by Don Vialoux, EquityClock.com
The Bottom Line
Major equity indices around the world were mostly lower again last week. The notable exception was strength in the Australian equity market. Greatest influences remain a possible second wave of the coronavirus (negative) and possible approval of a vaccine (positive). Momentum indicators for North American equity markets changed last week from intermediate neutral to intermediate oversold despite the recovery on Friday. The VIX Index remained elevated. It typically moves higher between now and mid-October. Weakest four week period in the year for most equity market indices around the world is between mid-September and mid-October (particularly the TSX Composite Index and U.S. equity indices during U.S. Presidential election years). Look for volatile, choppy equity markets between now and at least mid-October.
Observations
The VIX Index (better known as the Fear Index) showing volatility by the S&P 500 Index remained elevated last week.
Ditto for VXN showing volatility by the NASDAQ 100 Index.
The Dow Jones Industrial Average and S&P 500 Index during U.S. Presidential Election years are following their historic trend. They move lower from early September to the end of October followed by a move higher after the election.
Other broadly based U.S. equity indices including the NASDAQ Composite Index, NASDAQ 100 Index and Russell 2000 Index have a history of moving lower between now and mid-October.
The TSX Composite Index also is following its seasonal pattern this year. History shows the Index moving lower on a real and relative basis from the beginning of September to at least the middle of October. This year, the Index already is down 4.70% from its close on September 2nd
S&P/TSX Composite Index Seasonal Chart
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$TSX Relative to the S&P 500 |
Seasonal influences turn positive on a real and relative basis near the end of September for the Shanghai Composite Index, the Hang Seng Index, DAX Index, Australia Ordinaries Index, CAC Index, London FT Index (and related ETFs).
Favourable seasonal influences for precious metals and related equities/ETFs ended in the third week in September as usual this year.
Seasonality for the Canadian and U.S. technology sectors and related ETFs turn positive on a real and relative basis near the end of September.
Seasonality for grain prices (Wheat, Corn, Soybeans), Agribusiness equities and related ETFs turns positive near the end of September.
Seasonality for the Materials sector (including its base metals subsector) turns higher near the end of September.
Medium term technical indicator for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 50 day moving average) moved lower again last week. It changed from intermediate neutral to intermediate oversold. See Barometer chart at the end of this report.
Medium term technical indicator for Canadian equity markets also moved lower last week It changed from intermediate neutral to intermediate oversold. See Barometer chart at the end of this report.
More short term short term momentum indicators for U.S. markets/commodities/sectors (20 day moving averages, short term momentum indicators) turned positive on Friday
Short term momentum indicators for Canadian markets/sectors also turned positive on Friday.
Year-over-year 2020 consensus earnings and revenue declines by S&P 500 companies ebbed slightly again last west. According to www.FactSet.com, third quarter earnings are expected to fall 21.2% (versus previous decline of 21.8%) and revenues are expected to decrease 3.8%. Fourth quarter earnings are expected to drop 12.7% (versus previous 12.8%) and revenues are expected to decline 1.2%. Earnings for all of 2020 are expected to fall 18.0% (versus previous drop of 18.2%) and revenues are expected to decline 2.7% (versus previous drop of 2.8%)
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, but at a slightly lower rate than previous. According to FactSet, earnings in the first quarter of 2021 are expected to increase 12.8% (versus previous 13.3% increase) and revenues are expected to increase 3.1% (versus previous 3.3%). Earnings in the second quarter are expected to increase 44.1% (versus previous 44.2%) and revenues are expected to increase 13.7% (versus previous 13.9%). Earnings for all of 2021 are expected to increase 26.0% (versus previous 26.2%) and revenues are expected to increase 8.1%.
Economic News This Week
September ADP Employment Report to be released at 8:15 AM EDT on Wednesday is expected to increase to 650,000 from 428,000 in August.
Next estimate of second quarter annualized real GDP to be released at 8:30 AM EDT is expected to remain at -31.7%.
Canadian July GDP to be released at 8:30 AM EDT on Wednesday is expected to increase 5.6% versus a gain of 6.5% in June.
August Construction Spending to be released at 10:00 AM EDT on Thursday is expected to increase 0.9% versus a gain of 0.1% in July.
September Manufacturing ISM to be released at 10:00 AM EDT on Thursday is expected to remain unchanged from August at 56.0
September Non-farm Payrolls to be released at 8:30 AM EDT on Friday are expected to drop to 920,000 from 1,371,000 in August. September Unemployment Rate is expected to slip to 8.2% from 8.4% in August. September Average Hourly Earnings are expected to increase 0.2% versus a gain of 0.4% in August.
August Factory Orders to be released at 10:00 AM EDT on Friday are expected to drop to a gain of 1.3% from a gain of6.4% in July.
September Michigan Consumer Confidence to be released at10:00 AM EDT on Friday is expected to increase to 79.0 from 78.9 in August.
Earnings News This Week
Eight S&P 500 companies are scheduled to release quarterly results this week.
Trader’s Corner
Daily Seasonal/Technical Equity Trends for September 25th 2020
Green: Increase from previous day
Red: Decrease from previous day
Commodities
Seasonal/Technical Commodities Trends for September 25th 2020
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for September 25th 2020
Green: Increase from previous day
Red: Decrease from previous day
The Canadian Technician
Headline from Greg Schnell’s latest comment is “The Raging Teenager Trade”. Greg comments on recent strength in the U.S. Dollar Index. Following is a link
https://stockcharts.com/articles/canada/2020/09/the-raging-teenager-trade-191.html
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
S&P 500 Momentum Barometer
The Barometer gained 8.02 on Friday, but dropped 17.83 last week to 34.27. It changed last week from intermediate neutral to intermediate oversold on a move below 40.00. Intermediate trend remains down despite the gain on Friday.
TSX Momentum Barometer
The Barometer gained 9.47 on Friday, but dropped 14.44 last week to 36.74. It changed from intermediate neutral to intermediate oversold on a move below 40.00. Intermediate trend remains down despite the gain on Friday.
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.
