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Stock Market Outlook for October 13, 2017

Dip in Bank stocks offers buying opportunity for period of seasonal strength.

 

Real Time Economic Calendar provided by Investing.com.

 

**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:

Computer Modelling Group Ltd. (TSE:CMG) Seasonal Chart

Computer Modelling Group Ltd. (TSE:CMG) Seasonal Chart

Cameco Corporation  (TSE:CCO) Seasonal Chart

Cameco Corporation (TSE:CCO) Seasonal Chart

CAE, Inc.  (TSE:CAE) Seasonal Chart

CAE, Inc. (TSE:CAE) Seasonal Chart

Coca-Cola Enterprises Inc. (NYSE:CCE) Seasonal Chart

Coca-Cola Enterprises Inc. (NYSE:CCE) Seasonal Chart

Smith and Nephew PLC (NYSE:SNN) Seasonal Chart

Smith and Nephew PLC (NYSE:SNN) Seasonal Chart

AMC Networks Inc. (NASD:AMCX) Seasonal Chart

AMC Networks Inc. (NASD:AMCX) Seasonal Chart

Shaw Communications (TSE:SJR-B) Seasonal Chart

Shaw Communications (TSE:SJR-B) Seasonal Chart

Arconic, Inc. (NYSE:ARNC) Seasonal Chart

Arconic, Inc. (NYSE:ARNC) Seasonal Chart

Constellation Software (TSE:CSU) Seasonal Chart

Constellation Software (TSE:CSU) Seasonal Chart

Ball Corporation (NYSE:BLL) Seasonal Chart

Ball Corporation (NYSE:BLL) Seasonal Chart

Advanced Semiconductor (NYSE:ASX) Seasonal Chart

Advanced Semiconductor (NYSE:ASX) Seasonal Chart

Owens-Illinois, Inc.  (NYSE:OI) Seasonal Chart

Owens-Illinois, Inc. (NYSE:OI) Seasonal Chart

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

Biogen Idec Inc. (NASDAQ:BIIB) Seasonal Chart

Biogen Idec Inc. (NASDAQ:BIIB) Seasonal Chart

Home Capital Group Inc (TSE:HCG) Seasonal Chart

Home Capital Group Inc (TSE:HCG) Seasonal Chart

 

 

The Markets

Stocks gyrated around the flatline on Thursday as investors digested quarterly results from some of the big banks in the US.  Reports from JP Morgan and Citigroup beat on both the top and bottom lines, but the results did little to fuel optimism for the share prices, which closed firmly lower on the session.  Support for each at the rising 20-day moving average is directly below and a trend of higher-highs and higher-lows remains intact.  Seasonally, while the optimal period to invest in a number of banks in the US is from the end of the year through the first quarter, the fourth quarter often sees solid and consistent performance in this industry that attempts to get into gear for the peak period of strength for yields in the first four months of the year.  As highlighted on a recent BNN appearance, the KBW index has produced an average gain of 5.63% between September 29th and December 26th with 19 of the past 22 periods showing a positive result.  The only three years that saw a loss were 2007, 2008, and 2009, otherwise known as the financial crisis.  The bank benchmark continues to hold above previous resistance around 98, from which it broke above closer to the end of September.

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KBW Bank Index Performance
From To Return
September 29, 2016 December 26, 2016 33.60%
September 29, 2015 December 26, 2015 7.69%
September 29, 2014 December 26, 2014 4.34%
September 29, 2013 December 26, 2013 10.75%
September 29, 2012 December 26, 2012 3.17%
September 29, 2011 December 26, 2011 8.71%
September 29, 2010 December 26, 2010 12.37%
September 29, 2009 December 26, 2009 -8.29%
September 29, 2008 December 26, 2008 -28.27%
September 29, 2007 December 26, 2007 -14.30%
September 29, 2006 December 26, 2006 4.31%
September 29, 2005 December 26, 2005 9.54%
September 29, 2004 December 26, 2004 6.84%
September 29, 2003 December 26, 2003 8.58%
September 29, 2002 December 26, 2002 8.91%
September 29, 2001 December 26, 2001 7.78%
September 29, 2000 December 26, 2000 2.06%
September 29, 1999 December 26, 1999 5.68%
September 29, 1998 December 26, 1998 19.53%
September 29, 1997 December 26, 1997 0.78%
September 29, 1996 December 26, 1996 16.24%
September 29, 1995 December 26, 1995 3.86%
Average: 5.63%

KBW Bank Index Seasonal Chart

^BKX Relative to the S&P 500
^BKX Relative to the S&P 500

^BKX Monthly Averages

Thursday’s session continued to show a risk-off tilt as consumer staples and utilities were among the leaders on the day.  REITs are also on the rebound as the upside momentum in treasury yields shows signs of stalling.  The ratio of the consumer staples sector index relative to the consumer discretionary sector index is attempting to retrace the losses recorded since breaking below a massive descending triangle pattern last month.  This continuation pattern suggests further downside ahead, an indication that a risk-on bias may return beyond this short-term uptick in defensive positioning.  Reaction to the level of resistance overhead will be key.

