Tech Talk for Monday February 5th 2018

Next report is scheduled to be released on Monday February 12th

The Bottom Line

U.S. equity indices finally started moving lower last week from intermediate overbought levels. Short term technical indicators (momentum, 20 day moving average) turned sharply lower. Intermediate technical indicators remain overbought despite their decline last week, but have yet to show signs of bottoming. Lots of "sell on news" last week despite reports of stronger than consensus fourth quarter results by most S&P 500 companies! Look for more of the same early this week.

Even seasonally positive sectors such as commodities were hit last week (e.g. precious and base metal prices, crude oil, grains, lumber). However, they continued to outperform the S&P 500 Index, a technical sign that they likely will are top purchase candidates when technical signs of an equity market bottom become apparent.

Weakness in U.S. equity markets last week were related to completion of a Head & Shoulders/Double Top pattern by the long term Treasury ETF (TLT). Additional weakness in Treasury prices following an important technical breakdown is likely this week.

The TSX Composite Index reached a short term peak five weeks ago. The Index currently is lower than levels reached in late September and February last year (i.e. On a year-over-year basis, the Index is slightly lower). Concerns about NAFTA negotiations, changing real estate purchase laws and rising interest rates are issues. The Index already has reached an intermediate oversold level, but has yet to show signs of bottoming.

Economic News This Week

January Services ISM to be released at 10:00 AM EST on Monday is expected to increase to 56.5 from 56.0 in December

Canadian December Merchandise Trade Deficit to be released at 8:30 AM EST on Tuesday is expected to ease to $2.3 billion versus $2.5 billion in November.

Canadian January Annualized Housing Starts to be released at 8:15 AM EST on Thursday are expected to slip to 210,000 from 218,030 in December

Weekly Jobless Claims to be released at 8:30 AM EST on Thursday

Canadian January Employment to be released at 8:30 AM EST on Friday is expected to drop 2,000 versus a gain of 64,800 in December. January Unemployment Rate is expected to remain unchanged from December at 5.8%.

December Wholesale Trade to be released at 10:00 AM EST on Friday

Earnings News This Week

Observations

Technical action by individual S&P 500 stocks turned bearish last week. Number of stocks breaking resistance totaled 8 while number of stocks breaking support totaled 57. Number of stocks trading in an uptrend decreased to 319 from 351, number of stocks trading in a neutral trend increased to 55 from 41 and number of stocks in a downtrend increased to 126 from 108 The Up/Down ratio dropped last week to (319/126=) 2.53 from 3.25

U.S. economic news this week is relatively quiet.

Canadian economic news this week focuses on the January Employment report to be released on Friday.

Fourth quarter earnings reports will continue to flow quickly this week. Reports by Canadian companies will start to trickle in.

Medium term technical indicators in the U.S. (Percent of stocks trading above their 50 day moving average, Bullish Percent Index) remain at intermediate overbought levels, but are trending down. Medium term technical indicators in Canada continue to move lower and are approaching oversold levels, but have yet to show signs of bottoming

Short term technical indicators for U.S. and Canadian equity markets and most sectors (short term momentum, above/below 20 day moving average) are trending down, but have yet to show signs of bottoming.

Seasonal influences on a wide variety of U.S. equity indices and economic sensitive sectors are Positive at this time of year. See charts below.

Fourth quarter reports released by S&P 500 companies to date have been encouraging.

50% of S&P 500 stocks have reported to date. 75% reported higher than consensus earnings and 80% reported higher than consensus revenues. Another 91 S&P 500 companies and 1 Dow Jones Industrial company are scheduled to release quarterly results this week.

The outlook for S&P 500 earnings and sales remains positive: According to FactSet, fourth quarter adjusted earnings (excluding one-time write downs related to the tax bill) are expected to increase 13.4% (Up from 12.0% last week) on a 7.5% increase in sales (up from 7.0% last week). Estimates beyond the fourth quarter of 2017 were revised higher again mainly due to changes in U.S. corporate tax laws. First quarter 2018 earnings are expected to increase 16.9% (up from 16.0% last week) on a 7.1% increase in sales. Second quarter 2018 earnings are expected to increase 16.0% (up from 15.0%) on a 7.2% increase in revenues (up from 7.1%). Third quarter earnings are expected to increase 18.3% (up from 17.3%) on a 7.5% increase in revenues (up from 5.9%). Fourth quarter 2018 earnings are expected to increase 14.2% on a 4.8% increase in revenues (up from 4.6%). For all of 2018, earnings are expected to increase 16.8% (up from 16.3%) on a 6.4% increase in sales (up from 6.0%).

