Equity Clock

Stock Market Outlook for January 26, 2012

Upcoming US Events for Today:

1. Weekly Jobless Claims will be released at 8:30am.   The market expects Initial Claims to show 375K versus 352K previous.   Continuing Claims are expected to reveal 3550K versus 3432K previous.
2. Durable Orders for December will be released at 8:30am.   The market expects an increase of 2.0% versus 3.7% previous.   Excluding Autos, the increase is expected to show 0.7% versus 0.3% previous.
3. New Hone Sales for December will be released at 10:00am.   The market expects 321K versus 315K previous.
4. Leading Indicators for December will be released at 10:00am.   The market expects an increase of 0.7% versus 0.5% previous.

Upcoming International Events for Today:

1. German Consumer Confidence Survey for February will be released at 2:00am EST.   The market expects 5.6, no change from the previous report.
2. The Bank of Japan will publish the December Board Meeting Minutes at 6:50pm EST.

Recap of Yesterday’s Events:

The Markets

Markets pushed higher from early morning losses as the Fed indicated its intention to keep rates low through to the end of 2014.   The effects of this decision were felt across asset classes.

Bond prices traded higher, pushing yields lower in the process.   Yields had been trading higher over the last few days as money from the bond market was noted to be flowing from fixed income assets into equities.   Seasonal tendencies for bond prices are typically negative through the month of April as investors become less risk averse.

Commodities jumped on the announcement as the perception of easy money increased inflation expectations.   The ratio of the Treasury Inflation Protected ETF versus the 10-year Treasury ETF showed a significant rebound from early morning losses, piercing a declining trendline that had been in place for 9 months.   Increased inflation expectations is bullish for commodities, which are seasonally strong in the first quarter of the year.

The “easy money” benefit to commodities is obviously a detriment to the US Dollar, which relinquished strong morning gains.   The US Dollar Index has been finding support at its 50-day moving average over the last few sessions as the Euro strengthens, placing pressure on the domestic currency.   Speculation remains that Europe will have to enact more significant monetary easing measures than are already in place in order to stimulate the economy out of a potential recession.   This implies that the negative pressures on the Euro are likely to remain in place for some time, instilling strength into the dollar, as is seasonally typical during the first quarter of the year.

And finally, stocks rallied on the potential investment that would be derived by the extended period of low cost borrowing.   However, financials took a hit, relinquishing its outperforming position it had maintained against the market for the first few weeks of this year.   The financial sector will find their business constrained as a result of this rate commitment, meaning that financials will likely resume their underperforming role against market benchmarks, once again acting as a strain on equity indices.   Seasonal tendencies for financials are typically positive during the first quarter of the year as rates customarily rise, however, this seasonal trend may not play out this year…and perhaps not until 2015.   Utilities are a beneficiary of this low interest rate environment due to the highly leveraged nature of their business.   As a result, the Utilities sector surged in afternoon trading, outperforming the market.   Utilities seasonally underperform in the first quarter, again following the inverse seasonal trend of interest rates.

So the events of today are doing a lot to both negate seasonal trends for some areas of the market, such as the financial and utilities sector, while strengthening it for others, such as materials and energy.   Still, markets have become so overbought that a correction of some sort seems inevitable.   The Relative Strength Index (RSI) for the S&P 500 Index has crossed above 70, a rare event that has typically marked a peak when such an occurrence is realized.   Tendencies during the month of February are negative to begin with, signaling that this may be the likely period that a correction plays out.   A pullback from this juncture would be healthy in order to determine the levels that investors feel at ease with maintaining.

Sentiment, as gauged by the put-call ratio ended overly bullish at 0.77.   The ratio spiked to open the week as concern grew over a default situation in Greece, but investors were more than willing to become complacent once again as the Fed issued remarks touting easy monetary policy for some time to come.  

Sectors that Moved the Market

Utilities outperformed the market on Wednesday as the prospect of low interest rates fueled demand for utility stocks.   The influence of a low rate environment put a cap on the recent outperformance in financials, which closed the day relatively flat.

S&P 500 Index

Chart Courtesy of StockCharts.com

Technical Indicators

Candlestick Analysis

Total Returns

Yesterday: 0.87%  –  Trailing 5 days: 1.38%  –  Trailing 30 days: 4.80%

Averages for current day based on past 20 years of data

• Current Day: 0.34% with 60.00% of sessions gaining
• Next 7 days: 1.03% with 61.00% of sessions gaining (Max return: 1.73% by January 29 on Average)
• Next 30 days: 0.36% with 53.76% of sessions gaining (Max return: 3.16% by February 9 on Average)

TSX Composite

Chart Courtesy of StockCharts.com

Technical Indicators

Candlestick Analysis

Total Returns

Yesterday: 1.16%  –  Trailing 5 days: 2.52%  –  Trailing 30 days: 5.14%

Averages for current day based on past 10 years of data

• Current Day: 0.44% with 83.33% of sessions gaining
• Next 7 days: 1.08% with 60.67% of sessions gaining (Max return: 1.59% by January 29 on Average)
• Next 30 days: 0.72% with 54.01% of sessions gaining (Max return: 3.51% by February 12 on Average)

Horizons AlphaPro Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $12.67 (up 0.96%)
• Closing NAV/Unit: $12.61 (up 0.39%)

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.