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Stock Market Outlook for December 7, 2017

Equal weighted ETFs seasonally outperform into the new year.

 

Real Time Economic Calendar provided by Investing.com.

 

*** 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:

North American Palladium Ltd. (TSE:PDL) Seasonal Chart

North American Palladium Ltd. (TSE:PDL) Seasonal Chart

SIR Royalty Income Fund (TSE:SRV-UN) Seasonal Chart

SIR Royalty Income Fund (TSE:SRV-UN) Seasonal Chart

A&W Revenue Royalties Income Fund (TSE:AW-UN) Seasonal Chart

A&W Revenue Royalties Income Fund (TSE:AW-UN) Seasonal Chart

Statoil ASA (NYSE:STO) Seasonal Chart

Statoil ASA (NYSE:STO) Seasonal Chart

Toyota Motor Corp. (NYSE:TM) Seasonal Chart

Toyota Motor Corp. (NYSE:TM) Seasonal Chart

Titan Machinery Inc. (NASD:TITN) Seasonal Chart

Titan Machinery Inc. (NASD:TITN) Seasonal

Superior Energy Services, Inc. (NYSE:SPN) Seasonal Chart

Superior Energy Services, Inc. (NYSE:SPN) Seasonal Chart

Wajax (TSE:WJX) Seasonal Chart

Wajax (TSE:WJX) Seasonal Chart

Premium Brands Holdings (TSE:PBH) Seasonal Chart

Premium Brands Holdings (TSE:PBH) Seasonal Chart

Detour Gold (TSE:DGC) Seasonal Chart

Detour Gold (TSE:DGC) Seasonal Chart

Canadian Apartment REIT (TSE:CAR-UN) Seasonal Chart

Canadian Apartment REIT (TSE:CAR-UN) Seasonal Chart

Quebecor, Inc. (TSE:QBR.B) Seasonal Chart

Quebecor, Inc. (TSE:QBR.B) Seasonal Chart

Plains All American Pipeline, L.P. (NYSE:PAA) Seasonal Chart

Plains All American Pipeline, L.P. (NYSE:PAA) Seasonal Chart

Semafo Inc.  (TSE:SMF) Seasonal  Chart

Semafo Inc. (TSE:SMF) Seasonal Chart

Acadian Timber Corp. (TSE:ADN) Seasonal Chart

Acadian Timber Corp. (TSE:ADN) Seasonal Chart

Dream Office REIT (TSE:D-UN) Seasonal Chart

Dream Office REIT (TSE:D-UN) Seasonal Chart

Pizza Pizza Royalty Corp. (TSE:PZA) Seasonal Chart

Pizza Pizza Royalty Corp. (TSE:PZA) Seasonal Chart

Cominar REIT (TSE:CUF-UN) Seasonal Chart

Cominar REIT (TSE:CUF-UN) Seasonal Chart

Maple Leaf Foods Inc.  (TSE:MFI) Seasonal Chart

Maple Leaf Foods Inc. (TSE:MFI) Seasonal Chart

Macdonald Dettwiler & Associates Ltd (TSE:MDA) Seasonal Chart

Macdonald Dettwiler & Associates Ltd (TSE:MDA) Seasonal Chart

BCE Inc.  (TSE:BCE) Seasonal Chart

BCE Inc. (TSE:BCE) Seasonal Chart

Altagas Ltd (TSE:ALA) Seasonal Chart

Altagas Ltd (TSE:ALA) Seasonal Chart

Apache Corporation  (NYSE:APA) Seasonal Chart

Apache Corporation (NYSE:APA) Seasonal Chart

Trican Well Service Ltd.  (TSE:TCW) Seasonal Chart

Trican Well Service Ltd. (TSE:TCW) Seasonal Chart

The Hershey Company  (NYSE:HSY) Seasonal Chart

The Hershey Company (NYSE:HSY) Seasonal Chart

Advantage Oil Gas (TSE:AAV) Seasonal Chart

Advantage Oil Gas (TSE:AAV) Seasonal Chart

 

 

The Markets

Stocks closed essentially unchanged on Wednesday as investors continue to watch the progress of the tax reform bill.  The S&P 500 Index closed down by a mere basis point, charting the fourth consecutive negative close as investors use the tax legislation as a sell on news event.  Defensive sectors on consumer staples and utilities were part of the lone few sectors to close higher on the day.  The Consumer Staples Sector ETF (XLP) broke out to a new all-time high, surpassing minor resistance at $56.57.  The ETF has seen significant inflows in the past few days, recording volume almost double that of the fourth quarter average.  With tax reform expected to give a boost to the economy, the degree to which investors have turned to this defensive segment of the market certainly suggests that there are doubts.  The ETF is higher by 8.41% in just the past month, far surpassing the 1.47% return of the S&P 500 Index over the same timeframe.  Seasonally, the strength in the sector relative to the market tends to peak around the US Thanksgiving holiday, but it appears that this trade has gone into overtime.  Beyond the month of December, the sector tends to be one of the weakest segments of the market through the first few weeks of the year, recording losses 65% of the time in the month of January.

