North American equity markets are in the final stages of their current period of seasonal strength. Short term technical evidence of a top has appeared, but is inconclusive. Preferred strategy is to hold seasonally strong equity positions for now, but start to plan an exit strategy to be triggered on additional technical evidence of a possible downtrend.
A key reversal by the S&P 500 Index and Dow Jones Industrial Average on Friday is a short term bearish technical signal for U.S. equity markets.
First quarter corporate reports start to flow late this week. Initial focus is on the U.S. financial services sector. Consensus shows that year-over-year comparisons for S&P 500 and Dow Jones Industrial companies will be slightly negative. On the other hand, first quarter reports frequently are released during annual meeting that often include good news (increased dividends, stock splits, share buy backs). In addition, many companies are expected to report positive second quarter guidance relative to first quarter, weather weakened results.
Short and intermediate technical indicators remain overbought for most equity markets and sectors.
Economic news this week is expected to be quiet. Focus is on release of the FOMC minutes for the March 19th meeting.
Political focuses this week are on election results from Quebec and Afghanistan.
Seasonal influences for U.S. equity markets and sectors normally are positive during the first half of half of April followed by underperformance in the second half of April
Historically, during U.S. Midterm election years, the S&P 500 Index and Dow Jones Industrial Average reach a significant medium term peak in the second half of April followed by a significant intermediate correction lasting until the beginning of October. Tipoff is the start of mid-term election ads.
Economic News This Week
March Canadian Housing Starts to be released at 8:15 AM EDT on Tuesday are expected to increase to 193,000 from 191,200 in February.
February Wholesale Inventories to be released at 8:30 AM EDT on Wednesday are expected to increase 0.5% versus a gain of 0.6% in January.
Minutes from the FOMC meeting on March 19th are released at 2:00 PM EDT on Wednesday
Weekly Initial Jobless Claims to be released at 8:30 AM EDT on Thursday are expected to slip to 325,000 from 326,000 last week.
March Producer Prices to be released at 8:30 AM EDT on Friday are expected to increase 0.1% versus a decline of 0.1% in February.Excluding food and energy March PPI is expected to decline 0.2% versus a drop of 0.2% in February
April Michigan Sentiment to be released at 9:55 AM EDT on Friday is expected to improve to 81.0% from 80.0.0% in March.
The S&P 500 Index gained 7.47 points (0.40%) last week despite the 1.25% drop on Friday. Note the negative key reversal on Friday when the Index also touched an all-time high. Intermediate trend remains up. The Index fell below its 20 day moving average on Friday. Short term momentum indicators are overbought and showing early signs of rolling over.
The TSX Composite Index added 132.38 points (0.93%) last week. Intermediate trend remains up (Score: 1.0). The Index recovered back above its 20 day moving average (Score: 1.0). Strength relative to the S&P 500 Index remains neutral (Score: 0.5). Technical score based on the above indicators improved to 2.5 from 1.5 out of 3.0. Short term momentum indicators are overbought and showing early signs of rolling over.
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