Equity Markets: Signs of Rolling Over?

by Don Vialoux, Timingthemarket.ca

Economic News This Week

The July Case-Shiller 20 City Home Price Index to be released at 9:00 AM EDT on Tuesday is expected to show a year-over-year gain of 0.8% versus an increase of 0.5% in June.

Canadaā€™s July Retail Sales to be released at 8:30 AM EDT on Tuesday is expected to increase 0.2% versus a 0.4% decline in June.

September Consumer Confidence Index to be released at 10:00 AM EDT on Tuesday is expected to increase to 63.0 from 60.6 in August.

August New Home Sales to be released at 10:00 AM EDT on Wednesday is expected to increase to 380,000 from 372,000 in July.

Weekly Initial Jobless Claims to be released at 8:30 AM EDT on Thursday is expected to ease to 380,000 from 382,000 last week.

August Durable Goods Orders to be released at 8:30 AM EDT on Thursday are expected to drop 5.1% versus a gain of 4.1% in July. Excluding Transportation, Durable Goods Orders are expected to decline 0.3% versus a decline of 0.6% in July.

The third report on real annualized second quarter GDP to be released at 8:30 AM EDT on Thursday is expected to remain unchanged at 1.7%.

August Personal Income to be released at 8:30 AM EDT on Friday is expected to increase 0.2% versus a gain of 0.3% in July. August Personal Spending is expected to increase 0.5% versus a gain of 0.4% in July.

Canadaā€™s July GDP to be released at 8:30 AM EDT is expected to increase 0.1% versus a gain of 0.2% in June.

September Chicago PMI to be released at 9:45 AM EDT on Friday is expected to ease to 52.8 from 53.0.

The September Michigan Sentiment Index to be released at 9:55 AM EDT on Friday is expected to slip to 79.0 from 79.2 in August.

 

Earnings News This Week

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Equity Trends

The S&P 500 Index slipped 5.62 points (0.38%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and showing early signs of rolling over (e.g. a fall by RSI below its 70% level on Friday).

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Percent of S&P 500 stocks trading above their 50 day moving average slipped last week to 82.00% from 86.20%. Percent is intermediate overbought and rolling over.

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Percent of S&P 500 stocks trading above their 200 day moving average fell last week to 77.00% from 81.80%. Percent is intermediate overbought and rolling over.

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The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) fell last week to (380/78=) 4.87 from 5.22. Twenty six S&P 500 stocks broke resistance and 21 broke support.

Bullish Percent Index for S&P 500 stocks increased last week to 79.40% from 79.00% and remained above its 15 day moving average. The Index remains intermediate overbought.

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The Up/Down ratio for TSX Composite stocks slipped last week to (163/52=) 3.13. Twelve stocks broke resistance and thirteen stocks broke support.

Bullish Percent Index for TSX Composite stocks increased last week to 68.70% from 67.89% and remained above its 15 day moving average. The Index remains intermediate overbought.

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The TSX Composite Index fell 115.87 points (0.93%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and showing early signs of rolling over (e.g. RSI falling below the 70% level). Strength relative to the S&P 500 Index remains neutral.

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Percent of TSX stocks trading above their 50 day moving average fell last week to 67.07% from 71.95%. Percent is intermediate overbought and rolling over.

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Percent of TSX stocks trading above their 200 day moving average fell last week to 63.01% from 67.48%. Percent is intermediate overbought and rolling over.

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The Dow Jones Industrial Average eased 13.90 points (0.11%) last week. Intermediate trend is up. The Average remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and showing early signs of rolling over (e.g. RSI falling below 70%). Strength relative to the S&P 500 Index remains negative but is showing early signs of change.

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Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week at 86.67% and remained above its 15 day moving average. The Index remains intermediate overbought.

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Bullish Percent Index for NASDAQ Composite Index increased last week to 59.38% to 58.56% and remained above its 15 day moving average. The Index remains intermediate overbought.

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The NASDAQ Composite Index slipped 3.99 points (0.13%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and showing signs of rolling over (e.g. RSI falling below 70%). Strength relative to the S&P 500 Index remains positive.

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The Russell 2000 Index eased 9.19 points (1.06%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and showing signs of rolling over (e.g. RSI moving below its 70% level and Stochastics moving below its 80% level). Strength relative to the S&P 500 Index remains positive.

