Stock Market Outlook for March 14, 2017
Reverse head-and-shoulders patterns on charts of Auto Parts and India Equity benchmarks.
**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates. 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.
Stocks Entering Period of Seasonal Strength Today:
Stocks traded predominantly flat on Monday as investors await the outcome of the 2-day Fed meeting beginning on Tuesday. The S&P 500 Index closed with a gain of a mere four basis points (0.04%), continuing to hold short-term support at its rising 20-day moving average.
Auto part stocks were one of the bright spots amongst Monday’s tape as Intel announced that it will buy driverless technology firm Mobileye for $15.3 Billion. The Dow Jones US Auto Parts Index was higher by 2.07%,moving back towards short-term resistance around 463. A reverse head-and-shoulders pattern on the industry chart suggests upside potential to around 515, or almost 12% above present levels. Shares of Delphi, BorgWarner, Visteon, Linamar, and Martinrea saw gains of around 2% or more, each bouncing firmly from support around 20 or 50-day moving averages. Seasonally, auto part stocks tend to rise between mid-March and early June as consumers purchase and repair automobiles following the winter months. Fundamentally, despite calls for “peak auto,” manufacturers’ new orders of motor vehicle parts continues to show above average growth as consumers seek to repair an ever aging automobile fleet, a positive trend for the earnings of some of these companies through the year ahead. Linamar was a top pick of ours during a recent appearance on BNN’s Market Call.
Elsewhere, stocks in India rallied on Monday following Prime Minister Narendra Modi’s bigger-than-expected win in state elections over the weekend. The result provides a vote of confidence to the PM’s reform agenda, which includes opening up the country to further foreign investment and introducing a goods and services tax. India’s Nifty 50 Index futures were higher by as much as 2.6%, suggesting that when markets in the region open on Tuesday they will be trading at or near all-time highs. ETFs that track the Indian market were higher by well over 2% on the day, continuing to move above the necklines of reverse head-and-shoulders patterns; the bullish setup suggests upside potential of around 17%, depending on which benchmark or ETF is being tracked. Seasonally, India’s Nifty 50 Index finds its period of seasonal strength in the last half of the year, gaining between mid-June and early October, outperforming equity benchmarks in the US and Canada in the process.
The strength amongst Indian equities also gave lift to the widely followed Emerging Market ETF (EEM), which bounced firmly from its rising 50-day moving average. The ETF has consolidated over the past month above significant horizontal support around $37.50, a level that has been a significant point of reference over the past decade. A head-and-shoulders bottoming pattern from the past year and a half projects upside potential to around $41, now just 6% above present levels. Should stocks in India continue to strengthen, the emerging market ETF should have no problem fulfilling its upside target.
Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.94.
Seasonal charts of companies reporting earnings today:
S&P 500 Index