Short term political uncertainties remain, including North Korean "sabre rattling", struggling NAFTA negotiations, possibly another shut-down of the U.S. government and increased scrutiny by special council on Russia's influence on the Presidential election

Earnings and revenue prospects beyond the fourth quarter report season are exceptional for U.S. based companies with international exposure. Consensus for S&P 500 earnings on a year-over-year are expected to exceed 16% in 2018. Earnings will benefit significantly from weakness in the U.S. Dollar on a year-over-year basis when revenues and earnings from international operations are translated into U.S. Dollars. For example, a U.S. based company with 50% of its earnings and revenues coming from international operations will see earnings and revenues increase by 7% from foreign currency translation alone following a 14% fall in the U.S. Dollar Index from its high at 103.82 in January 2017. The U.S. Dollar Index averaged 100 in the fourth quarter of 2016 and 101 in the first quarter of 2017.

Equity Indices and Related ETFs

Daily Seasonal/Technical Equity Trends for February 2nd 2018

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 plunged 110.74 points (3.85%) last week. Intermediate trend remains up. The Index dropped below its 20 day moving average on Friday. Short term momentum indicators are trending down.

Percent of S&P 500 stocks trading above their 50 day moving average (Also known as the S&P 500 Momentum Barometer) plunged last week to 60.40 from 84.00. Percent remains intermediate overbought and is trending down.

Percent of S&P 500 stocks trading above their 200 day moving average dropped last week to 76.00 from 82.80. Percent remains intermediate overbought and is trending down.

Bullish Percent Index for S&P 500 stocks plunged last week to 77.80 from 82.90 and dropped below its 20 day moving average. The Index remains intermediate overbought and trending down.

Bullish Percent Index for TSX stocks dropped last week to 66.40 from 68.90 and remained below its 20 day moving average. The Index remains intermediate overbought and trending down.

TSX Composite Index dropped 633.19 points (3.90%) last week. Intermediate trend remains down (Score: -2). The Index has declined to levels last seen in late September. Strength relative to the S&P 500 Index remains Negative (Score: -2). The Index remains below its 20 day moving average (Score: -1). Short term momentum indicators are trending down (Score: -1). Technical score remained last week at -6

Percent of TSX stocks trading above their 50 day moving average (Also known as the TSX Momentum Barometer) plunged last week to 23.46 from 56.20. Percent has become oversold, but has yet to show signs of bottoming.

Percent of TSX stocks trading above their 200 day moving average plunged last week to 47.33 from 62.40. Percent has declined to Neutral from Overbought and is trending down.

Dow Jones Industrial Average plunged 1,095.75 points (4.12%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed on Friday to Neutral from Positive. The Average dropped below its 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score dropped last week to 2 from 6.

Bullish Percent Index for Dow Jones Industrial stocks dropped last week to 83.33 from 90.00 and remained below its 20 day moving average. The Index remains intermediate overbought and trending down.

Bullish Percent Index for NASDAQ Composite stocks dropped last week to 65.89 from 69.78 and dropped below its 20 day moving average. The Index remains intermediate overbought and has turned down.

NASDAQ Composite Index plunged 264.82 points (3.53%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Positive. The Index dropped below its 20 day moving average on Friday. Short term momentum indicators dropped last week to 2 from 6.

Russell 2000 Index dropped 60.79 points (3.78%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Negative. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 0.

Dow Jones Transportation Average dropped 438.57 points (3.94%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Negative. The Average dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 0

Australia All Ordinaries Composite Index gained 65.10 points (1.06%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed on Friday to Positive from Negative. The Index moved above its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 6 from 0.

Nikkei Average dropped 357.35 points (1.51%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Negative. The Average dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 0.

Europe iShares dropped $2.00 (3.94%) 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 on Friday. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 6.

Shanghai Composite Index dropped 96.05 points (2.70%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Neutral from Positive. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 6.

Emerging Markets iShares dropped 3.03 points (5.82%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed last week to Negative from Positive. Units dropped below their 20 day moving average on Friday. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 6.

Currencies

The U.S. Dollar Index added 0.15 (0.17%) last week. Intermediate trend remains down. The Index remains below its 20 day moving average. Short term momentum indicators are trending down.

The Euro gained 0.36 (0.29%) last week. Intermediate trend remains up. The Euro remained above its 20 day moving average. Short term momentum indicators are trending up.

Canadian Dollar dropped U.S 0.66 cents (0.81%) last week with more than all of the drop occurring on Friday. Intermediate trend remains neutral. The Canuck Buck remains above its 20 day moving average. Short term momentum indicators turned down on Friday.

Japanese Yen dropped 1.23 (1.34%) last week. Intermediate trend remains up. The Yen remained above its 20 day moving average. Short term momentum indicators have turned down.

British Pound slipped 0.31 (0.22%) last week. Intermediate trend remains up. The Pound remains above its 20 day moving average. Short term momentum indicators are overbought and showing early signs of rolling over.

Commodities and Related ETFs

Daily Seasonal/Technical Commodities Trends for February 2nd 2018

Green: Increase from previous day

Red: Decrease from previous day

* Excludes adjustment from rollover of futures contracts

The CRB Index dropped 3.08 points (1.52%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Positive from Neutral. The Index remained above its 20 day moving average. Short term momentum indicators are trending down. Technical score remained last week at 4.

