Tech Talk for Monday May 25th 2020

The TSX Composite Index is expected to open higher this morning in relatively light trading. The Index is expected to respond to strength in international equity markets as world economies begin to re-open. The Nikkei Average gained 1.73%. The DAX Index added 1.97%. S&P 500 futures advanced 0.93% despite no official trading on U.S. equity markets during the Memorial Day holiday.

The Bottom Line

Most equity markets moved higher 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, typical for North American equity markets between May and October.

Observations

The VIX Index (better known as the Fear Index) remained elevated last week.

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 back from intermediate neutral to intermediate overbought. See Barometer chart at the end of this report.

Medium term technical indicators for Canadian equity markets remained intermediate overbought last week. 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) moved higher last week with many markets and sectors returning above their 20 day moving average.

Short term momentum indicators for Canadian markets and sectors were mixed last 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: 95% of companies have released quarterly results to date. According to FactSet, blended first quarter 2020 earnings have dropped 14.6% (versus a decline of 13.8% last week) and blended revenues increased 0.8% (versus an increase of 0.7% last week). Second quarter 2020 earnings are expected to fall 42.9% (versus a drop of 41.9% last week) and revenues are expected to drop 11.5% (versus a drop of 11.3% last week). Third quarter earnings are expected to fall 24.8% (versus a fall of 23.8% last week) and revenues are expected to decrease 5.7% (versus a decline of 5.5% last week). Fourth quarter earnings are expected to decrease 12.4% (versus a decrease of 11.6% last week) and revenues are expected to decline 1.4% (versus 1.2% last week). Earnings for all of 2020 are expected to decrease 20.8% (versus 19.7% last week) and revenues are expected to decrease 3.9% (versus 3.4% last week). Earnings for all of 2021 are expected to increase 27.8% (versus 27.3 last week) and revenues are expected to increase 8.6%.

Technical action by broadly based equity indices

Indices and related ETFs recovered to test highs set three weeks ago.

Economic News This Week

April New Home Sales to be released at 10:00 AM EDT on Tuesday are expected to drop to 495,000 from 627,000 in March.

Beige Book is released at 2:00 PM EDT on Wednesday

April Durable Goods Orders to be released at 8:30 AM EDT on Thursday are expected to drop 15.3% versus a decline of 14.4% in March. Excluding Transportation Orders, April Durable Goods Orders are expected to drop 14.0% versus a decline of 0.2% in March.

Next estimate of U.S. first quarter GDP to be released at 8:30 AM EDT on Thursday is an annualized drop of 4.8% versus a gain of 2.1% in the fourth quarter.

April Personal Income to be released at 8:30 AM EDT on Friday is expected to drop 6.0% versus a decline of 2.0% in March. April Personal Spending is expected to drop 12.0% versus a decline of 7.5% in March.

Canadian March GDP to be released at 8:30 AM EDT on Friday is expected to increase 0.1% versus no change in February.

May Michigan Consumer Sentiment Index to be released at 10:00 AM EDT on Friday is expected to increase to 73.7 from 71.8 in March

Earnings News This Week

Another 11 S&P 500 companies are scheduled to release quarterly results this week. Focus in Canada is fiscal second quarter results released by Canada's big banks

Trader's Corner

Equity Indices and related ETFs

Daily Seasonal/Technical Equity Trends for May 22nd 2020

Green: Increase from previous day

Red: Decrease from previous day

Commodities

Seasonal/Technical Commodities Trends for May 22nd 2020

Green: Increase from previous day

Red: Decrease from previous day

Sectors

Daily Seasonal/Technical Sector Trends for May 22nd 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

S&P 500 Momentum Barometer

The Barometer advanced last week from 59.92 to 82.77. It moved from intermediate neutral to intermediate overbought on an advance above 60.00.

TSX Momentum Barometer

The Barometer advanced last week from 62.50 to 78.12. 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

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