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The Dow Jones Transportation Average plunged 305.18 points (5.85%) last week. ā€˜Tis the season! An intermediate downtrend was confirmed on a break below 4,911.83 on Friday. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index remains negative.

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The Australia All Ordinaries Composite Index added 20.55 points (0.47%) last week. Intermediate trend changed from down to up on a break above resistance at 4,430.30. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index remains negative.

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The Nikkei Average fell 49.39 points (0.54%) last week. An intermediate uptrend was confirmed when the Average broke above resistance at 9,222.87. The Average remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index remains negative.

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The Shanghai Composite Index lost another 97.16 points (5.12%) last week. Intermediate downtrend was confirmed when the Index fell below support at 2,029.05 to reach a three year low. The Index remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index remains negative.

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The London FT Index fell 136.47 points (3.28%), the Frankfurt DAX Index added 39.49 points (0.53%) and the Paris CAC Index dropped 50.86 points (1.42%) last week.

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The Athens Index gained 32.77 points (4.41%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought. Strength relative to the S&P 500 Index remains positive.

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Currencies

The U.S. Dollar Index added 0.48 (0.61%) last week. The Index bounced from support at 78.40. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are oversold and showing early signs of bottoming (e.g. Stochastics moving above 20% and RSI moving above 30% on Friday).

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The Euro fell 1.51 (1.15%) last week. Intermediate trend is neutral. The Euro remains above its 20 and 50 day moving averages and below its 200 day moving averages. Short term momentum indicators are overbought and showing signs of rolling over (e.g. Stochastics moving below the 80% level and RSI moving below its 70% level on Friday).

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The Canadian Dollar eased 0.48 cents U.S. (0.47%) last week. Intermediate trend is up. The Canuck Buck remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and have rolled over (e.g. Stochastics falling below 80%, RSI dropping below 70% and MACD recording a negative cross over.

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The Japanese Yen added 0.36 (0.28%) last week. Intermediate trend is up. The Yen remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are neutral after trending lower from an overbought level.

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Commodities

The CRB Index fell 11.94 points (3.72%) last week. Intermediate trend is up. The Index remains above its 50 and 200 day moving averages, but fell below its 20 day moving average. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index has changed from neutral to negative.

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Gasoline fell $0.19 per gallon (6.31%) last week. Gasoline fell below support at $2.84 as well as its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index has turned from neutral to negative.

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Crude Oil fell $5.93 per barrel (5.99%) last week. Intermediate trend changed from up to neutral on a break below support at $93.95. Crude fell below its 20, 50 and 200 day moving averages. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index changed from positive to negative.

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Natural Gas fell $0.07 per MBtu (2.36%) last week. Intermediate trend is up. Resistance is at $3.28 and support is at $2.61. Gas remained above its 20, 50 and 200 day moving averages. Short term momentum indicators are neutral. Strength relative to the S&P 500 Index remains neutral/negative.

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The S&P Energy Index slipped 10.33 points (1.81%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and have rolled over. Strength relative to the S&P500 Index remains positive. Favourable seasonal influences tend to peak at the end of September.

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The Philadelphia Oil Services Index fell 6.78 points (2.81%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators have rolled over from an overbought level. Strength relative to the S&P 500 Index is positive, but showing signs of change.

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Gold gained $1.90 per ounce (0.11%) last week. Intermediate trend is up. Gold remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.

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The AMEX Gold Bug Index gained another 8.01 points (1.55%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking Strength relative to gold remains positive.

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Silver slipped $0.16 per ounce (0.46%) last week. Intermediate trend is up. The stock trades above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to gold remains positive.

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Platinum fell $67.40 per ounce (3.96%) last week. Momentum indicators have rolled over from overbought levels. Strength relative to the S&P 500 Index is positive, but changing.

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Palladium dropped $21.85 per ounce (3.15%) last week. Short term momentum indicators have rolled over from overbought levels. Strength relative to the S&P 500 changed from positive to neutral.

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Copper slipped $0.04 per lb. (1.05%) last week. Intermediate trend is up. Copper remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought. Strength relative to the S&P 500 Index remains positive.

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The TSX Global Metals and Mining Index fell 81.29 points (8.15%) last week. Intermediate trend is up. The Index remains above its 20 and 50 day moving averages and below its 200 day moving averages. Short term momentum indicators have rolled over from overbought levels. Strength relative to the S&P 500 Index has returned to a neutral level.

