Equity Leaders Weekly

 Sector Scope Update&SPI Merged Continuous Contract (SPIM.F)

Stock markets around the world have gone into sideways mode over the last few days with major indices facing headwinds from political, medical, and economic uncertainty, but picking up a tailwind from generally positive, and in several cases, significantly better than expected, earnings reports. The last week has seen earnings season pick up while economic numbers have been mixed and COVID case counts have been climbing, increasing the risk of reopenings being rolled back. Meanwhile, politicians in the US continue to fight over fiscal stimulus and politicians in Europe continue to argue over a new trade arrangement between the EU and the UK. These offsetting forces have created a standoff between bulls and bears. In the coming week, we move into the heart of earnings season with results coming next week from Big Tech (Apple, Microsoft, Amazon, Google, Facebook and more), Big Pharma, Big Oil, plus a lot of large and mid caps from the Industrials and Consumer Discretionary sectors. On the economic side, flash PMI reports (the first hint about October economic conditions) plus three central bank interest rate decisions (Canada, Japan, Europe) are the most notable scheduled announcements. In some ways, this all could be potentially viewed as the calm before the storm with the November 3rd US election now less than two weeks away, and it’s possible that investors may be unwilling to commit too much to one direction or another before that big event. In this week’s issue of Equity Leaders Weekly, we look at what the monthly Sector Scopes and a breakout in Australia are telling us about US earnings expectations, capital flows within equity markets and investor sentiment toward the world economy and resource demand. 

Sector Scope Update

The Sector Scopes feature in SIA Charts (Markets – BPI) tracks the percent of stocks in 31 equity market sectors which are on bullish technical signals, providing a snapshot of investor sentiment at a point in time and how capital flows evolve over time. Currently, the Sector Scopes chart shows that the majority of the groups are on the right-hand side, but but the rightmost column remains empty. This indicates a moderate not extreme bullishness among investors with sectors generally in a bullish trend but not overbought. The table also suggests that expectations for some sectors may be higher than others. Some of the sectors with the highest bullish percent include Technology (COMS and ELEC), Consumer Discretionary (RETA and COND), and Industrials (CONT and MANU). On the other hand, Energy remains stuck in the leftmost/oversold/relatively weakest column of the chart, indicating very low expectations for that group at the moment.  

SPI Merged Continuous Contract (SPIM.F)

The SPI Merged (SPIM.F) futures contract tracks the level of Australia’s S&P/ASX 200 benchmark index. The makeup of the Australian market is quite similar to Canada, dominated by the Mining, Energy, Financial sectors. SPIM.F had been trending sideways since June but this week, a major breakout to the upside is underway with the contract completing a bullish Spread Triple Top breakout, signalling the start of a new advance and also confirming that a previous downtrend has ended and a new uptrend is underway. This breakout could potentially have wider and longer-term implications for investors. Firstly, the country’s second wave of COVID has been winding down as winter turns to spring in the Southern Hemisphere and this action could be anticipating a reopening rebound. Secondly, like Canada, Australia is a large exporter of commodities with two key differences, Australia is more focused on mining than energy and Australia’s primary market is China rather than the US. Underpinning this breakout may be the recent gains in copper which have sparked rallies in base metal stocks around the world including here in Canada. Gains by copper and Australia suggest that investors’ outlook for resource demand and economic conditions globally, and particularly in China, continue to improve.   

Disclaimer: SIACharts Inc. specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investors investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIACharts Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.