Equity Leaders Weekly

Equity Leaders Weekly - July 16, 2020 S&P 100 & BMO India Equity Index ETF

It has been another constructive week for equity markets around the world as the breadth of the current recovery continues to expand. While a minor (not even a 3% reversal for the NASDAQ 100) correction in some of the recently high-flying momentum plays attracted some notice, it may be attributed more to profit-taking and rebalancing than a change in confidence as broader indices across the spectrum including the S&P 500, the S&P 400 MidCap and the S&P 600 SmallCap have all continued to climb. Investor sentiment has also been positive outside of North America with developed and emerging international equity markets continuing to climb. A wide variety of commodities also remain on the rise with oil, copper, lumber, silver and cotton attracting particular attention as investors continue to anticipate a rebound in resource demand and respond to larger than expected drawdowns in weekly US energy inventory reports.Earnings reports to date have been dominated by big US banks who have had mixed reports with trading revenues and loan loss provisions both surging. The breadth of reports expands significantly in the coming days both in terms of the number of companies reporting and the number of sectors represented with results scheduled from senior companies in the Technology, Consumer Staples, Communications Services, Health Care and Industrials sectors. Central banks meeting this week have confirmed support for their economies but have not announced any additional stimulus. Economic news this week continues to confirm a stronger than expected rebound with China reporting overnight that its GDP bounced 11.5% in Q2 after plunging 9.8% in Q1, a bounce that was stronger than the 9.6% the street had expected. In coming days, scheduled economic news should slow, pushing the spotlight over to earnings reports, but retail sales numbers from several countries including the US, UK and Canada could attract some attention.  In this week’s issue of Equity Leaders Weekly, we look at investor sentiment toward large cap US stocks and toward emerging markets through analysis of the S&P 100 Index (OEX.I) and the BMO India  Equity Index ETF (ZID.TO).

S&P 100 Index (OEX.I)

With earnings season kicking off and many of its component companies scheduled to report results over the next couple of weeks, the S&P 100 Index (OEX.I) may attract attention from investors in the near term. The OEX has been trending upward since bottoming out in March, but spent June in consolidation mode as investors digested previous gains. As earnings season has approached this month, and profit warnings were nowhere to be seen, the S&P 100 Index has resumed its uptrend, first breaking out of a symmetrical consolidation triangle, and then clearing 1,480 to complete a bullish Spread Double Top pattern and confirm the start of a new advance. Initial upside resistance may appear between the 1,500 round number and the previous high near 1,525, followed by 1,600 based on a horizontal count and 1,715 based on a vertical count. Initial support appears near 1,420 based on a 3-box reversal. 

BMO India Equity Index ETF (ZID.TO)

One indicator of how confident or fearful investors are at a given point in time is their willingness to commit capital to emerging markets. In recent weeks, emerging markets have been attracting renewed interest on anticipation of a global economic reopening rebound, and India has been one of the leaders in that resurgence even though coronavirus cases in that country continue to climb.Renewed investor interest in India can be seen in the recent price action in the BMO India Equity Index ETF (ZID.TO) which broke out of a base earlier this month. Crossing through the $22.00-$22.50 zone overcame previous resistance and completed a bullish Double Top pattern, signalling the start of a new uptrend which has continued since then. ZID.TO is currently probing resistance in the $24.40 to $25.00 area where a downtrend resistance line, round number, previous column lows and a horizontal count cluster. Next potential resistance after that appears at previous column highs near $26.50. Initial support appears near $23.25 based on a 3-box reversal. 

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