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Lumber added $0.41 (0.14%) last week. Intermediate trend is up. Strength relative to the S&P 500 Index remains negative.

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The Grain ETN fell $3.20 (5.04%) last week. Units fell below their 20 and 50 day moving averages. Strength relative to the S&P 500 Index changed from neutral to negative.

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The Agriculture ETF slipped $0.63 (1.19%) last week. Intermediate trend is up. Units remain above their 20, 50 and 200 day moving averages. Short term momentum indicators are rolling over from overbought levels. Strength relative to the S&P 500 Index remains neutral, but is close to turning positive.

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Interest Rates

The yield on 10 year Treasuries fell 11 basis points (5.88%) last week. Short term momentum indicators are trending lower from overbought levels.

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Conversely, price of the long term Treasury ETF gained $3.25 (2.75%) last week. Price recovered above its 200 day moving average.

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Other Issues

The VIX Index fell another 0.53 (3.65%) last week and is testing support at 13.30%.

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The weakest period in the year for North American equity markets from September 16th to October 9th is happening again this year. This is the time of year when companies most frequently lower guidance prior to release of third quarter results (i.e. earnings confession season). Lots of examples last week including FedEx, Norfolk Southern and Bed Bath & Beyond! Possibilities of more frequent guidance declines this year are higher than usual. Third quarter year-over-year consensus for Dow Jones Industrial Average companies already calls for a 1.6% decline. Consensus for S&P 500 companies is a decline of 2.7% (down from 2.1% a week ago) despite a 20.2% gain by Apple Computer. Since release of second quarter reports, 80% of S&P 500 companies that changed guidance lowered their guidance. Consensus for TSX 60 companies is an average decline of 7.8%. Despite consensus estimates calling for lower earnings on a year-over-year basis, consensus estimates appear too high and likely will continue to fall prior to release of third quarter results.

Macro events outside of North America also will influence equity markets. A decision by Spain to ask the European Central Bank to purchase Spanish sovereign debt is scheduled on Thursday. The Eurozone consumer confidence index is released on Thursday.

U.S. economic news this week is expected to be mixed. Case-Shiller and Consumer Confidence on Tuesday are potential positive events. Weekly initial jobless claimes, Durable Goods Orders on Thursday and Chicago PMI and Michigan Sentiment on Friday are potential negative events.

Earnings reports this week are not expected to be significant. Focus is on Nike on Thursday.

Historically, North American equity markets have moved lower from mid- September to mid-October during a U.S. Presidential election year (particularly when the polls show a close election as is indicated this year. Thereafter, equity markets have moved higher until at least the beginning of January (The exception was the year 2000 when confirmation of President Bush as President was delayed until January 2001).

Cash on the sidelines is substantial and growing. However, political uncertainties (including the fiscal cliff) preclude major commitments by investors and corporations before the Presidential election.

 

The Bottom Line

Downside risk in North American equity markets exceeds upside potential in equity markets during the next 2-3 weeks prior to start of the third quarter earnings report season. Thereafter, prospects turn positive. Selected positive seasonal trades such as gold and energy have performed well, but are approaching their end of their period of seasonal strength. Similarly, selected negative seasonal trades such as Transportation and Semiconductors are approaching the end of their seasonal weakness. The time to take profits in these seasonal trades is rapidly approaching. Short term technical indicators will be useful for determining exit points. A new series of seasonal trades will appear as the end of October approaches.

 

Mark Leibovit on Bloomberg Radio

Following is a link to the interview:

http://www.vrtrader.com/files/BLOOMBERGSEPT19INTERVIEW.mp3

 

Links to recent volume reversal charts:

Negative Leibovit signal on QCOM

http://www.vrtrader.com/files/Pre_Market120921.pdf

Positive Leibovit signal on CAG

http://www.vrtrader.com/files/Post_Market120920.pdf

 

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:

 

Energy Sector Seasonal Chart

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The latest weekly update on ETFs in Canada to September 21st is available at

http://www.etfinsight.ca/

 

Tom Rogersā€™ Weekly Elliott Wave Blog

Following is a link:

http://www.tomrogers.net/signpost.htm

 

imageDisclaimer: Comments and opinions offered in this report at www.timingthemarket.ca 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 for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc

 

Horizons Seasonal Rotation ETF HAC September 21st 2012

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