Stock Market Outlook for January 25, 2013
Upcoming US Events for Today:
- New Home Sales for December will be released at 10:00am. The market expects 388K versus 377K previous.
Upcoming International Events for Today:
- German IFO Survey for January will be released at 4:00am EST. The market expects Economic Sentiment to show 103.1 versus 102.4 previous. Current Conditions is expected to reveal 107.3 versus 107.1 previous. Business Expectations is expected to improve to 99.0 versus 97.9 previous.
- Great Britain GDP for the Fourth Quarter will be released at 4:30am EST. The market expects a year-over-year increase of a mere 0.2% versus an unchanged (0.0%) reading previous.
- Canadian CPI for December will be released at 8:30am EST. The market expects a year-over-year increase of 1.2% versus an increase of 0.8% previous.
Recap of Yesterday’s Economic Events:
|EUR French Purchasing Manager Index Manufacturing||42.9||44.9||44.6|
|EUR French Purchasing Manager Index Services||43.6||45.5||45.2|
|EUR German Purchasing Manager Index Manufacturing||48.8||47||46|
|EUR German Purchasing Manager Index Services||55.3||52||52|
|EUR Euro-Zone Current Account n.s.a. (euros)||19.8B||11.6B|
|EUR Euro-Zone Purchasing Manager Index Services||48.3||48||47.8|
|EUR Euro-Zone Purchasing Manager Index Composite||48.2||47.5||47.2|
|EUR Euro-Zone Current Account s.a. (euros)||14.8B||8.0B|
|EUR Euro-Zone Purchasing Manager Index Manufacturing||47.5||46.7||46.1|
|USD Initial Jobless Claims||330K||355K||335K|
|USD Continuing Claims||3157K||3200K||3228K|
|USD Markit US PMI Preliminary||56.1||53||54|
|USD Leading Indicators||0.50%||0.40%||0.00%|
|USD EIA Natural Gas Storage Change||-172||-175||-148|
|USD Kansas City Fed Manf. Activity||-2||1||-1|
|USD DOE U.S. Crude Oil Inventories||2813K||2150K||-951K|
|USD DOE Cushing OK Crude Inventory||-471K||1780K|
|USD DOE U.S. Gasoline Inventories||-1738K||1250K||1910K|
|USD DOE U.S. Distillate Inventory||508K||0K||1686K|
|JPY National Consumer Price Index (YoY)||-0.10%||-0.20%||-0.20%|
|JPY National Consumer Price Index Ex-Fresh Food (YoY)||-0.20%||-0.20%||-0.10%|
|JPY National Consumer Price Index Ex Food, Energy (YoY)||-0.60%||-0.50%||-0.50%|
Equity markets remained resilient on Thursday, ending the session with further gains despite the over 12% drop in shares of Apple. Investors reacted positively to better than expected economic reports as weekly jobless claims in the US showed an unexpected drop of 5,000, as it relates to initial claims, and Manufacturing PMIs around the globe were reported better than estimates. The S&P 500 briefly pushed above 1500, a key psychological level, but gains were trimmed as the technology sector weighed on the overall benchmark. Equity indices remain significantly overbought according to the daily charts, however, weekly charts continue to show that momentum indicators remain below levels that significant peaks have typically been realized. Since the recovery began, significant peaks have generally followed overbought indications according to RSI and Stochastics on the weekly chart (RSI at or above 70 and Intermediate Full Stochastics peaking above 80). As of present, this criteria has yet to be achieved, implying that the intermediate trend could remain positive for some time, albeit with short-term fluctuations along the way, before a significant peak is realized. Resistance for the large-cap index is likely to be realized somewhere within the range of 1525 to 1575, approximately encompassing the range between the 2000 and 2007 market peaks.
Meanwhile, some early signs of risk aversion are starting to become pronounced. Defensive sectors of Consumer Staples and Health Care have seen their relative performance tick higher over the past couple of weeks. Still nothing substantial enough to deem a sustainable trend has been realized, but it does give some indication that investors are starting to reduce portfolio beta at the present market peak, setting positions up for some sort of retracement. Keep in mind, however, that the significant underperformance in Technology, which is the largest sector in the S&P 500 Index, has been one of the reasons contributing to the underpformance of the large cap index compared to some of these defensive assets. Other key cyclical sectors (industrials, materials, and energy) continue to show a positive relative trend versus the market. Risk-off sentiment would become confirmed once cyclicals broadly underperform and defensives broadly outperform, a seasonal event that typically does not occur until the Spring.
On Thursday, both Gold and Silver saw rather significant declines as the trade surrounding the debt ceiling talks unwound with the extension of the debt limit for another three months. Reduced inflation expectations has also led to some banks, such as Citigroup, Goldman Sachs, and HSBC, to cut targets for the price of bullion, hampering the recent rallies in the metals. Looking at the charts, Gold pulled back precisely at declining trendline resistance, which has remained intact since the October peak. It could also be implied that this trendline resistance forms the upper limit of a more bearish pattern, a descending triangle, the lower limit of which runs around $1650. Should this level of support at $1650 break, downside implications fall to a level on long-term support at $1500. The yellow metal has underpeformed the S&P 500 index since the equity market low in November as investors cash out of the safe-haven asset and take on risk. Silver is also at risk of falling in correlation with declines in Gold. Silver could continue with a declining intermediate trend even through recent strength and outperformance against the market suggested that the metal was reacting according to typical positive seasonal influences that are realized at this time of year. Support around the 20-day moving average, approximately at $31, should be monitored closely for signs of further intermediate weakness in order to trim back on the seasonal trade. Significant support remains evident around $30. Seasonal tendencies remain positive between now and March.
Earnings to be reported on Friday include Comcast, Halliburton, Honeywell, Kimberly-Clark, Procter & Gamble, and Weyerhaeuser.
Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.88.
S&P 500 Index
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
Horizons Seasonal Rotation ETF (TSX:HAC)
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|2013 Year-to-Date||Since Inception (Nov 19, 2009)|
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