by Don Vialoux, TechTalk
Equities traded lower on Tuesday, bringing an end to 20 consecutive Tuesday’s of positive results for the Dow Jones Industrial Average. Concerns pertaining to the Fed tapering its bond buying program led the stock market selloff, pushing the Dow almost 1% lower by midday. The remainder of the week will only fuel further speculation as to what the Fed might do as employment reports for the month of May are released; ADP will release their report this morning at 8:15 followed by the BLS report on Friday. Disappointing results may actually garner a positive reaction as the perception would become that the present easy monetary policy will remain intact. Vice versa if the results are strong. Talk of tapering has had a significant effect on yields over the past month. The 10-year note has jumped from around 1.6% to as high as 2.2%, testing the upper limit of a rising trendline that stretches back to last summer. The 200-day moving average of the yield has now curled higher for the first time since early 2011, implying positive momentum over a long-term scale. This trend is contradictory to seasonal averages. Typically yields trend lower throughout the summer months as equity market volatility forces investors into safe-haven assets. Bonds and interest sensitive plays that typically flourish in the summer may experience some volatility themselves.
The recent weakness in the S&P 500 has triggered momentum “Sell” signals with respect to RSI, MACD, and Stochastics. The percent of stocks within the large-cap index trading above 200-day moving averages is also offering a signal that suggests caution is warranted. The percent recently topped 90 (94 to be exact), a level in which significant market peaks have been known to form. The percent is now attempting to push below its 50-day moving average line, a level that has typically provided reliable sell signals for equity market positions. The break below the 50-day moving average line is so far just marginal and more evidence is required to confirm the signal, but downside risks are escalating.
Seasonal charts of companies reporting earnings today:
Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.16.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst at Horizons Investment Management, offering research on Horizons Seasonal Rotation ETF (HAC-T). All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment. Horizons Investment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://www.timingthemarket.ca.
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