Tech Talk for Monday May 18th 2020

U.S. equity index futures were higher this morning. S&P 500 futures advanced 75 points in pre-opening trade. Index futures responded to encouraging comments last night by Federal Reserve Chairman Jerome Powell about a recovery in the U.S. economy in the second half of 2020.

NVIDIA advanced $12.37 to $352.00 after BMO Capital upgraded the stock from Market Perform to Outperform. Target was raised from $285 to $425.

Moderna jumped $18.78 to $85.40 after announcing early success from its coronavirus vaccine trials.

The Bottom Line

Equity markets moved lower last week. North American equity markets remained intermediate overbought. Spread of the coronavirus continues to be a major influence on equity prices. The VIX Index remains elevated.

History is repeating this year. Equity indices of developed nations around the world normally reach a seasonal peak in late April/early May. The exception is the TSX Composite Index that normally reaches a seasonal peak early in June instead of early May. Thereafter, equity indices enter into a period of higher-than-average volatility until mid-October. Returns during the past 70 periods since 1950 from May to October have been either slightly positive or slightly negative and have averaged close to zero.

The phrase "Sell in May and Go away" is misleading. It implies that opportunities for profits in the stock market are not available in the May to October period. Historically, gains during the early May to mid-October period have been recorded consistently by a few select sectors, notably in the Healthcare, Technology and Precious Metals sectors.

Observations

The VIX Index (better known as the Fear Index) remained elevated last week and rose slightly by the end of the week.

Seasonal influences for U.S., European and Far East equity indices historically have reached a peak in late April or early May. Canadian equity indices are the exception with a seasonal peak in late May.

Medium term technical indicators for U.S. equity markets (e.g. Percent of S&P 500 stocks trading above their 50 day moving average) moved from intermediate overbought to intermediate neutral last week and have started to trend lower See Barometer chart at the end of this report.

Medium term technical indicators for Canadian equity markets remained intermediate overbought last week and have started to trend lower. See Barometer chart at the end of this report.

Most short term short term momentum indicators for U.S. markets and sectors (20 day moving averages, short term momentum indicators) turned lower last week.

Short term momentum indicators for Canadian markets and sectors were slightly lower lasts week.

Year-over-year consensus earnings for S&P 500 companies were reduced slightly last week in recognition of a greater impact by the coronavirus: 90% of companies have released quarterly results to date. According to FactSet, blended first quarter 2020 earnings have dropped 13.8% (versus a decline of 13.6% last week) and blended revenues increased 0.7% (versus an increase of 0.6% last week). Second quarter 2020 earnings are expected to fall 41.9% (versus a drop of 40.6% last week) and revenues are expected to drop 11.3% (versus a drop of 10.9% last week). Third quarter earnings are expected to fall 23.8% (versus a fall of 23.0% last week) and revenues are expected to decrease 5.5% (versus a decline of 5.2% last week). Fourth quarter earnings are expected to decrease 11.6% (versus a decrease of 11.4% last week) and revenues are expected to decline 1.2%. Earnings for all of 2020 are expected to decrease 19.7% and revenues are expected to decrease 3.4%. Earnings for all of 2021 are expected to increase 27.3% (versus 26.9 last week) and revenues are expected to increase 8.6% (versus 8.5% last week).

Economic News This Week

April Housing Starts to be released at 8:30 AM EDT on Tuesday are expected to drop to 908,000 from 1,216,000 in March.

April Canadian Consumer Price Index to be released at 8:30 AM EDT on Wednesday is expected to drop 0.4% versus a decline of 0.6% in March.

May Philly Fed Index to be released at 8:30 AM EDT on Thursday is expected to drop 45.0 versus a decline of 56.6 in April.

April U.S. Existing Home Sales to be released at 10:00 AM EDT on Thursday are expected to drop to 4.30 million units from 5.27 million units in March.

April Leading Economic Indicators to be released at 10:00 AM EDT on Thursday are expected to drop 5.7 versus a decline of 6.7 in March.

March Canadian Retail Sales to be released at 8:30 AM EDT on Friday are expected to fall 10.0% versus a gain of 0.3% in February. Excluding food and energy, March Canadian Retail Sales dropped 5.0% versus a drop of 15.6% in February.

Earnings News This Week

Another 26 S&P 500 (including two Dow Jones Industrial companies) are scheduled to report quarterly results this week.

Trader's Corner

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for May 15th 2020

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Seasonal/Technical Commodities Trends for May 15th 2020

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for May 15th 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

Technical Notes

WTI Crude oil moved above US$29.13 to US$29.52 on Friday completing a reverse Head & Shoulders pattern.

Silver moved above $16.30 to $17.07 on Friday setting an intermediate uptrend.

Silver stocks responded to the breakout by silver prices. First Majestic Silver moved above US8.70 extending an intermediate uptrend.

Pan American Silver moved above US$22.90 extending an intermediate uptrend.

Silver Miners ETF broke to a three year high.

Gold ETN moved above $164.42 to a seven year high.

Platinum ETN moved above $75.00 setting an intermediate uptrend.

Netflix, a NASDAQ 100 stock moved above $449.52 to an all-time high extending an intermediate uptrend.

S&P 500 Momentum Barometer

The Barometer dropped last week from 75.95 to 59.92. It changed from intermediate overbought to intermediate neutral on a move below 60.00 and is trending down.

TSX Momentum Barometer

The Barometer dropped last week from 72.32 to 62.50. It remains intermediate overbought and shows early signs of 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

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