by Don Vialoux, Timingthemarket.ca
Editor’s Note: Next Tech Talk report is available on Monday March 27th
The Bottom Line
Highs set by U.S. equity markets on March 1st (2,400.98 for the S&P 500 Index and 21,169.11 for the Dow Jones Industrial Average) likely will prove to be intermediate highs lasting well into April and possibly longer. North American equity markets rallied briefly last week following release of the FOMC announcement, but failed to move to new highs. Traders continue to look for excuses triggered by short term technical indicators to take profits in North American equities. International equity markets (particularly emerging markets) continue to offer better opportunities for equity investors during their current period of seasonal strength lasting into at least early May.
Technical action by S&P 500 stocks was mildly bullish last week: 47 stocks broke intermediate resistance levels and 11 stocks broke intermediate support levels. However, most of the stocks breaking resistance already were in uptrends. Number of stocks in an uptrend increased to 337 from 335, number of stocks in a neutral trend remained at 51 and number of stocks in a downtrend slipped to 112 from 114. The Up/Down ratio increased last week to (337/112=) 3.01 from 2.94.
Short term technical indicators (e.g. 20 day moving averages, short term momentum indicators) for a wide variety of equity indices, sectors and commodities) recovered slightly, but in many cases have returned to overbought levels.
Intermediate technical indicators (e.g. Percent of stocks trading above their 50 day moving average, Bullish Percent Index) remain intermediate overbought and are trending down.
Prospects for S&P 500 companies for the first quarter and 2017 remain promising. According to FactSet, first quarter earnings are expected to increase on a year-over-year basis by 9.0% and revenues are expected to increase 7.2% (unchanged from the previous week). 78 companies have issued negative first quarter earnings guidance while 32 companies have issued positive guidance. Consensus for 2017 calls for a 9.8% in earnings per share and a 5.3% increase in revenues. Consensus for 2018 calls for a 12.0% increase in earnings per share and a 4.8% increase in revenues.
Economic focus this week in the U.S. is on New Home Sales on Thursday. A small increase is anticipated.
Economic focuses in Canada this week are on the Budget on Wednesday evening, January Retail Sales on Tuesday and February Consumer Prices on Thursday.
Earnings news is quiet this week. U.S. focuses are on Nike on Tuesday and KB Homes on Thursday. Canadian focuses are on Lennar on Tuesday and Power Corp on Friday.
International focus is on the G20 Finance Ministers meeting that occurred over the weekend.
History shows U.S. equity markets struggle in March and April after a first term President is elected. Election promises prove to take longer than expected to implement due to time needed to install a new cabinet and working through the Congressional process with new political friends and foes. Trump’s tenure to date as President has been controversial at best and uncoordinated at worst.
Thought on the Financial Services sector: Bank stocks on both sides of the border recorded significant technical deterioration last week. Notable was weakness in the S&P Financials Index on Friday when Relative Strength turned negative and the Index dropped below its 20 day moving average. Momentum indicators already had turned down.
Ditto for the Canadian banks! ZEB.TO completed a double top pattern on a move below $28.03