&P 500 Index remains negative. Technical score dropped to 1.0 from 2.0 out of 3.0. Short term momentum indicators have rolled over from overbought levels and are trending down.

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The Russell 2000 Index dropped 16.41 points (1.35%) last week. Intermediate trend remains up. The Index remains above its 20 day moving average. Strength relative to the S&P 500 Index remains positive. Technical score remains at 3.0 out of 3.0. Short term momentum indicators have rolled over from an overbought level and are trending down.

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The Dow Jones Transportation Average lost 110.67 points (1.09%) last week. Intermediate trend remains up. The Average remains above its 20 day moving average. Strength relative to the S&P 500 Index remains neutral. Technical score remains at 2.5 out of 3.0. Short term momentum indicators changed to mixed from up.

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The Australia All Ordinaries Index added 45.50 points (0.85%) last week. Intermediate trend remains down. The Index remains above its 20 day moving average. Strength relative to the S&P 500 Index changed to positive from neutral. Technical score improved to 2.0 from 1.5 out of 3.0. Short term momentum indicators remain in an uptrend.

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The Nikkei Average dropped 368.19 points (2.07% last week. Intermediate trend remains up. The Average fell below its 20 day moving average. Strength relative to the S&P 500 Index remains neutral. Technical score slipped to 1.5 from 2.5 out of 3.0. Short term momentum indicators changed to mixed from upward.

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iShares Europe 350 dropped $1.29 (2.96%) last week. Intermediate trend remains down. Units fell below their 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score fell to 0.0 from 1.0 out of 3.0. Trend for short term momentum indicators changed from up to down.

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The Shanghai Composite Index gained another 167.08 points (5.29%) last week. Intermediate trend remains up. The Index remains above its 20 day moving average. Strength relative to the S&P 500 Index remains positive. Technical score remains at 3.0 out of 3.0. Short term momentum indicators are trending up, but are overbought.

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iShares Emerging Markets slipped $0.65 (1.65%) last week. Intermediate trend remains down. Units fell below their 20 day moving average on Friday. Strength relative to the S&P 500 Index remains negative. Technical score dropped to 0.0 from 1.0 out of 3.0. Short term momentum indicators are trending up.

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Currencies

The U.S. Dollar Index gained another 1.11(1.23%) last week. Intermediate trend remains up. The Index remains above its 20 day moving average. Short term momentum indicators are trending up, but are overbought.

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The Euro fell another 2.00 (1.64%) last week. Intermediate trend remains down. The Euro remains below its 20 day moving average. Short term momentum indicators are trending down, but are oversold.

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The Canadian Dollar dropped another US 0.98 cents (1.14%) last week. Intermediate trend remains down. The Canuck Buck remains below its 20 day moving average. Short term momentum indicators are trending down, but are oversold.

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The Japanese Yen slipped 0.12 (0.14%) last week. Intermediate trend remains down. The Yen remains below its 20 day moving average. Short term momentum indicators are oversold and showing signs of recovery.

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Commodity Trends

Daily Seasonal/Technical Commodities Trends at Friday’s Close

(Includes changes for December 31st and January 2nd )

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The CRB Index dropped another 6.24 points (2.66%) last week. Intermediate trend remains down. The Index remains below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score remains at 0.0 out of 3.0. Short term momentum indicators continue to trend down.

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Gasoline slipped another $0.10 per gallon (6.54%) last week. Intermediate trend remains down. Gas remains below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score remains at 0.0 out of 3.0. Short term momentum indicators are trending down, but are oversold.

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Crude Oil fell another $2.45 per barrel (4.44%) last week. Intermediate trend remains down. Crude remains below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score remains at 0.0 out of 3.0. Short term momentum indicators remain mixed.

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Natural Gas slipped $0.03 (1.00%) last week. Intermediate trend remains down. “Natty” remains below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Short term momentum indicators are trending down, but are oversold.

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The S&P Energy Index dropped 4.07 points (0.69%) last week. Intermediate trend remains down. The Index remains above its 20 day moving average. Strength relative to the S&P 500 Index remains neutral. Technical score remains at 1.5 out of 3.0. Short term momentum indicators changed to mixed from up.

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The Philadelphia Oil Services Index fell 3.26 points (1.52%) last week. Intermediate trend remains down. The Index remains above its 20 day moving average. Strength relative to the S&P 500 Index remains neutral. Technical score remains at 1.5 out of 3.0. Short term momentum indicators changed to mixed from up.

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Gold dropped $9.90 per ounce (0.83%) last week. Intermediate trend remains down. Gold remains below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score remains at 0.0 out of 3.0. Short term momentum indicators are trending up.

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Silver dropped $0.31 per ounce (1.93%) last week. Intermediate trend remains up. Silver remained below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score remained at 1.0 out of 3.0. Short term momentum indicators changed to up from mixed. Strength relative to Gold remains negative.

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The AMEX Gold Bug Index added 5.01 points (3.08%) last week. Intermediate trend remains down. The Index moved above its 20 day moving average. Strength relative to the S&P 500 Index changed to positive from neutral. Technical score improved to 2.0 from 0.5. Short term momentum indicators are trending up. Strength relative to Gold changed to positive from neutral.

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Platinum fell $12.90 per ounce (1.06%) last week. Intermediate trend remains down. PLAT fell below its 20 day MA. Relative strength remains neutral. Strength relative to Gold:positive.

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Palladium dropped $22.45 per ounce (2.75%) last week. Trend remains up. PALL fell below its 20 day MA. Strength relative to the S&P 500 remains neutral. Technical score slipped to 1.5 from 2.5 out of 3.0. Trend for momentum indicators changed to down from up.

