by Don Vialoux, Timingthemarket.ca
Economic News This Week
April Canadian Housing Starts to be released at 8:15 AM EDT on Monday are expected to fall to 194,000 from 204,639 in March.
March Wholesale Inventories to be released at 10:00 AM EDT on Tuesday are expected to increase 0.2% versus a decline of 0.5% in February
Weekly Initial Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to dip to 270,000 from 274,000 last week
April Producer Prices to be released at 8:30 AM EDT on Friday are expected to increase 0.3% versus a decline of 0.1% in March. Excluding food and energy, April PPI is expected to increase 0.1% versus a decline of 0.1% in March.
April Retail Sales to be released at 8:30 AM EDT on Friday are expected to increase 0.8% versus a decline of 0.3% in March. Excluding auto sales, April Retail Sales are expected to increase 0.5% versus a gain of 0.2% in March
March Inventories to be released at 10:00 AM EDT on Friday are expected to increase 0.2% versus a drop of 0.1% in February
May Michigan Sentiment Index to be released at 10:00 AM EDT on Friday is expected to increase to 90.0 from 89.7 in April
Earnings News This Week
Mark Leibovit’s “Wall Street Raw”
Link to Saturday’s radio show (including an interview with Don Vialoux)
The Bottom Line
Technical deterioration last week at a time when equity markets are overbought suggests a cautious strategy for equity ownership in markets, sectors and commodities at a time when seasonal influences normally change from Positive to at least Neutral. Appropriate action is recommended for investors employing seasonal strategies that are at or near the end of their optimal period of investment.
Selected subsectors with favourable seasonality at this time of year continue to perform well and can be held for now. They include oil and gas exploration/pipelines, medical supplies, beverage and food/drug distribution, REITs, electric utilities and waste management.
Observations
Economic focus this week is on April Producer Prices and April Retail Sales. Both are expected to support slow, but steady economic growth in the U.S.
First quarter reports by S&P 500 companies are starting to wind down: 87% already have reported: 20 more S&P 500 companies and one Dow Jones Industrial Average company (Disney) are scheduled to report results this week. Blended earnings released to date are down 7.1% and sales are down 1.6% on a year-over-year basis. 71% of reporting companies beat consensus earnings estimates and 53% of reporting companies beat consensus revenues.
Investment analysts remain cautious about second quarter prospects: 55 S&P 500 companies have released negative second quarter guidance while 24 companies have released positive guidance. Consensus for the second quarter is a 4.7% decline in earnings and a 1.3% decline in revenues on a year-over-year basis.
Beyond the second quarter according to FactSet, prospects for S&P 500 companies are more promising. Year-over-year earnings are expected to increase 1.4% in the third quarter and 7.5% in the fourth quarter. Year-over-year revenues are expected to increase 1.7% in the third quarter and 4.3% in the fourth quarter.
Technical action by S&P 500 stocks turned significantly bearish last week: 17 stocks broke intermediate resistance while 47 stocks broke intermediate support. This trend is expected to continue. The S&P 500 Momentum Barometer and TSX Composite Momentum Barometer have rolled over from intermediate overbought levels and are trending down.
Short term momentum indicators for most equity indices, commodities, sectors and related ETFs have changed from Trending Up to Trending Down during the past two weeks. Many of the short term momentum indicators (notably Stochastics) already are oversold, implying the possibility of a short term recovery this week. However, a short term recovery during an intermediate downtrend from an overbought level suggests an opportunity for traders to take short term profits.
History is repeating! U.S. equity indices during U.S. Presidential election years historically have moved lower from mid-April to near the end of May followed by a recovery lasting until the end of August
Many equity markets and primary sectors have a history of changing their seasonality at this time of year from Positive to at least Neutral and frequently Negative. Sectors with negative seasonality and deteriorating technicals are candidates for short sales.
Equity Indices and Related ETFs
Daily Seasonal/Technical Equity Trends for May 6th 2016
Green: Increase from previous day
Red: Decrease from previous day
Calculating Technical Scores
Technical scores are 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.