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The activity during Thursday’s session wasn’t entirely risk averse as the Dow Jones Transportation Average broke to a new all-time high.  The transportation benchmark is higher by over 10% since we highlighted an opportunity in the space (FedEx – FDX) during an appearance on BNN’s Market Call on August 18th.  The transportation average typically trades higher between the start of October and early December.  Previous resistance at the 50-day moving average would now be expected to act as support, suggesting downside risks for the transportation benchmark all the way down to around 9500, over the near-term.

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Dow Jones Transportation Average Seasonality

$TRAN Relative to the S&P 500
$TRAN Relative to the S&P 500

Monthly Seasonal Dow Jones Transportation Average

Perhaps counterintuitive, but one of the beneficiaries for the transportation stocks, particularly the rails, has been the improvement in energy commodity prices.  Not only is the transportation of commodities a key revenue item for a number of companies in this industry, but they can also charge a premium for their services when energy prices trend higher.  Obviously, there is a limit to this benefit as the price of oil and gas is also an important variable cost.  Insight to the state of the energy commodity market was provided on Thursday as the EIA released their latest inventory tallies.  The headline print indicated that oil stockpiles fell by 2.7 million barrels, which was almost entirely offset by a 2.5 million barrel build in gasoline inventories.  The result continued to deflate the days of supply of the raw input, now down to 29.1, around 7.5 days above the seasonal norm for this time of year.  Helping the situation was domestic oil production, which showed a rare (at least for this year) decline last week, falling back to the mid-point of this summer’s range.  From a seasonal perspective, however, US oil production has typically ramped up through the fourth quarter, suggesting last week’s dip may be nothing more than a short-term reprieve from the pace of gains recorded this year.  Domestic oil production remains on the doorstep of the all-time highs charted in 2015 at 9.6 million barrels per day.

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The price of oil closed lower on the day, remaining supported by previous trendline resistance around $49.  This level also represents the neckline to a head-and-shoulders bottoming pattern from which the commodity broke above early in September.  Seasonally, the price of oil tends to trade lower between October and mid-December, fading following the conclusion to the summer driving season in September.

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Crude Oil Futures (CL) Seasonal Chart
FUTURE_CL1 Relative to the S&P 500FUTURE_CL1 Relative to Gold

FUTURE_CL1 Monthly Averages

Also released from the EIA on Thursday was the weekly report on natural gas inventories.  The report indicated that inventories had expanded by 87 bcf last week, more than double the level recorded in the previous week and higher than last year’s pace for the same week of 79 bcf.  Seasonally, the percent change from the previous week is precisely inline with the average change for this time of year as mild weather limits demand.  The year-to-date change in inventories continues to hold below the seasonal average trend through the start of October, a potential catalyst for higher prices into the winter.  Yesterday, the energy information administration forecasted higher heating costs than last year, in part due to the expectation that temperatures will be 13% lower than last year.  Temperatures are expected to be closer to those recorded in an average winter, based on temperatures from the past 10 years.  Around one month remains in the typical injection season and the pace of gains, as well as the peak to inventories, will be an important influence on the seasonal trade for the commodity through to mid-December.  The price of Natural Gas jumped by around 3.5% during Thursday’s session, remaining pinned within a massive pennant pattern that spans the past year.

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Natural Gas Futures (NG) Seasonal Chart
FUTURE_NG1 Relative to the S&P 500FUTURE_NG1 Relative to Gold

FUTURE_NG1 Monthly Averages

And just briefly on the weekly jobless claims report, continuing claims charted another multi-decade low for the week ending September 30.  Continuing claims now sits an an unadjusted 1.57 million, the lowest level since November of 1988.  Continuing claims are running almost 7% below average through the first three quarters of the year.  Initial claims, meanwhile, have moved back inline with the average seasonal trend into the month of October following a number of weeks of elevated results attributed to the hurricanes that hit the southern US states.  Seasonally, both initial and continuing claims tend to chart an important low around this time of year, trending higher into year-end.

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Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.05.

 

 

Sectors and Industries entering their period of seasonal strength:

Airlines Industry Seasonal Chart
S5AIRLX Index Relative to the S&P 500S5AIRLX Index Relative to the Sector

S5AIRLX Index Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Bank of America Corporation (BAC) Seasonal Chart Del Frisco's Restaurant Group, Inc. (DFRG) Seasonal Chart First Horizon National Corporation (FHN) Seasonal Chart FIRST REPUBLIC BANK (FRC) Seasonal Chart PNC Financial Services Group, Inc. (The) (PNC) Seasonal Chart Wells Fargo & Company (WFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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