by Don Vialoux, EquityClock.com
The Bottom Line
Most major equity indices around the world moved slightly lower last week. Greatest influences remain growing evidence of a second wave of the coronavirus (negative) and possible approval of a vaccine (positive)
Observations
The Dow Jones Industrial Average and S&P 500 Index are following their historic trend after a U.S. Presidential Election. Indeed, the strongest 12 week period during the four year U.S. Presidential Cycle has occurred from U.S. Presidential Election Day to Inauguration Day on January 20th. 
Results of the recent U.S. President and Congressional elections suggest that history by U.S. equity indices between Election Day and Inauguration Day is repeating. Biden becomes President, control of the Senate remains Republican with a smaller majority and control of the House of Representatives remains Democrat with a smaller majority. Net result is political gridlock for the next two years, a scenario that historically has been mildly bullish for U.S. equity markets.
A caveat to this observation! The run off Georgia senate elections for two seats on January 5th could have a significant impact on U.S. equity prices. After recent elections, the Republicans controlled 50 seats and the Democrats controlled 48 seats. Both Georgia seats currently are held by Republicans. However, recent polls suggest that the battle between the Republican and Democrat candidates is extremely tight with the Democrats leading in one of the two seats. Latest poll results are available at https://projects.fivethirtyeight.com/georgia-senate-polls/ If Democrats win both seats, the Republicans will control 50 seats, the Democrats will control 50 seats and Vice President Kamala Harris will have the power to break voting ties in the Senate. Effectively, the Democrats will gain control over the Senate and will be able to pursue a āprogressiveā agenda including higher personal and corporate taxes, higher regulation and higher government control over the economy. U.S. equity markets initially will respond to Democrat control by moving lower. Meanwhile, look for higher than average volatility in U.S. equity markets between now and January 5th as various polls on the Georgiia senate seats are released. The proverbial āSanta Claus rallyā from December 14th to January 6th may not happen this year. Tony Dwyer from Cannaccord Genuity expressed a similar opinion last Thursday. Following is a link to his comment on CNBC.
Background on the āSanta Claus rallyā! The S&P 500 Index has gained in 22 of the past 30 periods since 1990 from December 14th to January 6th for an average return per period of 1.53%. The TSX Composite has gained in 25 of the past 30 periods for an average return per period of 2.13%. Reasons for the Santa Claus rally include yearend āwindow dressingā by institutional investors, favourable comments by investment dealers about prospects for next year, end of tax loss selling pressures by individual investors, investment of yearend bonuses received by individual investors (frequently placed into RRSPs in Canada and 401K accounts in the U.S.) and a buoyant investment attitude by all investors related to the Christmas/New Year season. Following is a recent video by Larry Williams that explains the Santa Claus rally in the U.S.:
Santa Claus Rally Exposed | Larry Williams | Real Trading Special (12.07.20) ā YouTube
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 slightly lower last week. It changed from extremely intermediate overbought to intermediate overbought on a move below 80.00% and is trending down. See Barometer chart at the end of this report.
Medium term technical indicator for Canadian equity markets was virtually unchanged last week. It remained intermediate overbought. See Barometer chart at the end of this report.
Short term short term momentum indicators for U.S. markets/commodities/sectors (20 day moving averages, short term momentum indicators) rolled over last week from elevated levels
Short term momentum indicators for Canadian markets/sectors remained virtually unchanged at elevated levels last week
Year-over-year 2020 consensus earnings declines by S&P 500 companies ebbed again from our last report last week. According to www.FactSet.com, fourth quarter earnings are expected to drop 9.9% (versus previous decline of 10.1%) and revenues are expected to increase 0.1% (versus previous increase of 0.2%). Earnings for all of 2020 are expected to fall 13.7% (versus previous decline of 13.8%) and revenues are expected to decline 1.8%.
