by Don Vialoux, EquityClock.com
The Bottom Line
Most equity indices around the world were mixed last week. Major influences remained concern about a second wave of the coronavirus (negative) and possibility of approval of a vaccine by November (positive). Technical indicators for North American equity markets remained intermediate overbought and past their peak. The VIX Index remained elevated and typically moves higher from now to early October. Seasonal influences for most equity markets around the world tend to be negative between now and early October. Look for volatile, choppy markets between now and October.
Observations
The VIX Index (better known as the Fear Index) remained elevated last week.
Weakness in the U.S. Dollar continued. The U.S. Dollar Index moved below 94.61 to a 20 month low extending an intermediate downtrend.
Conversely, the Euro and the Canadian Dollar moved higher. The Euro reached a 15 month high. The Canadian Dollar reached a four month high
U.S. Dollar weakness prompted additional strength in commodity prices. The CRB Index has gained more than 40% from its low set in mid-April.
A weak U.S. Dollar prompted strength in gold, gold equities and related ETFs. All recently entered their best annual period of seasonal strength from the third week in July to late September. Gold moved above $1,923.70 to an all-time high.
Broadly based U.S. equity indices failed to move to new highs on Friday despite higher than consensus quarterly revenue and earnings reports released by Apple, Facebook and Amazon and their higher stock prices. Indeed, other key stocks in these indices broke support levels and set intermediate downtrends. See Technical Notes at the end of this report.
Medium term technical indicators for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 50 day moving average) remained overbought last week and are trending down. See Barometer chart at the end of this report.
Medium term technical indicators for Canadian equity markets also remained overbought last week and are trending down. See Barometer chart at the end of this report.
More short term short term momentum indicators for U.S. markets and sectors (20 day moving averages, short term momentum indicators) changed from up to down late last week.
More short term momentum indicators for Canadian markets/sectors also changed from up to down last week.
Year-over-year 2020 consensus earnings estimates for S&P 500 companies moved slightly higher from depressed levels last week. Sixty three percent of companies have reported second quarter results to date with 84% reporting higher than consensus earnings. According to FactSet, second quarter 2020 earnings are expected to fall 35.7% (versus a drop of 42.4% last week) and revenues are expected to drop 9.6% (versus 10.1% last week). Third quarter earnings are expected to fall 22.9% (versus 24.0% last week) and revenues are expected to decrease 4.5% (versus 5.1% last week). Fourth quarter earnings are expected to drop 12.1% (versus 12.3% last week) and revenues are expected to decline 1.3% (versus 1.7% last week). Earnings for all of 2020 are expected to decrease 19.4% (versus 20.7% last week) and revenues are expected to decline 3.2% (versus 3.6% last week).
Consensus estimates for earnings and revenues by S&P 500 companies turn positive on a year-over-year basis in the first quarter of 2021. According to FactSet, earnings in the first quarter of 2021are expected to increase 13.4% (versus 12.7% last week) and revenues are expected to increase 3.2% (versus 3.0% last week). Earnings for all of 2021 are expected to increase 27.0% (versus 28.1% last week) and revenues are expected to increase 8.4% (versus 8.3% last week).
Economic News This Week
July ISM Manufacturing PMI to be released at 10:00 AM EDT on Monday is expected to increase to 54.0 from 52.6 in June.
June Factory Orders to be released at 10:00 AM EDT on Tuesday are expected to increase 5.0% versus a gain of 8.0% in May.
July ADP Employment Report to be released at 8:15 AM EDT on Wednesday is expected to drop to 1.250 million from 2.369 million in June.
June Canadian Trade Balance for June to be released at 8:30 AM EDT on Wednesday is expected to drop to a $3.00 billion deficit from a deficit of $0.68 Billion in May.
July ISM Services PMI to be released at 10:00 AM EDT on Wednesday is expected to slip to 54.8 from 57.1 in June.
July Non-farm Payrolls to be released at8:8:30 AM EDT on Friday is expected to drop to 1.360 million from 4.800 million in June. July Unemployment Rate is expected to slip to 10.7 from 11.1 in June. July Average Hourly Earnings are expected to increase 4.4% versus a gain of 5.0% in June.
July Canadian Employment to be released at 8:30 AM EDT on Friday is expected to increase 700,000 versus a gain of 952,900 in June. July Unemployment Rate is expected to slip to 12.0% from 12.3 in June.
June Wholesale Inventories to be released at 8:30 AM EDT on Friday are expected to drop 2.0% versus a decline of 1.2% in May.
Selected Earnings News This Week
Trader’s Corner
Equity Indices and related ETFs
Daily Seasonal/Technical Equity Trends for July 31st 2020
Green: Increase from previous day
Red: Decrease from previous day
Commodities
Seasonal/Technical Commodities Trends for July 31st 2020
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for July 31st 2020
Green: Increase from previous day
Red: Decrease from previous day
Technical Scores
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
Changes Last Week
Larry Berman’s take on Gold
Larry says “Gold has a long way to go”. Following is a copy of his BNN comment on Friday:
https://www.bnnbloomberg.ca/video/larry-berman-gold-has-a-long-way-to-go~2006112
Technical Notes for July 31st
Chevron (CVX), a Dow Jones Industrial Average stock moved below $82.50 setting an intermediate downtrend.
Exxon Mobil (XOM), a Dow Jones Industrial Average stock moved below $41.10 setting an intermediate downtrend.
Gilead (GILD), a NASDAQ 100 stock moved below $71.66 setting an intermediate downtrend.
American Airlines (AAL), a NASDAQ 100 stock moved below $10.98 extending an intermediate downtrend.
Amgen (AMGN), a NASDAQ 100 stock moved below $240.48 completing a double top pattern.
Canadian energy stocks are under technical pressure during the second quarter report season. Vermillion is the latest stock to move below intermediate support to set an intermediate downtrend.
Wolfe on Bay Street
Don Vialoux was a guest analyst on the weekly radio show with Wolfgang Klein and Jack Hardill released on Saturday. Focus was expectations for equity market, bonds and gold between now and the end of the year. Following is a link:
https://globalnews.ca/toronto/program/the-wolfgang-klein-show
S&P 500 Momentum Barometer
The Barometer dropped last week from 73.35 to 65.53. It remains intermediate overbought and trending down.
TSX Momentum Barometer
The Barometer dropped from 70.05 to 67.96 last week. It remains intermediate overbought and trending down.
Disclaimer: Seasonality and technical ratings offered in this report and at
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
This post was originally publised at Vialoux's Tech Talk.