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Copper was unchanged last week. Intermediate trend remains down. Copper remains below its 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score remains at 0.0 out of 3.0. Short term momentum indicators remain mixed

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The TSX Metals & Mining Index jumped 40.05 points (5.91%) last week. Intermediate trend remains down. The Index remains above its 20 day moving average. Strength relative to the S&P 500 Index changed to positive from neutral. Technical score improved to 2.0 from 1.5 out of 3.0. Short term momentum indicators are trending up.

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Lumber dropped $6.50 (1.92%) last week. Intermediate trend remains down. Lumber fell below its 20 day MA. Strength relative to the S&P 500 Index changed to negative from neutral. Technical score fell to 0.0 from 1.5. Short term momentum indicators are trending down.

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The Grain ETN dropped $1.98 (4.93%) last week. Intermediate trend remains up. Units fell below their 20 day moving average. Relative strength changed to negative from neutral.

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The Agriculture ETF dropped $0.78 (1.46%) last week. Intermediate trend remains up. Units fell below their 20 day moving average. Strength relative to the S&P 500 Index remains negative. Technical score fell to 1.0 from 2.0 out of 3.0. Short term momentum indicators are trending down.

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Interest Rates

The yield on 10 year Treasuries dropped another 12.7 basis points (5.64%) last week. Intermediate trend remains down. Yield remains below its 20 day moving average. Short term momentum indicators are trending down.

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Conversely, price of the long term Treasury ETF gained $2.91 (2.34%) last week. Intermediate uptrend was confirmed on Friday on a move above $127.46. Units remain above their 20 day moving average.

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Other Issues

The Santa Claus rally was better than average for investors this year. From December 16th to January 2nd, the S&P 500 Index gained 4.36% and the TSX Composite Index added 6.44%. However, end of the rally traditionally is the second trading day of the year (January 5th this year). Santa Claus rally traders can take profits.

Technical evidence (e.g. spike in the VIX Index, rollover of S&P 500 stocks trading above their 50 day moving average below the 80% level, start of a mixed trend/downtrend by a wide variety of U.S. equity market indices and sectors) suggest that U.S. equity markets entered into a short term correction earlier than usual at this time of year.

The VIX Index spiked 3.29 (22.69%) last week. Intermediate trend remains up. The Index moved back above its 20 day moving average. Short term momentum indicators are trending up.

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Strength in the U.S. Dollar Index is starting to have an impact on the U.S. economy. On a year-over-year basis, the U.S. Dollar Index has increase 10% from the fourth quarter of 2013 to the fourth quarter of 2014. Economic reports released during the past two weeks (Durable Goods Orders, New Home Sales, ISM, Construction Spending) were below consensus estimates. Look for additional evidence this week including lower than previous data points for Factory Orders, ISM Services and Non-farm Payrolls.

Historically, U.S. equity markets have moved slightly higher in early January in anticipation of good news released with fourth quarter and annual reports (e.g. dividend increases, stock splits, share repurchases). However, the possibility of the usual gain in early January is somewhat suspect this year. Strength in the U.S. Dollar Index also is impacting revenues and earnings of big cap international companies with a head office in the U.S. Median consensus for earnings per share on a year-over-year basis for the 30 Dow Jones Industrial companies is a gain of only 2.2%. Eighteen companies are expected to report higher earnings. Twelve companies are expected to report lower earnings.

Earnings prospects for Canada’s top 60 companies are expected to be better than big cap U.S. companies thanks partially to weakness in the Canadian Dollar. The Canadian Dollar has dropped from an average of US 95 cents in the fourth quarter of 2013 to an average of US 0.875 in the fourth quarter of 2014. Look for Canadian equities to continue to outperform broadly based U.S. equity indices.

Earnings news this week is not expected to have a significant impact on equity markets. Most major companies are in the “quiet phase” prior to release of fourth quarter results.

Historically, North American equity markets have a period a strength from the beginning of January to the middle of July during U.S. pre-election Presidential cycle years. Average gain by the Dow Jones Industrial Average based on an 85 year study was 12.0% per period.

 

The Bottom Line

A short term correction by U.S. equity markets that could last until after the release of fourth quarter results (say by mid-February) has started. Economic sensitive sectors are the most vulnerable. Canadian equity markets are a better choice during the next 6-8 weeks. Thereafter, North American equity markets will offer a new upside opportunity that likely will last until July. Meanwhile, selected sectors are expected to perform well including precious and base metals and small caps.

Daily Seasonal/Technical Sector Trends at Friday’s Close

(Includes changes for December 31st and January 2nd)

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Monitored List of Technical/Seasonal Ideas

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Green: Increased score

Red: Decreased score

A score of 1.5 or higher is needed to maintain a position

 

Special Free Services available through www.equityclock.com

Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices. To login, simply go to http://www.equityclock.com/charts/

Following is an example:

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StockTwits released on Friday @equityclock

$AEM.CA is the first major gold producer to move above a base building pattern.

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Enclosed is the seasonality chart for $AEM.CA. Its seasonality is typical of most senior gold producers.

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Editor’s Note: Slightly later, Detour Gold completed a reverse head and shoulders pattern.

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Disclaimer: Comments, charts and opinions offered in this report by www.timingthemarket.ca and 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. Don and Jon Vialoux are Research Analysts with Horizons ETFs Management (Canada) Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons ETFs Management (Canada) Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Management (Canada) Inc.

Individual equities mentioned in StockTwits are not held personally or in HAC.

Horizons Seasonal Rotation ETF HAC January 2nd 2014

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Copyright © Don Vialoux, EquityClock.com

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