Equity Clock

Stock Market Outlook for January 25, 2012

Upcoming US Events for Today:

1. Pending Home Sales for December will be released at 10:00am.   The market expects a decline of 3% versus a gain of 7.3% previous.
2. The FHFA Housing Price Index for November will be released at 10:00am.
3. Crude Inventories will be released at 10:30am.
4. The FOMC Rate Decision will be released at 12:30pm.
5. The Fed’s Press Conference will be held at 2:15pm.

Upcoming International Events for Today:

1. German Business Climate Expectations will be released at 4:00am EST.   The market expects 107.5 versus 107.2 previous.
2. The Bank of England releases their meeting minutes at 4:30am EST.
3. UK Gross Domestic Product for the Fourth Quarter will be released at 4:30am EST.   The market expects a year-over-year increase of 0.8% versus 0.5% previous.

The Markets

Markets traded marginally lower as jitters pertaining to the Greek debt situation resurfaced after Standard & Poors indicated that a further downgrade of the country to "selective default” was likely.   Negotiations with private creditors are ongoing as each side digs in their heals regarding the coupon rate to be paid on the swapped debt obligations.   It is becoming increasingly probable that a non-voluntary default situation in Greece will occur, triggering credit default swaps, which at this point are indicated to be highly collateralized, mitigating the effects of a more disorderly default situation.   The debt situation in Greece looks set to overhang the market for some time still.

Looking at the charts of the major equity benchmarks, equities have noticeably stalled around present levels over the past few days.   Candlesticks on the chart of the S&P 500 have the appearance of dojis, an indecisive candlestick pattern that shows the debate between bears and bulls at present levels.   For the past few days, this large cap index has found support around 1310, pulling back to around this level intraday and then trading to the flat-line by the close.   A catalyst looks to be required to dislodge the market from this bull/bear battle, whether it be to the upside or to the downside.   Catalysts over the remainder of the week are numerous, including the Fed’s announcement on Wednesday, progress on European debt talks, or the report on fourth quarter GDP to be released this Friday.   A break of support at 1310 would likely lead to a pullback to test the next level of support around 1275 with downside risks extending as far as the 50-day moving average around 1250.   Momentum indicators remain at the most overbought levels since last May; a pullback at this juncture would be healthy to regain market momentum.

Earnings from Apple that were released on Tuesday after the closing bell could also influence the market out of this short-term range.   Apple blew away expectations, topping even the highest estimates that analysts had imposed upon it.   Seasonal tendencies for Apple show a brief pause following earnings digestion, typically the day following results.   The seasonal trend continues to be strong into the next earnings season, at which point in time the stock seasonally peaks in late spring.   Seasonal tendencies for technology also peak around this time of year, underperforming the market through to April.

Commodities continue to be an interesting market to watch in order to determine the strength in the economy as well as in equities.   The CRB commodity index has been declining since May of last year.   However, recently an interesting pattern has become evident: a head-and-shoulders bottoming pattern.   The present neckline of this pattern around 315 coincides with the same level as the upper limit of the declining trend channel that has remained intact for many months.   The pattern projects an upside target to 335, or 6.3% higher from present levels.   On a seasonal basis, commodities gain strength in the first quarter as economic momentum ramps up into the spring.   Copper tends to be the beneficiary of this commodity push, gaining through to May.   Copper is presently hitting against resistance at its 200-day moving average, a significant hurdle to overcome given the extent to which this commodity is now overbought.   Performance of the metal remains positive against the market, implying that strength for this industrial metal is present: a bullish attribute for strong equity markets.

Overall, we’ve been providing a number of charts and data points since the year began that express caution, but no definitive sell signals have become realized.    Equity markets at present remain a “Hold”, however, hedging current positions looks appealing given some of the patterns that express warning in the current market state.   Keep in mind that a pullback in equities could likely be swift and possibly unexpected.   Stay nimble.

Sentiment on Tuesday, as gauged by the put-call ratio, closed slightly bearish at 1.05.   The ratio has significantly jumped since last week when complacency reached extreme levels.   Should investors protect portfolio positions at present market levels without being “shocked” out of positions, a pullback from this point may be quite orderly, perhaps seeing buyers jumping the gun and accumulating positions prior to any correction reaching maturity around significant levels of support.

Sectors that Moved the Market

Cyclical sectors of consumer discretionary and industrials outperformed equity benchmarks on Tuesday while defensive sectors of Staples and Utilities lagged.   Defensives have noticeably underperformed since the year began as investors take on more risk in beaten down cyclical sectors, emphasizing a risk-on environment.   Utilities typically underperform into March, while staples gradually become market perform into February.

S&P 500 Index

Chart Courtesy of StockCharts.com

Technical Indicators

Candlestick Analysis

Total Returns

Yesterday: –0.10%  –  Trailing 5 days: 1.62%  –  Trailing 30 days: 3.90%

Averages for current day based on past 20 years of data

• Current Day: –0.04% with 57.14% of sessions gaining
• Next 7 days: 0.65% with 59.00% of sessions gaining (Max return: 1.49% by January 28 on Average)
• Next 30 days: 0.21% with 53.88% of sessions gaining (Max return: 3.12% by February 9 on Average)

TSX Composite

Chart Courtesy of StockCharts.com

Technical Indicators

Candlestick Analysis

Total Returns

Yesterday: –1.01%  –  Trailing 5 days: 1.34%  –  Trailing 30 days: 3.93%

Averages for current day based on past 10 years of data

• Current Day: –0.13% with 42.86% of sessions gaining
• Next 7 days: 0.32% with 51.33% of sessions gaining (Max return: 1.06% by January 28 on Average)
• Next 30 days: 0.51% with 54.30% of sessions gaining (Max return: 3.41% by February 12 on Average)

Horizons AlphaPro Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $12.55 (down 0.40%)
• Closing NAV/Unit: $12.56 (down 0.02%)

Performance*

* performance calculated on Closing NAV/Unit as provided by custodian 

Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.