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. According to www.FactSet.com earnings in the first quarter of 2021 are expected to increase 15.5% (versus previous estimate at 15.1%) and revenues are expected to increase 3.6% (versus previous estimate at 3.5%). Earnings in the second quarter are expected to increase 44.7% (versus previous increase of 44.6%) and revenues are expected to increase 13.7% (versus previous increase of 13.6%). Earnings for all of 2021 are expected to increase 21.9% (versus previous increase of 21.7%) and revenues are expected to increase 7.9% (versus previous increase of 7.7%).
Economic News This Week
Canadian November Housing Starts to be released at 8:15 AM EST on Tuesday are expected to increase to 222,000 from 214,900 in October.
December Empire State Manufacturing Survey to be released at 8:30 AM EST on Tuesday is expected slip to 6.00 from 6.30 in November.
November U.S. Capacity Utilization to be released at 9:15 AM EST on Tuesday is expected to increase to 73.0 from 72.8 in October. November Industrial Production is expected to slip to 0.3% from 1.1% in October.
U.S. November Retail Sales to be released at 8:30 AM EST on Wednesday are expected to slip 0.1% versus a gain of 0.3% in October. Excluding auto sales, November Retail Sales are expected to increase 0.2% versus a gain of 0.2% in October.
November Canadian Consumer Price Index to be released at 8:30 AM EST on Wednesday is expected to increase 0.2% versus a gain of 0.4% in October.
October U.S. Business Inventories to be released at 10:00 AM EST on Wednesday is expected to increase 0.5% versus a gain of 0.7% in September.
FOMC Statement on interest rates is to be released at 2:00 PM EST on Wednesday. Consensus is that the Fed Fund Rate will remain at 0.35%.
U.S. November Housing Starts to be released at 8:30 AM EST on Thursday is expected to slip to 1.518 million units from 1.530 million units in October.
December Philly Fed Index to be released at 8:30 AM EST on Thursday is expected to slip to 20.0 from 26.3 in November.
October Canadian Retail Sales to be released at 8:30 AM EST on Friday are expected to increase 0.2% versus a gain of 1.1% in September.
Indicators November U.S. Leading Economic Indicators to be released at 10:00 AM EST on Friday are expected to increase 0.5% versus a gain of 0.7% in October.
Selected Earnings News This Week
Traderās Corner
Equity Indices and Related ETFs
Green: Increase from previous day
Red: Decrease from previous day
Commodities
Daily Seasonal/Technical Commodities Trends for December 11th 2020
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for December 11th 2020
Green: Increase from previous day
Red: Decrease from previous day
Technical Notes for Friday
BCE (BCE), a TSX 60 stock moved above $58.41 resuming an intermediate uptrend.
Technical Scores
Calculated as follows:
Intermediate Uptrend based on at least 20 trading days: Score 2
Ā Ā Ā Ā Ā Ā Ā Ā Ā (Higher highs and higher lows)
Intermediate Neutral trend: Score 0
Ā Ā Ā Ā Ā Ā Ā Ā Ā (Not up or down)
Intermediate Downtrend: Score -2
Ā Ā Ā Ā Ā Ā Ā Ā Ā (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 ā2
Above 20 day moving average: Score 1
At 20 day moving average: Score: 0
Below 20 day moving average: ā1
Up trending momentum indicators (Daily Stochastics, RSI and MACD): 1
Mixed momentum indicators: 0
Down trending momentum indicators: ā1
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
Changes in Seasonality Ratings in Mid-December
*Previously not rated
Following is a link to a report released on Saturday that offers more information on gold and gold equities. Title of the report is āGold seasonal winter rally is beginningā.
S&P 500 Momentum Barometer
The Barometer slipped 0.40 on Friday and 6.42 last week. It changed from extremely intermediate overbought to intermediate overbought on a move below 80.00% and has started to trend down.
TSX Momentum Barometer
The Barometer added 0.47 on Friday, but slipped 2.47 last week. It remains intermediate overbought.
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.