The S&P 500 Index dropped 8.16 points (0.40%) last week. Intermediate trend remains up. The Index remained below its 20 day moving average. Short term momentum indicators continue to trend down.
Percent of S&P 500 stocks trading above their 50 day moving average (Also known as the S&P 500 Momentum Barometer) dropped last week to 63.00 from 68.00. Percent remains intermediate overbought and trending down.
Percent of S&P 500 stocks trading above their 200 day moving average dropped last week to 66.60 from 70.40. Percent remains intermediate overbought and trending down.
Bullish Percent Index for S&P 500 stocks slipped last week to 71.60 from 75.60 and remained below its 20 day moving average. The Index remains intermediate overbought and trending down.
Bullish Percent Index for TSX Composite stocks slipped last week to 74.48 from 74.90 and remained above its 20 day moving average. The Index remains intermediate overbought
The TSX Composite Index dropped 249.98 points (1.79%) last week. Intermediate trend remains up (Score: 2). Strength relative to the S&P 500 Index remained Positive (Score: 2). The Index fell below its 20 day moving average (Score: -1). Short term momentum indicators are trending down (Score: -1). Technical score dropped last week to 2 from 5.
Percent of TSX stocks trading above their 50 day moving average (also known as the TSX Composite Momentum Barometer) plunged last week to 63.52 from 78.11. Percent remains intermediate overbought and trending down.
Percent of TSX stocks trading above their 200 day dropped last week to 65.67% from 72.10%. Percent remains intermediate overbought and trending down.
The Dow Jones Industrial Average slipped 33.31 points (0.19%) last week. Intermediate trend remained up. Strength relative to the S&P 500 Index turned Positive. The Average remained below its 20 day moving average. Short term momentum indicators are trending down. Technical score improved last week to 2 from 0.
Bullish Percent Index for Dow Jones Industrial Average stocks slipped last week to 90.00% from 93.33% and dropped below its 20 day moving average. The Index remains intermediate overbought and showing early signs of rolling over.
Bullish Percent Index dropped last week to 50.63 from 55.23 and moved below its 20 day moving average. The Index remains intermediate overbought and trending down.
The NASDAQ Composite Index dropped another 39.21 points (0.82%) last week. Intermediate trend remains Neutral. Strength relative to the S&P 500 Index remains Negative. The Index remained below its 20 day moving average. Short term momentum indicators continue to trend down. Technical score remained last week at -4.
The Russell 2000 Index dropped 16.12 points (1.43%) last week. Intermediate trend remained Neutral. Strength relative to the S&P 500 Index changed to Neutral from Positive. The Index fell below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 2.
The Dow Jones Transportation Average dropped 132.67 points (1.69%) last week. Trend changed on Friday to Neutral from Up on a move below 7,623.89. Strength relative to the S&P 500 Index changed to Negative from Neutral. The Average remained below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -4 from 0.
The Australia All Ordinaries Composite Index added 42.60 points (0.80%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. The Index remains above its 20 day moving average. Short term momentum indicators remain mixed. Technical score last week was unchanged at 5.
The Nikkei Average plunged 559.33 points (3.36%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained at Neutral. The Average dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 2.
Europe iShares dropped $1.11 (2.75%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Neutral from Positive. Units dropped below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 4
The Shanghai Composite Index dropped 25.07 points (0.85%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Neutral from Negative. The Index remained below its 20 day moving average. Short term momentum indicators are trending down. Technical score improved last week to 0 from -2.
Emerging Markets iShares dropped $1.56 (4.54%) last week. Intermediate trend remained up. Strength relative to the S&P 500 Index changed to Negative from Neural. Units fell below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 2.
Currencies
The U.S. Dollar gained 0.82 (0.88%) last week. Intermediate trend remains down. The U.S. Dollar remains below its 20 day moving average. Short term momentum indicators have turned upward.
The Euro slipped 0.43 (0.38%) last week. Intermediate trend remains up. The Euro remained above its 20 day moving average. Short term momentum indicators have just turned down.
