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Stock Market Outlook for December 13, 2017

Treasury bond prices at risk of a significant move lower in the months ahead.

 

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:

Fortress Paper Ltd. (TSE:FTP) Seasonal Chart

Fortress Paper Ltd. (TSE:FTP) Seasonal Chart

Cipher Pharmaceuticals Inc. (TSE:CPH) Seasonal Chart

Cipher Pharmaceuticals Inc. (TSE:CPH) Seasonal Chart

Big Rock Brewery Inc. (TSE:BR) Seasonal Chart

Big Rock Brewery Inc. (TSE:BR) Seasonal Chart

Wesco Intl, Inc. (NYSE:WCC) Seasonal Chart

Wesco Intl, Inc. (NYSE:WCC) Seasonal Chart

Advaxis Inc. (NASD:ADXS) Seasonal Chart

Advaxis Inc. (NASD:ADXS) Seasonal Chart

Kraton Corp. (NYSE:KRA) Seasonal Chart

Kraton Corp. (NYSE:KRA) Seasonal Chart

Timken Co. (NYSE:TKR) Seasonal Chart

Timken Co. (NYSE:TKR) Seasonal Chart

Rayonier, Inc. (NYSE:RYN) Seasonal Chart

Rayonier, Inc. (NYSE:RYN) Seasonal Chart

Canaccord Financial (TSE:CF) Seasonal Chart

Canaccord Financial (TSE:CF) Seasonal Chart

Allied Properties REIT (TSE:AP-UN) Seasonal Chart

Allied Properties REIT (TSE:AP-UN) Seasonal Chart

BorgWarner, Inc. (NYSE:BWA) Seasonal Chart

BorgWarner, Inc. (NYSE:BWA) Seasonal Chart

Gildan Activewear Inc.  (TSE:GIL) Seasonal Chart

Gildan Activewear Inc. (TSE:GIL) Seasonal Chart

Vishay Intertech, Inc. (NYSE:VSH) Seasonal Chart

Vishay Intertech, Inc. (NYSE:VSH) Seasonal Chart

Heska Corp. (NASD:HSKA) Seasonal Chart

Heska Corp. (NASD:HSKA) Seasonal Chart

Boston Scientific Corporation (NYSE:BSX) Seasonal Chart

Boston Scientific Corporation (NYSE:BSX) Seasonal Chart

Westport Innovations Inc. (TSE:WPRT) Seasonal Chart

Westport Innovations Inc. (TSE:WPRT) Seasonal Chart

Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) Seasonal Chart

Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) Seasonal Chart

American Railcar Industries Inc. (NASD:ARII) Seasonal Chart

American Railcar Industries Inc. (NASD:ARII) Seasonal Chart

TransForce Inc (TSE:TFII) Seasonal Chart

TransForce Inc (TSE:TFII) Seasonal Chart

Eldorado Gold Corporation  (TSE:ELD) Seasonal Chart

Eldorado Gold Corporation (TSE:ELD) Seasonal Chart

Ambev SA (NYSE:ABEV) Seasonal Chart

Ambev SA (NYSE:ABEV) Seasonal Chart

Host Hotels & Resorts, Inc.  (NYSE:HST) Seasonal Chart

Host Hotels & Resorts, Inc. (NYSE:HST) Seasonal Chart

Bonterra Energy (TSE:BNE) Seasonal Chart

Bonterra Energy (TSE:BNE) Seasonal Chart

 

 

The Markets

Stocks closed mixed ahead of Wednesday’s fed announcement as gains in financials were offset by losses in utilities, two sectors that a dependent on the outcome of the rate decision.  The S&P 500 Utilities sector index shed 1.75%, turning lower from short-term resistance around the 20-day moving average.  Intermediate trendline support comes in around 275.  While the technicals suggest that a retracement to trendline support is likely, seasonal tendencies are conducive to a rally through the second half of December.  Seasonally, the month of December is tends to be strongly positive for this defensive sector, gaining an average of 2.7% over the course of the month and showing positive results in 18 of the past 20 periods.  A shift towards some of the lagging sectors on the year, a chase for yield, and a ramp in electric and gas utility production into the colder winter months are factors for the move higher in the stocks.  With regions as far south as Florida and Texas already realizing snowfall, utility production for heating purposes should be quite good.  The key factor that is moving the sector, however, is the impact that higher rates will have on the stocks that are often considered to be bond proxies.  Strength in Utilities in the month of December is typically only temporary, shifting to one of the weakest sectors of the market in January and February as investors turn risk-on.

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Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

While stocks continue to grind higher, the Dow Jones Industrial Average has topped the performance of all other major market indices in this second half of the year.  The price weighted index has a higher allocation to industrials and financials than the large-cap S&P 500 Index, benefitting the performance of the blue-chip benchmark since June.  You may recall that the Dow Jones Industrial Average ETF (ZWA) was a top pick of mine during a June appearance on BNN’s Market Call.  Seasonally, the performance of the benchmark relative to the S&P 500 Index tends to hit a peak around this time of year, fading through the first few months of the new year, on average.  The benchmark picks up again in April and May.  Looking at the current technical status, the benchmark has traded slightly parabolic in recent months, becoming increasingly overbought in the process.  Downside risks are to the 20 and 50-day moving averages at 23,875 and 23,464, respectively.

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Dow Jones Industrial Average Seasonality

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

Monthly Seasonal Dow Jones Industrial Average

Going into Wednesday’s rate announcement, the compression of the treasury yield spreads continues to capture attention.  Treasury 10’s over 2’s is now down to around half of one percent, the lowest level since the years prior to the Great Recession.  The spread on 30’s over 10’s is even narrower, hovering very close to a third of one percent.  The spread on 5’s over 2’s is close to the same level having broken to multi-year lows in just the past couple of weeks.  Of course, the fear amongst investors is that the yield curve will invert, driven by the fed placing too much upward pressure on the short end of the curve.  Inverted yield curves have typically preceded periods of economic recession.  Typically in periods of economic expansion, yield spreads will find a range between 0% and 1% then dip negative in the later stages of the cycle.  But with spreads on an relentless trend of lower-lows and lower-highs, the trajectory certainly suggest a negative sloping yield curve in the year ahead, unless something changes.  The implied scepticism that the bond market continues to express regarding the equity market and the economy is intriguing and at this point it seems difficult to ascertain what will shake investors loose of these defensive bets within a rate tightening cycle.

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The price of the 30-year treasury bond is around 13% below the all-time high charted prior to last year’s presidential election.  The chart of this long-term bond is an important one to watch as further weakness from this juncture would confirm a lower long-term high, potentially setting up a large-scale head-and-shoulders topping pattern.  Neckline support is around $146.50.  The period between January and April are seasonally the weakest four months of the calendar for treasury bond prices as investors adopt a risk-on bias, allocating instead towards equity positions.

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Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.85.

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Seasonal charts of companies reporting earnings today:

ABM Industries Incorporated (ABM) Seasonal Chart   Nordson Corporation (NDSN) Seasonal Chart Pier 1 Imports, Inc. (PIR) Seasonal Chart 

 

 

S&P 500 Index

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TSE Composite

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