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Stock Market Outlook for May 13, 2014


Upcoming US Events for Today:

  1. NFIB Small Business Optimism Index for April will be released at 7:30am.   The market expects 94.5 versus 93.4 previous.
  2. Retail Sales for April will be released at 8:30am.   The market expects a month-over-month increase of 0.4% versus an increase of 1.1% previous.   Less Autos and Gas, sales are expected to increase by 0.5% versus an increase of 1.0% previous.
  3. Import/Export Prices for April will be released at 8:30am.
  4. Business Inventories for March will be released at 10:00am.   The market expects a month-over-month increase of 0.5% versus an increase of 0.4% previous.


Upcoming International Events for Today:

  1. German ZEW Survey for May will be released at 5:00am EST.   The market expects Current Conditions to show 62.0 versus 59.5 previous.  Business Expectations is expected to show 40.0 versus 43.2 previous.


Recap of Yesterday’s Economic Events:

Event Actual Forecast Previous
JPY Trade Balance – BOP Basis (Yen) -¥1133.6B -¥1125.4B -¥533.4B
JPY Eco Watchers Survey: Current 41.6 45 57.9
JPY Eco Watchers Survey: Outlook 50.3 40 34.7
CNY New Yuan Loans 774.7B 800.0B 1050.0B
USD Monthly Budget Statement $106.9B $114B $112.9B


The Markets

Stocks surged on Monday, pushing the S&P 500 Index and Dow Jones Industrial Average to new all-time closing highs.   Both benchmarks overcame significant resistance that has restrained price momentum over the last couple of months as investors rotated away from growth stocks.   These momentum names fuelled the breakout gains in US equity markets on Monday.   The Momentum ETF (MTUM) jumped 1.66%, trading above its 50-day moving average for the first time since early April.   The Russell 2000 Index bounced 2.39%, attempting to recover from oversold levels.   And the Nasdaq Composite gained 1.77%, rebounding from around a rising 200-day moving average line.   In all instances, the 50-day moving average line continues to point lower, implying a negative intermediate-term trend, suggesting that Monday’s sharp gains may be nothing more than a bounce from near oversold levels.   Short-term support for each benchmark is being defined around Friday’s low, a break of which would resume the negative pressures that have dominated each since the start of March.   For now, these high beta assets appear to hold the keys to this market, whereby strength in momentum names is supportive for the broad market, while weakness is an obvious strain.  




With the strength in equity markets on Monday the Volatility Index (VIX) dropped over 5% back to long term support at 12.   Since the start of 2013, only two levels have seemingly mattered for the VIX: support at 12 and resistance at 21.   When the VIX touched support at 12, the equity market typically traded lower in the days that followed as investor complacency left stocks vulnerable.   Conversely, when the VIX hit resistance at 21, the equity market typically traded higher soon thereafter for the opposite reason.   With complacency seemingly apparent, the risk/reward for investors does not seem favourable to initiate new positions at current levels.   The VIX seasonally trades flat to negative between now and the beginning of July, just prior to the most volatile period of the year, which spans the third quarter.



Seasonal charts of companies reporting earnings today:






Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.64.   Overly bullish readings, such as this, have generally been a contrarian indication to sell equity positions or hedge portfolios as the market becomes vulnerable to shocks.



S&P 500 Index




TSE Composite




Horizons Seasonal Rotation ETF (TSX:HAC)

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  • Closing NAV/Unit: $14.57 (unchanged)


2014 Year-to-Date Since Inception (Nov 19, 2009)
HAC.TO 1.89% 45.7%

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

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