Gasoline dropped $0.06 per gallon (3.11%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Positive. Gas closed at its 20 day moving average on Friday. Short term momentum indicators have turned down. Technical score dropped last week to 3 from 6.

Crude Oil slipped $0.69 per barrel 1.04% 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 dropped last week to 4 from 6.

Natural Gas dropped $0.32 per MBtu (10.09%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Negative from Positive. "Natty" moved below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 4.

S&P Energy Index dropped 36.81 points (6.42%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Negative from Neutral. The Index moved last week below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 2.

Philadelphia Oil Services Index dropped 12.15 points (7.46%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Negative from Neutral. The Index dropped below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 2.

Gold slipped $14.80 per ounce (1.09%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Positive. Gold remains above its 20 day moving average. Short term momentum indicators changed to down from up. Technical score remained last week at 4.

Silver dropped $0.73 per ounce (4.19%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Neutral. Silver moved below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 4.

AMEX Gold Bug Index dropped 15.33 points (7.54%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remains Neutral. The Index dropped last week below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to 0 from 4.

Platinum dropped $19.00 per ounce (1.87%) last week. Trend remained up. Relative strength remained Positive. PLAT moved below its 20 day MA. Momentum: Down.

Palladium dropped $40.10 per ounce (3.70%) last week. Trend remains up. Relative strength: Negative. Remained below its 20 day MA. Momentum remained down.

Copper slipped $0.01 per lb (0.31%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Neutral from Negative. Copper remained below its 20 day moving average. Short term momentum indicators are trending up. Technical score increased last week to 2 from 0.

BMO Base Metals ETF plunged$1.06 (8.90%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index remained Negative. Units dropped last week moved below its 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 0.

Lumber dropped 3.60 (0.74%) last week. Trend remains up. Relative strength remains Positive. Lumber remains above its 20 day MA. Momentum turned down. Score slipped to 4 from 2.

Grain ETN added $0.19 (0.76%) last week. Trend changed to up from neutral. Relative strength changed to Positive from Neutral. Units remain above their 20 day MA. Momentum: up.

Agriculture ETF dropped 2.85 points (4.33%) last week. Intermediate trend remains up. Strength relative to the S&P 500 Index changed to Negative from Neutral. Units dropped below their 20 day moving average. Short term momentum indicators are trending down. Technical score dropped last week to -2 from 4.

Interest Rates

Yield on 10 year Treasuries gained 19.2 basis points (7.21%) last week. Intermediate trend remains up. Yield remains above its 20 day moving average. Short term momentum indicators are trending up.

Price of long term Treasury ETF dropped $4.01 (3.24%) last week. Units completed a Head & Shoulder/ Double Top pattern last week on a move below $121.40. Units remain below their 20 day moving average.

Volatility

The VIX Index jumped 6.04 (54.41%) last week. Intermediate trend changed to up on Friday on a move above 17.28.

Sectors

Daily Seasonal/Technical Sector Trends for February 2nd 2018

Green: Increase from previous day

Red: Decrease from previous day

StockTwits Released on Friday @EquityClock

Technical action by S&P 500 stocks to 10:00: Bearish. No breakouts: Breakdowns: MAT, CLX, BXP, MAA VNO, VTR, FBHS, AEE, EXC, PCG, PNW, INCY, FMC, MAC

Editor's Note: After 10:00 AM EST, breakdowns included CERN, HRB, CPB, PG, LEN, MHK, CBS, CVX, DUK and UPS. No breakouts.

Interest sensitive REIT iShares $IYR moved below $76.81 extending an intermediate downtrend.

Imperial Oil $IMO.CA, a TSX 60 stock moved below $37.88 extending an intermediate downtrend.

Enbridge $ENB.CA, a TSX 60 stock moved below $43.91 extending an intermediate downtrend.

Cdn. Pacific $CP.CA, a TSX 60 stock moved below $224.23 completing a double top pattern.

Shaw Communications $SJR, a TSX 60 stock moved below $21.82 extending an intermediate downtrend.

Franco-Nevada $FNV, a TSX 60 stock moved below $74.87 completing a Head & Shoulders pattern.

Barrick Gold $ABX.CA, a TSX 60 stock moved below $19.49 extending an intermediate downtrend.

Extendicare $EXE.CA moved below $8.54 and $8.50 extending an intermediate downtrend.

Procter & Gamble $PG, a Dow Jones Industrial stock moved below $84.77 completing a Head & Shoulders/Double Top pattern.

Bank of Nova Scotia $BNS.CA, a TSX 60 stock moved below $80.01 completing a double top pattern.

US Factory Orders higher by 7.3% in 2017, best calendar year increase since 2011 and well above 2.6% average increase. #Manufacturing $MACRO

US #Economy shed 3.1 million positions, or 2.1% (NSA), in January, inline with historical norms. #NFP #Employment $MACRO $STUDY

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

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