The Canadian Dollar plunged US 2.20 cents (2.76%) last week. Intermediate trend remains up. The Canuck Buck fell below its 20 day moving average. Short term momentum indicators are trending down.
The Japanese Yen dropped 0.69 (0.72%) last week. Intermediate trend remains up. The Yen remains above its 20 day moving average. Short term momentum indicators are overbought and showing early signs of rolling over.
Commodities
Daily Seasonal/Technical Commodities Trends for May 6th 2016
Green: Increase from previous day
Red: Decrease from previous day
The CRB Index fell 4.70 points (2.55%) last week. Intermediate trend remained up. Strength relative to the S&P 500 Index remained Positive. The Index remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score slipped last week to 4 from 6.
Gasoline dropped $0.10 per gallon (6.25%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Neutral from Positive. Gas dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 6.
Crude oil dropped $1.33 per barrel (2.90%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. Crude remains above its 20 day moving average. Short term momentum indicators are trending down. Technical score slipped last week to 4 from 6.
Natural Gas dropped $0.04 (1.87%) per MBtu last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. “Natty” closed at its 20 day moving average. Short term momentum indicators are trending down. Technical score slipped last week to 3 from 4.
The S&P Energy Index fell 14.83 points (2.95%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 2 from 6.
The Philadelphia Oil Services Index dropped 11.26 points (6.25%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 2 from 6.
Gold slipped $0.90 (0.07%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. Gold remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score dipped to 4 from 6.
Silver dropped $0.36 per ounce (2.01%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. Silver remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score slipped last week to 4 from 6.
The AMEX Gold Bug Index dropped 7.32 points (3.14%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. The Index remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score slipped last week to 4 from 6.
Platinum added $5.30 per ounce (0.49%) last week. Intermediate trend remains up. Relative strength: Positive. Trades above its 20 day MA. Momentum indicators are trending higher.
Palladium dropped $15.90 per ounce (2.55%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. PALL remained above its 20 day moving average. Short term momentum indicators are trending down. Tech Score slipped to 4.
Copper dropped $0.126 per lb (5.53%) last week. Intermediate trend remained Neutral. Strength relative to the S&P 500 Index changed to Neutral from Positive. Copper dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped to -2 from 2.
The TSX Metals & Mining Index dropped 64.08 points (10.79%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. The Index remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score dipped to 4 from 6.
Lumber added 9.20 (3.12%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. Lumber remained above its 20 day MA. Momentum: Uptrend
The Grain ETN dropped $1.02 (3.06%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained positive. Units fell below their 20 day MA. Short term momentum indicators are trending down. Technical score dropped to 2 from 6.
The Agriculture ETF dropped $1.15 (2.36%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Positive. Units fell below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped to 2 from 6.
Interest Rates
Yield on 10 year Treasuries dipped 4 basis points (2.20%) last week. Intermediate trend remains down. Yield dropped below its 20 day moving average. Short term momentum indicators are trending down.
Conversely, price of the long term Treasury ETF added 1.17 (0.90%) last week. Intermediate trend remains up. Price moved above its 20 day moving average.
Volatility
The VIX Index dropped 0.99 (6.31%) last week. Intermediate trend remains down. The Index remained above its 20 day moving average.
Sectors
Daily Seasonal/Technical Sector Trends for March May 6th 2016
Green: Increase from previous day
Red: Decrease from previous day
StockTwits Released on Friday
Double top patterns on the Retail and Transportation ETFs suggest downside potential of 7%
Technical action by S&P 500 stocks to 10:00: Bearish. Breakouts: $TDC, $ATVI. Breakdowns: $K, $ENDP, $CI, $CAT, $FLR, $MSI, $TRIP, $MNK
Editor’s Note: After 10:00 AM EDT, Simon Properties broke resistance and Kinder Morgan, Polo Ralph Lauren, Biogen and Mylan broke support.
Dow Jones Transportation Average and $IYT completed a double top pattern by moving below 7,623.89.
‘Tis the season for weakness in the Dow Jones Transportation Average and $IYT.
Special Free Services available through www.equityclock.com
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Disclaimer: Seasonality and technical ratings 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
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