The entry point for the seasonal trade in North American equity markets (on average during the past 61 years: October 28th) is rapidly approaching. The expected short term correction from mid-September has happened, but has yet to show signs of bottoming. Watch short term technical indicators for signs of an intermediate bottom. Sectors to consider include due to their favourable seasonality starting by the end of October include technology, agriculture, forest products, transportation, industrials, steel, consumer discretionary and China.
Interesting Charts
Short term momentum indicators for broadly based equity indices are recovering from oversold levels (notably a move by Stochastics above the 20% level). Typical of technical action at the start of the period of seasonal strength for equity markets!
The recovery is happening at an interesting time, just before the U.S. Presidential election when equity markets typically start an intermediate upside move lasting until at least Inauguration Day in the third week in January.
A word of caution about individual equities! Responses to third quarter reports released yesterday were exceptional, particularly by stocks reporting after the close. Most companies are reporting slightly higher than consensus earnings. However, many are missing consensus revenue estimates. Of companies that reported before the close yesterday, State Street gained 2.0% and Johnson & Johnson improved 1.4%. However, Goldman Sachs fell 1.3% and UnitedHealth Group slipped 0.6%. Responses to reports released after the close were downright scary. CSX added 1.7%. However, IBM plunged 3.5%, Intel dropped 2.2%, Linear Technology fell 4.0%, Apollo plunged 7.6% and Intuitive Surgical gave up 4.8%. Today and tomorrow are the days when the most S&P 500 companies are reporting third quarter results. Look for lots of volatility.
About the Great Author of this Daily Report – Don Vialoux
Don Vialoux has 37 years of experience in the Investment Industry. He is a past president of the Canadian Society of Technical Analysts (www.csta.org) and a former technical analyst at RBC Investments. Don earned his Chartered Market Technician (CMT) designation from the Market Technician Association in 1995. His CMT paper entitled “Seasonality in Canadian Equity Markets” was published in the Spring-Summer 1996 edition of the MTA Journal. Don also has extensive experience with Exchange Traded Funds (also know as Index Participation Units) as well as conservative option strategies. In 1990 he wrote a report that was released in the International Federation of Technical Analyst Journal entitled “Profiting from a Combination of Technical and Fundamental Analysis”. The report introduced ” The Eight Phases of the Stock Market Cycle”, an investment concept that continues to identify profitable entry and exit points for North American equity markets. He is currently a member of the Toronto Society of Fundamental Analyst’s Derivatives Committee. Now he is the author of a daily letter on equity markets available free on the internet. The reports can be accessed daily right here at www.dvtechtalk.com.
