Stock Market Outlook for November 27, 2012
Upcoming US Events for Today:
- Durable Goods Orders for October will be released at 8:30am. The market expects a decline of 0.8% versus an increase of 9.9% previous. Excluding Transportation, investors expect a decline of 0.4% versus an increase of 2.0% previous.
- The Case-Shiller Home Price Index for September will be released at 9:00am. The market expects a year-over-year increase of 2.9% versus an increase of 2.0% previous.
- Consumer Confidence for November will be released at 10:00am. The market expects 72.8 versus 72.2 previous.
- The FHFA Housing Price Index for September will be released at 10:00am.
- The Richmond Fed Manufacturing Index for November will be released at 10:00am. The market expects –8 versus –7 previous.
Upcoming International Events for Today:
- Great Britain GDP for the Third Quarter will be released at 4:30am EST. The market expect a year-over-year increase of 1.0%, consistent with the previous report.
Recap of Yesterday’s Economic Events:
|CNY China Entrepreneur Confidence Index||116.5||121.2|
|EUR Italian Consumer Confidence Index s.a.||84.8||86.3||86.2|
|EUR German GfK Consumer Confidence Survey||5.9||6.2||6.1|
|USD Chicago Fed Nat Activity Index||-0.56||0|
|USD Dallas Fed Manufacturing Activity||-2.8||2.5||1.8|
|NZD Imports (New Zealand dollars)||4.18B||4.20B||4.08B|
|NZD Trade Balance (New Zealand dollars)||-718M||-450M||-775M|
|NZD Exports (New Zealand dollars)||3.46B||3.68B||3.30B|
|NZD Balance (YTD) (New Zealand dollars)||-1367M||-1112M||-875M|
Equity markets pushed marginally lower on Monday in a typical post holiday selloff following the positive returns achieved last week around Thanksgiving Day in the US. Yet, despite the holiday having concluded, equity market volumes remain dismal. According to a chart published on Zerohedge.com, the NYSE saw the lowest Monday-after-Thanksgiving Day volume since 1996. The decline in volumes over the last few days is part of a much broader trend of diminishing equity market activity following the market peak in 2007. Historically, volumes equivalent to what have been realized since the middle of this year would only be observed during Christmas weeks as investors take the time off around the holiday. Confidence in equities is extremely low following what has become known as “the lost decade for equities” where stocks have been beaten up by two significant downturns in the past ten years. Fixed income investments have flourished, pushing yields to historically low levels, as is the case with US Treasury Yields. The 10-year Treasury Note yield is presently pushing against a long-term declining trendline, while momentum indicators attempt to recover from significantly oversold territory. A retrace back to the 50-day moving average is likely upon a breakout of the negative trend in order to correct current negative imbalances. Rising yields have the potential to translate into equity market inflows as bond investors liquidate positions for better opportunities. Monthly momentum indicators are currently triggering buy signals, including bullish MACD and Stochastic crossovers.
Despite Monday’s lackluster session, the retrace of a fraction of last week’s gain was a rather healthy event. The S&P 500 Index declined back to its 20-day moving average, which was broken to the upside on Friday. Equity markets ended well off of their lows, defining the 20-day moving average as a potential level of support. Momentum indicators continue to move higher, breaking out of a negative trend that stretched back to the September peak. Chart for the S&P 500 can be found at the end of this report.
One of the sectors that helped lift equities off of the lows of the day was technology. The Technology Sector ETF (XLK) has shown a number of bullish technical triggers over the past few days. Price action of the ETF pushed above its 20-day moving average, suggesting short-term strength. Momentum indicators broke out of an over 2-month decline, triggering buy signals as the stocks in the space attempt to recover from significantly oversold levels. And outperperformance compared to the market is becoming evident following relative declines compared to the S&P 500 dating back to August of this year. The sector has been a significant drag on the market, particularly since Technology accounts for around 20% of the S&P 500 index. Apple is showing similar signs of rebounding following the recent selloff. The sector may finally be poised to act as a market leader, rather than a market laggard, a benefit to equity prices in general. The period of seasonal strength for technology concludes into January and February.
Sentiment on Monday, according to the put-call ratio, ended bullish at 0.63. Monday’s ratio was the lowest since January of 2011 when the ratio plunged to 0.57, one of the lowest levels since 2006. The reading suggests excessive complacency as put options fall out of favor amongst investors, which could lead to equity market instability should a shock event occur. At this point, given the uncertainties with the fiscal cliff, investors may be defining their risk in equity markets by turning to call options as opposed to stocks.
S&P 500 Index
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
Horizons Seasonal Rotation ETF (TSX:HAC)
- Closing Market Value: $12.48 (up 0.32%)
- Closing NAV/Unit: $12.50 (down 0.09%)
|2012 Year-to-Date||Since Inception (Nov 19, 2009)|
* performance calculated on Closing NAV/Unit as provided by custodian
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