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Consumer Staples Sector Seasonal Chart

STAPLES Relative to the S&P 500
STAPLES Relative to the S&P 500

STAPLES Monthly Averages

With tax reform seemingly nearing the finish line, equal weighted benchmarks have started to outperform as investors rotate out of the previous high cap market leaders..  The Guggenheim S&P 500 Equal Weight ETF (RSP) has outperformed its capitalization weighted counterpart over the past month, giving some reprieve to the trend of underperformance that has remained intact since the end of last year.  Seasonal analysis shows that now may be the best opportunity for these equally weighted benchmarks to outperform as investors reallocate portfolios through the end of the year.  Between mid-November and late May, the S&P 500 Equally Weighted Index has outperformed its capitalization weighted benchmark, on average, based on data from the past 13 years.  Sector tendencies are similar with ETFs that are equally weighted showing outperforming results over this timeframe.  During the off-season for stocks, generally between May and October, the market could be deemed more of a stock-pickers environment with various stocks and industries moving according to their seasonal influences, either higher or lower.  This creates an environment where strength tends be narrow, certainly not ideal for the broader strategy that equal weight offers.  However, now that stocks are in a period of strength where portfolio reallocations into year-end and fund inflows to into the new year tend to drive a broad set of securities higher, equal weighted benchmarks have shown to be the better place to invest.  The disparity in terms of investor allocations to various sectors this year following the rally in technology puts certain overweight sectors and stocks at risk of leading the market lower in a bout of profit-taking pressures, as we have seen in the past few days.  From this perspective, equal weight strategies may have certain risk benefits to equity portfolios as fund managers shuffle the deck on their holdings into the end of the year and look to “stock-up” at the start of 2018.  The S&P 500 Equal Weight index has outperformed its capitalization weighted counterpart in 62% of Decembers and 77% of Januarys.

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Turning to the weekly look at petroleum inventories in the US, the EIA is reporting that oil stockpiles declined last week by 5.6 million barrels, while gasoline recorded a 6.8 million barrel injection.  The days of supply of each commodity now sits at 26.5 and 24.3, respectively.  For oil, the present level is only 4.3 days above average, the narrowest gap versus the seasonal average since September of 2015.  Over the past couple of years this level had expanded to over nine days above the seasonal norm.  Considering that it has taken around 19 months to cut this excess supply in half, the recent OPEC deal to keep production cuts in place through the end of 2018 may be appropriate just to get back to normal levels.  The ongoing rise in domestic production, which charted another all-time high level of production in the latest week, is the obvious threat against the oil producing economies of the world attempting to bring supply and demand back into balance.  Not helping the near term demand prospects for the raw input is the rise in gasoline supplies as the plunge in the level of product supplied catches up with the market.  The change in product supplied and net production of the refined commodity are converging with their seasonal average levels following months of above average performance.  Days of supply of gasoline is around half of a day above average and a change of trend away from lower-lows and lower-highs in the level has become apparent.  Seasonally, the days of supply of gasoline rise between mid-November and early February, a trend that has certainly kicked off in earnest.  Weather forecasts this year call for a snowier than average winter in the north-east, threatening demand for driving purposes through the month of February.

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 traded firmly lower following the result, breaching a key pivot point around $57.  Previous resistance around $55 would now be expected to act as support.  Variable support around the 50-day moving average comes in around $54.  An intermediate trend of higher-highs and higher-lows remains intact.  Momentum indicators are rolling over, negatively diverging from price, suggesting buying pressures have been waning for the past few weeks.  Seasonally, the price of oil has tended to hit an important low for the year early in December, concluding a period of weakness attributed to the decline in driving coming off of the high demand summer season.

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Crude Oil Futures (CL) Seasonal Chart

FUTURE_CL1 Monthly Averages

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.81.

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Sectors and Industries entering their period of seasonal strength:

Cotton Futures (CT) Seasonal Chart

FUTURE_CT1 Relative to the S&P 500FUTURE_CT1 Relative to Gold

FUTURE_CT1 Monthly Averages

Corn Futures (C) Seasonal Chart
FUTURE_C1 Relative to the S&P 500FUTURE_C1 Relative to Gold

FUTURE_C1 Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

American Outdoor Brands Corporation (AOBC) Seasonal Chart Ciena Corporation (CIEN) Seasonal Chart Conn's, Inc. (CONN) Seasonal Chart Cooper Companies, Inc. (The) (COO) Seasonal Chart  Dollar General Corporation (DG) Seasonal Chart Enzo Biochem, Inc. (ENZ) Seasonal Chart Ferrellgas Partners, L.P. (FGP) Seasonal Chart Finisar Corporation (FNSR) Seasonal Chart   JinkoSolar Holding Company Limited (JKS) Seasonal Chart  Methode Electronics, Inc. (MEI) Seasonal Chart Peak Resorts, Inc. (SKIS) Seasonal Chart SCIENCE APPLICATIONS INTERNATIONAL CORPORATION (SAIC) Seasonal Chart Toro Company (The) (TTC) Seasonal Chart United Natural Foods, Inc. (UNFI) Seasonal Chart Vail Resorts, Inc. (MTN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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