Stock Market Outlook: Dollar Still Strong, TSX Continues To Strengthen
Tech Talk | Jan 28, 2015 07:18AM ET
Stocks declined on Tuesday following disappointing earnings from a number of bellwether companies. Procter & Gamble (NYSE:PG)), DuPont (DD), Pfizer (NYSE:PFE), and Microsoft (NASDAQ:MSFT) all traded lower following the release of results; the negative impact of a stronger US Dollar was cited as a detriment to the fourth quarter reports. The currency impact may not be set to end any time soon. Despite the pronounced decline in the US Dollar Index on Tuesday, the trend of the currency benchmark remains firmly positive after charting a significant long-term basing pattern over the past few years.
Get The News You Want
A strengthening US dollar is now the new norm after over a decade of negative to flat trading. Corporations will be forced to account for this change of trend.The parabolic move in the US Dollar Index suggests that the benchmark is vulnerable to a near-term decline down to levels of support at the 20 and 50-day moving averages. Horizontal support is provided by the broken long-term level of resistance at 89. Seasonally, the US Dollar Index remains in a period of strength through to the end of the first quarter.
And while the US dollar remains seasonally strong through to the end of March, the period of seasonal weakness for the Canadian dollar has come to an end; the Canadian currency seasonally trades flat, on average, between now and the end of March. Trading inversely to the US Dollar, the currency has charted a parabolic move lower, increasing the probability of a rebound towards levels of resistance at the 20 and 50-day moving averages. Major moving averages (20, 50, and 200-day) continue to point lower, implying negative trends over multiple timescales. The Canadian Dollar tends to follow the same seasonal tendencies as the price of oil, which gains through the spring. With no signs of a bottoming pattern apparent on the chart, as of yet, continued weakness, beyond any short-term rebound, is to be expected.
The end of the month is upon us and tendencies for the equity market in the days ahead are strongly positive. Over the past 20 years, the S&P 500 Index has gained an average of 1.10% between January 30th and February 3rd.Positive results were recorded in 16 of the past 20 periods. In Canada, the TSE Composite performed even better over the month-end period, gaining 1.12%, on average, between January 28th and February 3rd. The benchmark recorded positive results in 17 of the past 20 periods. Part of the reason for the bump in Canadian equity prices into the month of February can be attributed to RRSP contributions, the deadline for which falls on March 2nd this year. As investors fund their retirement accounts for tax purposes, equity markets tend to benefit.
Looking at the TSX, the benchmark continues to strengthen versus its American counterparts. Outperformance versus the S&P 500 Index has been apparent since mid-December, a trend that is seasonally typical; seasonal outperformance runs through to the start of March, around the time of the RRSP contribution deadline. The Canadian benchmark recently broke above an intermediate-term declining trendline, rebounding back to resistance at the 200-day moving average around 14,800. A short-term bull-flag has become apparent on the chart, a positive setup that would be confirmed by breakout above the recent high of 14,853. Momentum indicators have been trending positive for the past few months, placing the bias on an upside breakout.
Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.09.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
Horizons Seasonal Rotation ETF (TO:HAC)
- Closing Market Value: $15.61 (down 0.57%)
- Closing NAV/Unit: $15.61 (down 0.61%)
Performance*
| 2015 Year-to-Date | Since Inception (Nov 19, 2009) | |
| HAC.TO | 3.17% | 56.1% |
* performance calculated on Closing NAV/Unit as provided by custodian
Disclaimer: Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities.As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.